<PAGE> 1
As filed with the Securities and Exchange Commission on August 15, 1997
Registration No. 333-33129
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
BARRINGER TECHNOLOGIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3829 84-0720473
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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219 SOUTH STREET, MURRAY HILL, NEW JERSEY 07974
(908) 665-8200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------
STANLEY S. BINDER, PRESIDENT
BARRINGER TECHNOLOGIES INC.
219 SOUTH STREET, MURRAY HILL, NEW JERSEY 07974
(908) 665-8200
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------------
COPIES TO:
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JOHN D. HOGOBOOM, ESQ. J. VAUGHAN CURTIS, ESQ.
LOWENSTEIN, SANDLER, KOHL, FISHER & BOYLAN, P.A. ALSTON & BIRD LLP
65 LIVINGSTON AVENUE 1201 WEST PEACHTREE STREET
ROSELAND, NEW JERSEY 07068 ATLANTA, GEORGIA 30309
(201) 992-8700 (404) 881-7000
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----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
----------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 15, 1997
[BARRINGER TECH LOGO]
2,000,000 SHARES
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being
offered by Barringer Technologies Inc. ("Barringer" or the "Company"). Up to
82,000 additional shares may be sold by certain stockholders of the Company (the
"Selling Stockholders") if the Underwriters exercise their over-allotment
option. See "Principal and Selling Stockholders" and "Underwriting." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders.
On August 13, 1997, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $13.00 per share. See "Price Range of Common
Stock." As of the date of this Prospectus, the Common Stock is traded on the
Nasdaq National Market under the symbol "BARR."
----------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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===============================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY (2)
- -----------------------------------------------------------------------------------------------
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Per Share.............. $ $ $
- -----------------------------------------------------------------------------------------------
Total(3)............... $ $ $
===============================================================================================
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(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated offering expenses of $300,000, payable by the
Company.
(3) The Company and the Selling Stockholders have granted to the Underwriters a
30-day option to purchase up to an additional 300,000 shares of Common Stock
solely to cover over-allotments, if any. If such over-allotment option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ and $ , respectively. See
"Underwriting."
----------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), in San Francisco, California, on or about September , 1997.
ROBERTSON, STEPHENS & COMPANY PACIFIC GROWTH EQUITIES, INC.
The date of this Prospectus is September , 1997
<PAGE> 3
Graphic Description
Front Inside Cover
Photo 1 is a map of the world showing the number of IONSCANS installed on each
continent under the heading "BARRINGER IONSCAN(R) THE WORLD LEADER IN
TRACE DETECTION*"
Photo 2 is a photograph of Canadian Customs agents standing beside a ship with
an IONSCAN. The caption reads as follows: "Customs services around the
world use the IONSCAN(R) to detect the presence of illicit drugs at
seaports, airports, and border crossings. U.S. Coast Guard and
international counterparts also utilize the IONSCAN(R) for interdiction
of drugs on the high seas."
Photo 3 is a photograph of a French Security Agent utilizing the IONSCAN(R) in
the inspection of luggage. The caption reads as follows: "Customs
personnel inspect cargo and checked luggage."
Photo 4 is a photograph of an airport security agent inspecting passenger
luggage with an IONSCAN(R). The caption reads as follows: "The
IONSCAN(R) Model 400 provides drug and explosive detection capability.
In order to enhance passenger safety and security, a guard examines a
carry-on item for traces of explosives at an airport screening station."
Photo 5 is a photograph of French security agents walking with a passenger and
wheeling an IONSCAN. The caption reads as follows: "Security personnel
aboard European passenger trains use the IONSCAN(R) to examine carry-on
baggage for traces of explosives prior to the train entering the
Eurotunnel."
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary................................................................... 4
Forward-Looking Statements........................................................... 6
Risk Factors......................................................................... 6
Use of Proceeds...................................................................... 13
Price Range of Common Stock.......................................................... 13
Dividend Policy...................................................................... 13
Capitalization....................................................................... 14
Selected Consolidated Financial Data................................................. 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 16
Business............................................................................. 24
Management........................................................................... 34
Certain Transactions................................................................. 41
Principal and Selling Stockholders................................................... 43
Description of Capital Stock......................................................... 45
Shares Eligible for Future Sale...................................................... 49
Underwriting......................................................................... 50
Legal Matters........................................................................ 52
Experts.............................................................................. 52
Additional Information............................................................... 52
Index to Consolidated Financial Statements........................................... F-1
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"IONSCAN(R)" is a registered trademark of the Company.
The Company was founded in September 1967. The Company's headquarters are
located at 219 South Street, Murray Hill, New Jersey 07974 and its telephone
number is (908) 665-8200.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements examined by its independent
certified public accountants and intends to make available to such stockholders
quarterly reports containing unaudited consolidated financial information for
the first three quarters of each fiscal year.
----------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE
WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus, including the information under "Risk
Factors."
THE COMPANY
Barringer Technologies Inc. ("Barringer" or the "Company") is the world's
leading manufacturer (based on units sold) of high sensitivity equipment used
for detecting and identifying trace amounts of plastic and other explosives and
illegal drugs. The Company designs and produces products that employ a
proprietary application of ion mobility spectrometry ("IMS") technology that can
detect and identify targeted compounds in amounts smaller than one-billionth of
a gram in approximately six seconds. The Company's principal product, the
IONSCAN(R), is a portable desktop system. As of June 30, 1997, the Company had
sold over 500 units in 39 countries. The Company's revenues have grown from $2.0
million for the year ended December 31, 1991 to $10.9 million for the year ended
December 31, 1996, representing a compounded annual growth rate of 40.4% over
the last five years. For the six months ended June 30, 1997, the Company's
revenues and net income were $9.4 million and $2.3 million, respectively.
The markets for the Company's IONSCAN(R) currently include aviation
security, other transport security, facilities protection, forensics, military,
corrections, customs and law enforcement. The Company's customers include the
Federal Aviation Administration (the "FAA"), the U.S. Coast Guard, the U.S. Drug
Enforcement Agency (the "DEA") and the Federal Bureau of Investigation (the
"FBI"), as well as customs agencies in France, Canada and Japan and various
prison facilities in the U.S. and elsewhere. The IONSCAN(R) is also installed at
over 40 airports and transportation centers throughout the world, including
Gatwick and Heathrow airports in the United Kingdom, John F. Kennedy
International Airport, certain European Passenger Service ("British Rail")
terminals and the Eurotunnel. The Company believes that its principal
competitive advantages are the detection capability, reliability, versatility,
cost effectiveness, ease of use and portability of the IONSCAN(R). These
advantages enable the IONSCAN(R) to be used both in lieu of and in conjunction
with bulk imaging technologies, such as enhanced x-ray and computer aided
tomography ("CATSCAN").
The Company believes that many of the markets it serves are experiencing
substantial growth. Recently, growth in the markets for advanced explosives
detection technology has accelerated significantly, principally in reaction to
heightened safety concerns caused by the threat of terrorism. For example, in
October 1996, Congress appropriated $144 million for the procurement of advanced
explosives detection technology for aviation security. Terrorist attacks on bus
and train stations, the World Trade Center and the Alfred R. Murrah Federal
Building in Oklahoma City also have resulted in the deployment of advanced
explosives detection technology for other uses. In addition, according to the
U.S. Office of National Drug Control Policy, use of certain illegal drugs has
increased during the past five years. As a result of increased drug usage, a
heightened public awareness of drug-related criminal activity and the use of
more sophisticated techniques by drug traffickers, government agencies have
increasingly turned to advanced detection technology to assist in their drug
interdiction efforts.
The Company markets its products through a direct sales organization
comprised of 18 sales people located at its headquarters in New Jersey and at
offices in Toronto, London, and Paris. In addition, the Company utilizes a
network of 49 independent sales and service representatives located in Europe,
the Middle East, Africa, Asia, South America and Australia.
The Company's objective is to maintain its position as the world's leading
provider of trace detection systems in its core markets and to become a leading
supplier of other advanced technology security solutions. The Company intends to
achieve this objective by further penetrating its existing markets, leveraging
its IMS technology for new applications, pursuing strategic relationships and
acquisitions and expanding its sales and marketing capabilities.
4
<PAGE> 6
THE OFFERING
Common Stock Offered..................... 2,000,000 shares
Common Stock to be Outstanding after the
Offering................................. 7,475,179 shares
Use of Proceeds.......................... To increase sales, marketing and
customer support capabilities; to
expand facilities; to pursue
possible acquisitions of, or
investments in, complementary
businesses, products or
technologies; and for general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol............ BARR
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
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SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------ ------- ------- ------- ------ ------
(Unaudited)
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CONSOLIDATED STATEMENTS OF
OPERATIONS DATA(1):
Revenues......................... $ 2,838 $7,770 $ 5,514 $ 6,374 $10,923 $5,012 $9,438
Gross profit..................... 627 3,840 1,414 2,773 5,560 2,365 5,483
Operating income (loss).......... (1,714) 541 (2,469) (886) 1,596 667 1,945
Income tax (provision) benefit... -- 153 (75) -- 391 -- 131
Income (loss) from continuing
operations.................... (1,763) 593 (2,633) (1,178) 2,059 564 2,260
Net income (loss)................ (1,807) 595 (2,565) (827) 2,059 564 2,260
Preferred stock dividends........ (160) (114) (108) (82) (39) (24) (6)
Net income (loss) attributable to
common stockholders........... (1,967) 481 (2,673) (909) 2,020 540 2,254
Income (loss) per common share
from continuing operations
(fully diluted)............... $ (0.90) $ 0.20 $ (0.97) $ (0.39) $ 0.44 $ 0.15 $ 0.35
Net income (loss) per common
share (fully diluted)......... $ (0.92) $ 0.20 $ (0.95) $ (0.28) $ 0.44 $ 0.15 $ 0.35
Weighted average common shares
outstanding (fully diluted)... 2,135 2,570 2,827 3,283 4,607 3,854 6,388
</TABLE>
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JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED(2)
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(Unaudited)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital.................. $16,414 $ 40,554
Current assets................... 19,253 43,393
Total assets..................... 20,385 44,525
Current liabilities.............. 2,839 2,839
Long-term liabilities............ 121 121
Stockholders' equity............. 17,425 41,565
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- ----------------------
(1) Amounts for all periods ending prior to December 31, 1995 reflect Barringer
Laboratories Inc. ("Labco") as a discontinued operation. The Company sold a
portion of its equity interest in Labco in 1995 and the remainder of its
interest in 1996. See "Certain Transactions--Sale of Subsidiary."
(2) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom,
at an assumed public offering price of $13.00 per share and after deducting
underwriting discounts and commissions and estimated Offering expenses. See
"Capitalization."
Unless otherwise indicated, all information herein has been adjusted to
give effect to the one-for-four reverse split of the Common Stock effected on
September 25, 1995 and assumes (i) no exercise of the Underwriters'
over-allotment option, and (ii) no exercise or conversion of options, warrants
and convertible securities outstanding as of August 1, 1997, exercisable for or
convertible into an aggregate of 1,502,899 shares of Common Stock.
5
<PAGE> 7
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Such statements include, but are not
limited to, the anticipated growth in the demand for the Company's products, the
Company's opportunities to increase sales through, among other things, the
development of new applications of and markets for the IONSCAN(R) technology,
the development of new products, the probability of the Company's success in the
sale of IONSCAN(R)s in current or future markets, the potential effect of
government regulations and directives changing security requirements, the
ability of the IONSCAN(R) to satisfy any certification protocol adopted by the
FAA or any other government agency, the amount and timing of domestic and
foreign government appropriations for the development and deployment of advanced
detection technology, the Company's liquidity and capital requirements and the
Company's anticipated use of proceeds.
Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Future events and actual results, financial and
otherwise, could differ materially from those set forth in or contemplated by
the forward-looking statements contained herein. Important factors that could
contribute to such differences are set forth below under "Risk Factors,"
including, but not limited to, "Dependence on and Effects of Government
Regulation and Procurement Policies," "Dependence on Large Orders; Customer
Concentrations," "Dependence on IONSCAN(R) and Market Acceptance," "Dependence
on New Product Development; Technological Advancement," "Limited Proprietary
Technology," "Fluctuations in Operating Results," "Competition," "Lengthy Sales
Cycle," "International Business; Risk of Change in Foreign Regulations;
Fluctuations in Exchange Rates," "Dependence on Limited Number of Suppliers,"
"Ability to Manage Rapid Growth," "History of Losses; Cash Constraints" and
"Risks Associated with Potential Acquisitions."
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In addition
to the other information contained in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company, its business
and an investment in the Common Stock offered hereby.
DEPENDENCE ON AND EFFECTS OF GOVERNMENT REGULATION AND PROCUREMENT POLICIES
The Company's business is dependent upon purchases of IONSCAN(R)s by
government agencies. Budgetary allocations for detection equipment are
dependent, in part, upon government policies that fluctuate from time to time in
response to political and other factors, including the public's perception of
the threat of airline bombings and other terrorist acts. Growth in the Company's
business is substantially dependent upon the adoption and implementation of
regulations or requirements in the aviation security market, particularly in the
United States, resulting in the use of advanced explosives detection systems,
including trace particle detection equipment. The Company expects that a
substantial portion of current and anticipated purchases of advanced detection
equipment in the aviation security market will be made by the FAA with
appropriated funds. In addition, growth in the Company's business will also be
dependent on continued government purchases of IONSCAN(R)s for drug interdiction
applications. A reduction of funding for security efforts or drug interdiction
could materially and adversely affect the Company's business, financial
condition and results of operations. There can be no assurance that funding for
the purchase of such equipment will be continued or as to the level of such
funding. A substantial amount of the funds appropriated to date have been and
amounts appropriated in the future will continue to be used to purchase
equipment utilizing other technologies, such as enhanced x-ray, CATSCAN and
other bulk imaging technologies. Accordingly, there can be no assurance as to
the amount that will ultimately be spent on the purchase of trace particle
detection equipment or as to the number of IONSCAN(R)s that will actually be
purchased. In addition, there can be no assurance that the Company's products
will meet any certification or other requirements that may be adopted by the FAA
or any other government agency. See "Business--Government Regulation."
6
<PAGE> 8
DEPENDENCE ON LARGE ORDERS; CUSTOMER CONCENTRATIONS
In any given fiscal year, the Company's revenues have principally
consisted, and the Company believes will continue to consist, of orders for
multiple IONSCAN(R)s from a limited number of customers. For example, during the
first half of 1997, the Company received large orders for its IONSCAN(R) from
the FAA and the U.S. Coast Guard. While the number and identity of the Company's
customers may vary from period to period, the Company is nevertheless dependent
upon these multiple orders for a substantial portion of its revenues. There can
be no assurance that the Company will obtain such multiple orders on a
consistent basis. During the first half of 1997, approximately $4.8 million, or
51.2%, of the Company's revenues were generated from sales to the Company's
three largest customers. During the fiscal year ended December 31, 1996,
revenues from the Company's three largest customers were approximately $4.3
million, or 39.3%, of the Company's revenues. The Company anticipates that a
significant portion of its future revenues will result from orders from the FAA.
The Company's inability to obtain sufficient multiple orders or to expand its
customer base could have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON IONSCAN(R) AND MARKET ACCEPTANCE
The Company derives substantially all of its revenues from the sale of
IONSCAN(R)s and its future profitability is substantially dependent on the
Company's ability to market the IONSCAN(R) successfully. There can be no
assurance that markets for IONSCAN(R) technology will develop as the Company
expects or that the Company will be able to capitalize on such market
development. Similarly, there can be no assurance that any markets that do
develop will be sustained. See "Business--Sales and Marketing."
DEPENDENCE ON NEW PRODUCT DEVELOPMENT; TECHNOLOGICAL ADVANCEMENT
The Company's success is dependent upon its ability to continue to enhance
the IONSCAN(R) and to develop and introduce in a timely manner new products that
incorporate technological advances, keep pace with evolving industry standards
and respond to changing customer requirements. If the Company is unable to
develop and introduce new products or enhancements in a timely manner in
response to changing market conditions or customer requirements, the Company's
business, financial condition and results of operations would be materially and
adversely affected. See "Business--Sales and Marketing" and "--Product
Development."
In addition, from time to time the Company or its present or potential
competitors may introduce new products, capabilities or technologies that have
the potential to replace, shorten the life spans of, or render obsolete the
Company's existing products. There can be no assurance that the Company will be
successful in convincing potential customers that the IONSCAN(R) is superior to
such other systems or products, that new systems with comparable or greater
performance, lower prices and faster or equivalent throughput will not be
introduced, or that, if such products are introduced, customers will not delay
or cancel existing or future orders for the IONSCAN(R). Announcements of
currently planned or other new products may cause customers to delay their
purchasing decisions in anticipation of such products, as occurred in late 1994
when the Company introduced the Model 400 IONSCAN(R). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Competition." Such delays could have a material adverse effect on the
Company's business, financial condition and results of operations.
LIMITED PROPRIETARY TECHNOLOGY
Certain of the technology used in the IONSCAN(R) is licensed by the Company
from the Canadian government pursuant to a license agreement that expires in
March 1999, subject to the Company's right to extend on a year-to-year basis
through March 2009. While the Company holds patents relating to certain
components, systems and techniques used in the IONSCAN(R) and while certain
other elements of the IONSCAN(R) are protected by other intellectual property
rights, the Company has no
7
<PAGE> 9
comprehensive patent or similar exclusive intellectual property right covering
the IONSCAN(R) in its entirety. In addition, the basic IMS technology used by
the Company is not proprietary and is available in the public domain.
Accordingly, present and potential competitors could use such basic technology
to duplicate the performance of the IONSCAN(R). See "Business--Competition" and
"--Patents, Trademarks and Proprietary Rights."
FLUCTUATIONS IN OPERATING RESULTS
The Company's past operating results have been, and its future operating
results will be, subject to fluctuations resulting from a number of factors,
including: the timing and size of orders from, and shipments to, major
customers; budgeting and purchasing cycles of its customers; delays in product
shipments caused by customer requirements or the inability of customers to
accept shipments; the timing of enhancements to the IONSCAN(R) by the Company or
new products introduced by the Company or its competitors; changes in pricing
policies by the Company, its competitors or suppliers, including possible
decreases in average selling prices of the IONSCAN(R) in response to competitive
pressures; the proportion of revenues derived from competitive bid processes;
the mix between sales to domestic and international customers; market acceptance
of enhanced versions of the IONSCAN(R); the availability and cost of key
components; the availability of manufacturing capacity; and fluctuations in
general economic conditions. The Company also may choose to reduce prices or to
increase spending in response to competition or to pursue new market
opportunities, all of which may have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's revenues
in any period are derived from sales of IONSCAN(R)s to a limited number of
customers and are generally recognized upon shipment. As a result, variations in
the number of orders or the timing of shipments may cause the Company's
quarterly and annual operating results to vary substantially. See "-- Dependence
on Large Orders; Customer Concentrations" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly Results of
Operations."
Moreover, government agencies and certain other customers expend unused
budgeted funds at the end of their respective fiscal years, causing the
Company's sales to be higher during such periods. Because the Company generally
recognizes substantially all of the revenue from a sale upon shipment, and
because the recognition of revenue from the sale of relatively few IONSCAN(R)s
may substantially impact the Company's profitability during any period, the
impact of these budgetary considerations on the delivery date of a relatively
few units could significantly affect the Company's quarterly results and the
predictability of such quarterly results.
COMPETITION
The Company competes with other entities, including Thermedics Detection
Inc., InVision Technologies, Inc. and Vivid Technologies, Inc., a number of
which have significantly greater financial, marketing and other resources than
the Company. Principal competitive factors include selectivity (the ability of
an instrument to identify the presence of a particular substance), sensitivity
(the ability of an instrument to detect small amounts of a particular
substance), false alarm rate, price, marketing, ease of use and speed of
analysis. There can be no assurance that the Company will be able to continue to
compete successfully with its competitors or be able to compete with new market
entrants or in new markets that may develop.
The Company competes for government expenditures with equipment
manufacturers utilizing other types of detection technologies, including
enhanced x-ray, CATSCAN and other bulk imaging technologies, as well as with
manufacturers of other IMS equipment and manufacturers using other trace
particle detection technologies, such as gas chromatography and
chemiluminescence.
The Company also competes with the use of canines to locate the presence of
explosives or drugs.
As a result of recent government initiatives, the Company anticipates that
additional technologies, including improved IMS technologies, will be developed
and that new competitors will enter the
8
<PAGE> 10
Company's markets. The failure of the Company to develop improvements or
otherwise successfully compete in its markets would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "--Dependence on and Effects of Government Regulation and Procurement
Policies" and "Business--Competition."
LENGTHY SALES CYCLE
The Company's sales process is often protracted due to the lengthy approval
processes that typically accompany government expenditures. Typically, six to 12
months may elapse between a new customer's initial evaluation of the IONSCAN(R)
and the execution of a contract. See "--Fluctuations in Operating Results,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "--Quarterly Results of Operations."
INTERNATIONAL BUSINESS; RISK OF CHANGE IN FOREIGN REGULATIONS; FLUCTUATIONS IN
EXCHANGE RATES
The Company markets its products to customers outside of the U.S. and,
accordingly, is exposed to the risks of international business operations,
including unexpected changes in foreign and domestic regulatory requirements,
possible foreign currency controls, uncertain ability to protect and utilize its
intellectual property in foreign jurisdictions, currency exchange rate
fluctuations or devaluations, tariffs or other barriers, difficulties in
staffing and managing foreign operations, difficulties in obtaining and managing
vendors and distributors and potentially negative tax consequences.
International sales are subject to certain inherent risks including embargoes
and other trade barriers, staffing and operating foreign sales and service
operations and collecting accounts receivable. The Company is also subject to
risks associated with regulations relating to the import and export of high
technology products. The Company cannot predict whether quotas, duties, taxes or
other charges or restrictions upon the importation or exportation of the
Company's products in the future will be implemented by the U.S. or any other
country. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
A portion of the Company's revenues and expenses are denominated in foreign
currencies. Fluctuations in currency exchange rates could adversely affect the
Company's profitability and could cause the Company's products to become
relatively more expensive to customers in a particular country, leading to fewer
sales or reduced selling prices in that country. As a result, the Company is
exposed to a certain degree of exchange rate risk. The Company generally does
not hedge its foreign exchange exposure. There can be no assurance that the
Company will not experience material losses in the future as a result of
currency fluctuations or that any such losses will not have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS
Certain key components used in the Company's products have been designed by
the Company to its specifications and are currently purchased from only one or a
limited number of suppliers. The Company currently does not have long-term
agreements with these suppliers. Moreover, in view of the high cost of many of
these components, the Company does not maintain significant inventories of some
necessary components. Recently, the Company has significantly increased its
purchases of certain components to meet expected demand for the IONSCAN(R). As a
result, in certain circumstances, the Company has had to enter into new supply
relationships in order to satisfy its increased demand for components and may be
required to do so in the future. If the Company's suppliers were to experience
financial, operational, production or quality assurance difficulties, the supply
of components to the Company would be reduced or interrupted. In the event that
a supplier were to cease operations, discontinue production of a component or
withhold supply for any reason, the Company might be unable to acquire certain
components from alternative sources, to find alternative third-party
manufacturers or sub-assemblers, or to obtain sufficient quantities of certain
components, which could result in delays or interruptions in product shipments,
and could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Manufacturing and Assembly."
9
<PAGE> 11
ABILITY TO MANAGE RAPID GROWTH
The Company has rapidly expanded its business operations as a result of
increased demand for the IONSCAN(R), which has placed significant demands on the
Company's manufacturing, management and working capital resources and operating,
management and financial control systems. Failure to maintain needed resources
or to enhance the Company's operating, management and financial control systems
as and when necessary, or difficulties encountered during such enhancements,
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's future growth also will
depend on its ability to continue to improve and expand its engineering and
technical resources and to attract, retain and motivate key personnel. The
failure of the Company to increase its revenues sufficiently to compensate for
increased expenses resulting from current or future expansion, or the Company's
failure to otherwise adequately manage the growth of its business, would have a
material adverse effect on the Company's business, financial condition and
results of operations.
HISTORY OF LOSSES; CASH CONSTRAINTS
The Company sustained net losses of $2.6 million and $827,000 for the years
ended December 31, 1994 and 1995, respectively, and had an accumulated deficit
of $12.3 million at June 30, 1997. Although the Company generated net income of
$2.1 million and $2.3 million for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively, the Company used $1.4 million and $1.3
million, respectively, of cash in operations during such periods as a result of
the need for working capital to support higher levels of accounts receivable and
inventory. The Company's failure to generate positive operating cash flow or to
maintain other sources of working capital could result in significant cash
shortages that could have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
An element of the Company's strategy is to review acquisition prospects
that would complement the Company's existing product offerings, augment its
market coverage, enhance its technological capabilities or otherwise offer
growth opportunities. Although the Company has no present understandings,
commitments or agreements with respect to any material acquisition of any
business, products or technologies, the Company may make such acquisitions in
the future. Future acquisitions by the Company could result in potentially
dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities, and amortization expenses relating to goodwill and other intangible
assets, any of which could materially and adversely affect the Company's
business, financial condition and results of operations. Acquisitions entail
numerous risks, including difficulties in the assimilation of acquired
businesses, products and technologies, diversion of management's attention from
other business concerns, risks of entering markets in which the Company has no
or limited prior experience and potential loss of key employees of acquired
organizations. The Company's management has limited experience in assimilating
acquired organizations. No assurance can be given as to the ability of the
Company to integrate successfully any businesses, products, technologies or
personnel that might be acquired in the future, and the failure of the Company
to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.
RETENTION OF AND DEPENDENCE ON KEY PERSONNEL
The Company's success will depend, in part, on its ability to retain the
services of its key personnel, including management and scientific employees,
who are and will continue to be instrumental in the development and management
of the Company's business. Although the Company has entered into employment
agreements with its Chief Executive Officer and certain of its other senior
executives, the loss of the services of one or more of the Company's key
employees could have a material adverse effect on the Company.
10
<PAGE> 12
WARRANTY CLAIMS
The Company generally provides a one-year parts and labor warranty on each
IONSCAN(R), although from time to time the Company has provided extended
warranties. Although the Company has not experienced significant warranty
claims, there can be no assurance that such claims will not increase as the
Company's sales increase. Increased warranty claims could have a material
adverse effect on the Company's business, financial condition and results of
operations.
POTENTIAL PRODUCT LIABILITY INSURANCE LIMITS
The Company currently maintains product liability insurance in the amount
of $5.0 million per occurrence. The Company's insurance policy covers certain
claims and the cost of legal fees involved in the defense of such claims, which
are either covered under the policy or alleged in such a manner so as to invoke
the insurer's duty to defend the Company. The Company believes that, as it
distributes more products into the marketplace and expands its product lines,
its exposure to potential product liability claims and litigation may increase.
There can be no assurance that the Company's current level of insurance will be
sufficient to protect the business and assets of the Company from all claims,
nor can any assurance be given that the Company will be able to maintain its
existing coverage or obtain additional coverage at commercially reasonable
rates. Product liability losses in excess of insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, 7,475,179 shares of Common Stock will be
outstanding (7,693,179 shares, if the Underwriters' over-allotment option is
exercised in full). All of the shares offered hereby will be freely tradable
unless acquired by affiliates of the Company. The remaining 5,475,179 shares
that will be outstanding upon completion of this Offering are freely tradable,
subject to the lock-up described below. An additional 1,502,899 shares of Common
Stock are issuable upon the exercise or conversion of outstanding stock options,
warrants and convertible securities, 1,346,649 of which have been registered for
resale by the holders thereof and are, therefore, freely tradable and the
balance of which are subject to registration rights pursuant to which the
holders thereof can cause the Company to effect the registration of such shares
for resale.
The Company cannot predict the effect, if any, that sales of additional
shares of Common Stock or the availability of shares for future sale will have
on the market price of the Common Stock. Sales in the public market of
substantial amounts of Common Stock (including shares issued upon the exercise
or conversion of outstanding options, warrants and convertible securities), or
the perception that such sales might occur, could adversely affect prevailing
market prices for the Common Stock. Such sales also may make it more difficult
for the Company to sell equity securities or equity related securities in the
future at a time and price that the Company deems appropriate. The holders of an
aggregate of 770,297 shares of Common Stock (including 555,250 shares issuable
upon the exercise or conversion of outstanding options, warrants and convertible
securities), have agreed with the Underwriters not to offer or sell, directly or
indirectly, or otherwise reduce their risk in, any securities of the Company,
other than pursuant to the exercise of the Underwriters' over-allotment option,
for a period of 90 days after the date of this Prospectus, subject to certain
exceptions, without the prior written consent of Robertson, Stephens & Company.
See "Shares Eligible For Future Sale."
UNALLOCATED PROCEEDS OF OFFERING
A significant portion of the estimated net proceeds of this Offering has
not been designated for specific uses. Accordingly, management of the Company
will have broad discretion with respect to the use of these funds. See "Use of
Proceeds."
11
<PAGE> 13
VOLATILITY OF COMMON STOCK PRICE
Prior to this Offering, there have been significant fluctuations in the
trading price of the Common Stock. No assurance can be given that such
volatility will not continue following the completion of this Offering. See
"Price Range of Common Stock."
CERTAIN CHARTER PROVISIONS
The Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), contains provisions which require the favorable vote of the
holders of not less than 80.0% of the outstanding shares of Common Stock for the
approval of any merger, consolidation or other combination with, or sale, lease
or exchange of all or substantially all of the assets of the Company to, another
entity holding more than 10.0% of the Company's outstanding voting equity
securities or any affiliate of such entity. These provisions could discourage
potential acquisition proposals, delay or prevent a change in control of the
Company and limit the price that certain investors might be willing to pay in
the future for shares of the Common Stock.
The Board of Directors of the Company is empowered to issue shares of
preferred stock without stockholder action. The existence of this "blank check"
preferred stock could render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest or
otherwise and may adversely affect the prevailing market price of the Common
Stock. The Company currently has no plans to issue additional shares of
preferred stock. In addition, Section 203 of the Delaware General Corporation
Law prohibits certain persons from engaging in business combinations with the
Company. See "Description of Capital Stock."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby (2,218,000 if the Underwriters' over-allotment
option is exercised in full), at an assumed public offering price of $13.00 per
share and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, are estimated to be $24.1 million
($26.8 million if the Underwriters' over-allotment option is exercised in full).
The Company expects to use the net proceeds to increase its sales, marketing and
customer support capabilities, to expand its facilities, to pursue possible
acquisitions of, or investments in, complementary businesses, products or
technologies and for general corporate purposes. From time to time, the Company
evaluates potential acquisitions of such businesses, products or technologies in
the ordinary course of business. The Company has no present understandings,
commitments or agreements with respect to any material acquisitions of, or
investments in, any such businesses, products or technologies. See "Risk
Factors--Risks Associated with Potential Acquisitions."
Pending the foregoing uses, the Company intends to invest the net proceeds
from this Offering in short-term, interest bearing, investment-grade securities.
PRICE RANGE OF COMMON STOCK
Since November 12, 1996, the Common Stock has been included in the Nasdaq
National Market under the symbol "BARR." Prior to that, the Common Stock was
quoted in the Nasdaq SmallCap Market under the same symbol. The following table
sets forth, for the periods indicated, the high and low bid quotations for the
Common Stock as reported on the Nasdaq National Market or the Nasdaq SmallCap
Market, as applicable, after giving effect to the one-for-four reverse stock
split effected September 25, 1995. Such quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1995
First quarter................................................... $ 6 7/8 $ 1 1/4
Second quarter.................................................. 5 2
Third quarter................................................... 4 1/4 2 1/4
Fourth quarter.................................................. 3 1/4 1/2
Fiscal 1996
First quarter................................................... $ 9/16 $ 5/16
Second quarter.................................................. 4 3/16 7/16
Third quarter................................................... 13 7/8 2 7/8
Fourth quarter.................................................. 10 5/8 6 5/8
Fiscal 1997
First quarter................................................... $10 3/4 $ 8 1/8
Second quarter.................................................. 15 9 3/8
Third quarter (through August 13, 1997)......................... 16 12 5/8
</TABLE>
On August 13, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $13.00 per share. As of August 1, 1997, the Company
had approximately 1,000 stockholders of record.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Board of Directors currently intends to retain future earnings to support
its growth strategy and does not anticipate paying dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Board of Directors after taking into account various factors, including the
Company's financial condition, results of operations, current and anticipated
cash needs and plans for expansion. The Company is prohibited from paying cash
dividends on the Common Stock unless full cumulative dividends have been paid or
set aside for payment on its Class A Convertible Preferred Stock and Class B
Convertible Preferred Stock at an annual rate of $0.16 per share, which
dividends, at the option of the Company, are payable in cash or shares of Common
Stock. See "Description of Capital Stock."
13
<PAGE> 15
CAPITALIZATION
The following table sets forth, as of June 30, 1997, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to give effect to the sale of the 2,000,000 shares of Common Stock offered
hereby, at an assumed public offering price of $13.00 per share, and the
application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Stockholders' equity:
Convertible Preferred Stock, $1.25 par value; 1,000,000 shares
authorized; none outstanding................................ -- --
Preferred Stock, $2.00 par value; 4,000,000 shares authorized:
270,000 shares designated Class A Convertible Preferred
Stock; 58,206 shares outstanding less discount of $45,000... $ 71,000 $ 71,000
730,000 shares designated as Class B Convertible Preferred
Stock;
22,500 shares outstanding................................... 45,000 45,000
Common Stock, $0.01 par value; 20,000,000 shares authorized;
5,470,455 shares issued and outstanding, actual; 7,470,455
shares issued and outstanding, as adjusted(1)............... 55,000 75,000
Additional paid-in-capital.................................... 29,952,000 54,072,000
Accumulated deficit........................................... (12,268,000) (12,268,000)
Foreign currency translation.................................. (417,000) (417,000)
Less: Common Stock in treasury at cost, 31,000 shares......... (13,000) (13,000)
----------- -----------
Total stockholders' equity.................................. $ 17,425,000 $ 41,565,000
----------- -----------
Total capitalization...................................... $ 17,425,000 $ 41,565,000
=========== ===========
</TABLE>
- ----------------------
(1) Excludes 1,507,623 shares of Common Stock issuable upon exercise or
conversion of options, warrants and convertible securities outstanding as of
June 30, 1997.
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth for the periods and at the dates indicated
certain financial data that should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere
herein. The statements of operations data for the years ended December 31, 1994,
1995 and 1996, and the balance sheet data at December 31, 1995 and 1996 are
derived from the consolidated financial statements of the Company that have been
audited by BDO Seidman, LLP, independent certified public accountants, and are
included elsewhere in this Prospectus. The statements of operations data for the
years ended December 31, 1992 and 1993 and the balance sheet data at December
31, 1992, 1993 and 1994 are derived from audited consolidated financial
statements of the Company not otherwise contained herein. The consolidated
statements of operations data for the six months ended June 30, 1996 and 1997
and the consolidated balance sheet data as of June 30, 1997 are derived from
unaudited consolidated financial statements of the Company included elsewhere
herein. The unaudited consolidated financial statements have been prepared by
the Company on a basis consistent with the Company's audited consolidated
financial statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the Company's results of operations for such periods and financial condition
at such dates. Results for the six months ended June 30, 1997 are not
necessarily indicative of the results that can be expected for any other interim
period or for the year ended December 31, 1997 as a whole.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
YEAR ENDED DECEMBER 31,
---------------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------ ------- ------- ------- ------ ------
(Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1):
Revenues................................................... $ 2,838 $7,770 $ 5,514 $ 6,374 $10,923 $5,012 $9,438
Cost of revenues........................................... 2,211 3,930 4,100 3,601 5,363 2,647 3,955
------ ------ ------ ------ ------- ------ ------
Gross profit............................................. 627 3,840 1,414 2,773 5,560 2,365 5,483
------ ------ ------ ------ ------- ------ ------
Operating expenses:
Selling, general and administrative expenses............. 2,180 3,117 3,352 3,305 3,734 1,641 3,200
Product development...................................... 161 182 531 354 230 57 338
------ ------ ------ ------ ------- ------ ------
Total operating expenses............................... 2,341 3,299 3,883 3,659 3,964 1,698 3,538
------ ------ ------ ------ ------- ------ ------
Operating income (loss).................................... (1,714) 541 (2,469) (886) 1,596 667 1,945
Other (expense) income, net................................ (49) (101) (89) (292) 72 (103) 184
Income tax (provision) benefit............................. -- 153 (75) -- 391 -- 131
------ ------ ------ ------ ------- ------ ------
Income (loss) from continuing operations................... (1,763) 593 (2,633) (1,178) 2,059 564 2,260
Income (loss) from operation held for sale................. (44) 2 68 351 -- -- --
------ ------ ------ ------ ------- ------ ------
Net income (loss).......................................... (1,807) 595 (2,565) (827) 2,059 564 2,260
Preferred stock dividends.................................. (160) (114) (108) (82) (39) (24) (6)
------ ------ ------ ------ ------- ------ ------
Net income (loss) attributable to common stockholders...... $(1,967) $ 481 $(2,673) $ (909) $ 2,020 $ 540 $2,254
====== ====== ====== ====== ======= ====== ======
Income (loss) per common share from continuing
operations................................................. (0.90) 0.20 (0.97) (0.39) 0.48 0.16 0.36
Net income (loss) per common share:
Primary.................................................. (0.92) 0.20 (0.95) (0.28) 0.48 0.16 0.36
====== ====== ====== ====== ======= ====== ======
Fully diluted............................................ (0.92) 0.20 (0.95) (0.28) 0.44 0.15 0.35
====== ====== ====== ====== ======= ====== ======
Weighted average common shares outstanding:
Primary.................................................. 2,135 2,570 2,827 3,283 4,221 3,483 6,176
Fully diluted............................................ 2,135 2,570 2,827 3,283 4,607 3,854 6,388
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
------- ------ ------- ------- ------- -------------
(In thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................................. $ 27 $2,912 $ 652 $ 370 $14,271 $16,414
Current assets............................................... 2,835 7,000 5,067 3,672 16,624 19,253
Total assets................................................. 4,805 8,939 6,792 4,735 17,323 20,385
Current liabilities.......................................... 2,808 4,088 4,415 3,302 2,353 2,839
Long-term liabilities........................................ 759 581 451 108 117 121
Stockholders' equity......................................... 709 3,646 1,186 1,325 14,853 17,425
</TABLE>
- ----------------------
(1) Amounts for all periods ending prior to December 31, 1995 reflect Labco as a
discontinued operation. The Company sold a portion of its equity interest in
Labco in 1995 and the remainder of its interest in 1996. See "Certain
Transactions--Sale of Subsidiary."
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Barringer is the world's leading manufacturer (based on units sold) of high
sensitivity equipment used for detecting and identifying trace amounts of
plastic and other explosives and illegal drugs. The markets for the Company's
IONSCAN(R) currently include aviation security, other transport security,
facilities protection, forensics, military, corrections, customs and law
enforcement. The Company sold its first IONSCAN(R) in 1990 and, as of June 30,
1997, had sold over 500 units. From 1991 to 1995, the Company incurred losses as
its business continued to develop, except during 1993 when the Company received
a significant order for IONSCAN(R)s for deployment at the Eurotunnel. In 1996,
the Company achieved profitability principally as a result of increased demand
for and favorable market acceptance of the IONSCAN(R). Prior to 1996, the
Company sold most of its IONSCAN(R)s for use in drug interdiction applications.
However, in 1996, the Company's unit sales were more evenly distributed between
explosives detection and drug interdiction applications. During the six months
ended June 30, 1997, approximately half of the Company's unit sales were for
explosives detection applications in the aviation security market. Management
expects that the aviation security market will continue to account for a
substantial portion of the Company's future revenues.
Revenues consist of (i) sales of IONSCAN(R)s, related accessories and
consumable supplies, maintenance, training, and billable repairs, (ii) sales of
other instruments and (iii) funded product development grants and contracts. For
the year ended December 31, 1996 and the six months ended June 30, 1997,
approximately 86.1% and 95.6%, respectively, of the Company's consolidated
revenues were derived from the sale and servicing of IONSCAN(R)s. Selling prices
for the IONSCAN(R) average between $50,000 and $95,000 per unit, depending
principally on the configuration of the unit and the purchaser's location.
Profitability associated with any given sale, and the Company's gross margin for
any given quarter, may vary substantially due to unit configuration, the
geographic location of the purchaser and whether sales prices include a
distributor mark-up. The Company recognizes revenues from the sale of
IONSCAN(R)s upon shipment. Accordingly, changes in delivery dates for relatively
few IONSCAN(R)s from one quarter to another may have a significant impact on the
Company's quarterly results of operations. See "Risk Factors--Dependence on
Large Orders; Customer Concentrations" and "--Fluctuations in Operating
Results."
Substantially all of the Company's revenues are denominated in U.S.
dollars. However, the Company operates in several foreign countries, including
Canada, the United Kingdom and France and, in those instances, the Company
recognizes revenues and incurs expenses denominated in the local currency. To
date, the Company has not experienced significant losses as a result of foreign
currency fluctuations. The Company generally does not hedge its foreign currency
exposure. Approximately 59.3% and 68.6% of the Company's total revenues for the
six months ended June 30, 1997 and the year ended December 31, 1996,
respectively, were derived from non-U.S. sources. Approximately 25.0% of total
revenues in 1996 were derived from customers in Canada. See "Risk
Factors--International Business; Risk of Change in Foreign Regulations;
Fluctuations in Exchange Rates."
The Company manufactures to a sales forecast in order to have inventory
available to meet anticipated demand promptly and historically has not had a
backlog of orders. Management's sales forecast is determined by an analysis of a
number of factors, including, among other things, the customer's need, the
availability of budgeted funds, the status of equipment demonstrations, the
status of any required approvals, the effects of competition and the complexity
of the customer's procurement process. However, as a result of large orders
received from the FAA and the U.S. Coast Guard in the second quarter of 1997,
the Company had a backlog of orders at June 30, 1997. See "Business--Backlog."
16
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth certain income and expense items from the
Company's consolidated statements of operations expressed as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................... 74.4 56.5 49.1 52.8 41.9
----- ----- ----- ----- -----
Gross profit................................ 25.6 43.5 50.9 47.2 58.1
----- ----- ----- ----- -----
Operating expenses:
Selling, general and administrative
expenses.................................. 60.8 51.9 34.2 32.8 33.9
Product development......................... 9.6 5.5 2.1 1.1 3.6
----- ----- ----- ----- -----
Total operating expenses.................. 70.4 57.4 36.3 33.9 37.5
----- ----- ----- ----- -----
Operating income (loss)........................ (44.8) (13.9) 14.6 13.3 20.6
Other (expense) income, net.................... (1.6) (4.6) 0.7 (2.1) 1.9
Income tax (provision) benefit................. (1.4) -- 3.6 -- 1.4
----- ----- ----- ----- -----
Income (loss) from continuing operations....... (47.8) (18.5) 18.9 11.2 23.9
Income from operation held for sale............ 1.3 5.5 -- -- --
----- ----- ----- ----- -----
Net income (loss).............................. (46.5) (13.0) 18.9 11.2 23.9
Preferred stock dividends...................... (2.0) (1.3) (0.4) (0.5) (0.1)
----- ----- ----- ----- -----
Net income (loss) attributable to common
stockholders................................ (48.5)% (14.3)% 18.5% 10.7% 23.8%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THE SIX-MONTH PERIOD ENDED JUNE 30, 1997 TO THE SIX-MONTH PERIOD
ENDED JUNE 30, 1996
Revenues. For the six months ended June 30, 1997, revenues increased by
$4.4 million, or 88.3%, to $9.4 million from $5.0 million in the comparable
period ended June 30, 1996. Sales of IONSCAN(R)s and related products increased
by $5.2 million, or 135%, due to an increase of 167% in the number of units
sold, offset in part by a decline in average unit selling price. The increase in
unit sales was due to significant IONSCAN(R) sales to the aviation security
sector, primarily to the FAA, and, to a lesser extent, increased sales in other
markets. The decrease in average selling prices resulted primarily from an
increase in the number of IONSCAN(R)s sold to U.S. government agencies, which
typically are at lower unit prices than sales to other customers. Sales of
specialty instruments decreased by approximately $523,000, or 83.9%, in the six
months ended June 30, 1997 as compared to the same period in 1996, principally
due to the completion of a heavy water analyzer contract, which was awarded to
the Company in mid-1995 and completed in the first half of 1996. Revenues
derived from funded research and development decreased by approximately
$227,000, or 42.0%, in the six months ended June 30, 1997 as compared to the
same period in 1996. Funded research revenues declined as the Company redirected
its research and development resources to product application and development
and in support of increased production. As sales of its IONSCAN(R)s have
increased, the Company has placed less emphasis on marketing of specialty
instruments and contract research and development. As a result, management
anticipates that revenues from those activities will become increasingly less
important to the Company's overall results of operations.
Gross Profit. For the six months ended June 30, 1997, gross profit
increased by $3.1 million, or 132%, to $5.5 million from $2.4 million in the
comparable 1996 period. As a percentage of revenues, gross profit increased to
58.1% in the 1997 period from 47.2% in the comparable 1996 period. The
improvement was primarily attributable to higher margins on international sales,
coupled with larger,
17
<PAGE> 19
more efficient production runs of the IONSCAN(R), offset in part by lower
margins on sales to U.S. government agencies. In addition, the Company has been
able to reduce its cost of materials as a result of higher volume purchases.
Selling, General and Administrative. For the six months ended June 30,
1997, selling, general and administrative expenses increased by $1.6 million, or
95.0%, to $3.2 million from $1.6 million in the comparable 1996 period. Selling
and marketing expenses increased by approximately $1.0 million, of which
$687,000 was due to increased sales commissions attributable to a larger
percentage of sales originating through independent sales agents and
distributors during the period. The remaining increase was attributable to the
addition of sales and service personnel and related costs to handle increased
business volume. General and administrative expenses increased by $553,000,
primarily as a result of increased payroll and related costs and increased
professional and consulting costs. As a percentage of revenues, selling, general
and administrative expenses increased to 33.9% in the 1997 period from 32.8% in
the comparable 1996 period.
Product Development. For the six months ended June 30, 1997, product
development expenses increased by $281,000, or 493%, to $338,000 from $57,000 in
the comparable 1996 period. As a percentage of revenues, product development
expenses increased to 3.6% (6.9% when combined with funded research and
development) in the 1997 period from 1.1% (11.9% when combined with funded
research and development) in the comparable 1996 period as a result of a higher
level of internally funded new product development activity. Management expects
to incur increased product development expenses in future periods in connection
with the enhancement of existing products and the development of new products
and applications.
Other Income and Expense. For the six months ended June 30, 1997, interest
expense decreased by $125,000, or 96.2%, to $5,000 from $130,000 in the
comparable 1996 period as a result of the repayment of indebtedness out of the
net proceeds of the Company's November 1996 public offering.
Investment income for the six months ended June 30, 1997 was $212,000 as
compared to $42,000 for the same period in 1996, primarily as a result of the
investment of a portion of the net proceeds from the Company's November 1996
public offering. In the six months ended June 30, 1996, the Company recorded
$42,000 of gains recognized on trading securities held for Canadian pension
funding purposes.
Income Taxes. In the six-month period ended June 30, 1997, the Company had
a net tax benefit of $131,000, composed of current foreign taxes of $291,000,
offset by a $422,000 net deferred tax benefit. Such deferred tax benefit was due
in part to a reduction in the deferred tax valuation allowance as a result of
changes in management's estimates of the utilization of both U.S. and Canadian
tax loss carryforwards caused primarily by improved operating results.
Management anticipates that further deferred tax benefits will be recognized in
1997.
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1996 TO THE FISCAL YEAR ENDED
DECEMBER 31, 1995
Revenues. Revenues for the fiscal year ended December 31, 1996 increased
by $4.5 million, or 71.4%, to $10.9 million from $6.4 million for the fiscal
year ended December 31, 1995. Net sales of the IONSCAN(R) and related products
increased by approximately $4.9 million, or 93.5%, due to an increase of 134% in
the number of units sold offset in part by a decline in average unit selling
price. The increase in unit sales was due to increased sales of the Model 400
which was introduced in the first quarter of 1995. The decrease in average
selling prices resulted from increased sales of the Model 400 which had a lower
average selling price than the Model 350. Net sales of other instruments
increased by approximately $223,000, or 41.6%, in 1996 as compared to 1995,
principally due to work performed on a heavy water analyzer contract, which was
awarded to the Company in mid-1995 and completed in the first half of 1996. In
addition, net sales benefited from the sale of several other instruments. The
markets for heavy water analyzers and other instruments are limited, and
therefore management cannot predict whether the Company will receive any future
orders. Revenues derived from funded research and development decreased by
approximately $349,000, or 33.2%, in 1996 as compared to
18
<PAGE> 20
1995. The reduced revenues were attributable to the Company's contract with the
Emergencies Science Division, Environment Canada to design and build an airborne
laser fluorosensor system, a substantial portion of which was completed in 1995.
Gross Profit. Gross profit increased by $2.8 million, or 101%, to $5.6
million from $2.8 million for fiscal 1995. As a percentage of revenues, gross
profit increased to 50.9% from 43.5%. The improvement was primarily attributable
to higher margins on international sales, coupled with larger, more efficient
production runs of the IONSCAN(R) and related products. The sale at higher than
expected prices of several Model 350 units during the first six months of 1996,
the carrying value of which had been reduced in 1995, also contributed to the
improvement.
Selling, General and Administrative. Selling, general and administrative
expenses increased by approximately $429,000, or 13.0%, to $3.7 million from
$3.3 million for fiscal 1995. In 1995, the Company recognized an expense
decrease of $337,000 attributable to a negotiated reduction in professional fees
and $147,000 of additional expense reduction recognized on the termination of
the Company's Canadian Pension Plan as of December 31, 1993. Excluding these
items, selling, general and administrative expenses in 1996 decreased by
$55,000, or 1.7%. As a percentage of revenues, selling, general and
administrative expenses decreased to 34.2% from 51.9%. The decrease as a
percentage of revenues was primarily attributable to spreading costs over
increased revenues. Selling expenses increased by $108,000, or 4.6%, in 1996 as
compared to 1995, primarily as a result of increased sales commissions on units
sold in the fourth quarter of 1996.
Product Development. Product development expenses decreased by
approximately $124,000, or 35.0%, to approximately $230,000 from $354,000 for
fiscal 1995. As a percentage of revenues, product development expenses decreased
to 2.1% from 5.5%. The level of product development at any time is primarily a
function of the availability of financial and personnel resources. Management
expects product development expenses to increase significantly in 1997.
Other Income and Expense. Equity in earnings of Labco represents the
Company's share of Labco's operating results, in which the Company had a
non-controlling ownership during most of 1996. Prior to December 31, 1995, the
Company had a controlling interest in Labco, but from the first quarter of 1995
until the end of 1996, the Company presented Labco as an operation held for
sale. The Company's share of Labco's net income for 1996 was $117,000, as
compared to $258,000 for the same period in 1995 (where it is shown as Income
from operations under the caption "Operation held for sale"). The Company sold
its remaining interest in Labco in 1996. See "Certain Transactions--Sale of
Subsidiary."
In 1996, the Company earned investment income of $72,000.
Other expense, net of income, was $12,000 in 1996, as compared to $52,000
in 1995. In 1996, the Company recognized $44,000 of gains from trading
securities held for Canadian pension funding purposes, partially offset by
miscellaneous expenses, including $43,000 of foreign exchange losses realized in
1996. In 1995, the Company realized foreign exchange losses of $79,000.
Income Taxes. For the year ended December 31, 1996, the Company had a net
tax benefit of $391,000 primarily due to a reduction in the deferred tax
valuation allowance as a result of changes in management's estimates of the
utilization of both U.S. and Canadian tax loss carryforwards caused primarily by
improved operating results. Management anticipates that further deferred tax
benefits will be recognized in 1997.
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1995 TO THE FISCAL YEAR ENDED
DECEMBER 31, 1994
Revenues. Revenues for the fiscal year ended December 31, 1995 increased
by $860,000, or 15.6%, to $6.4 million from $5.5 million for the fiscal year
ended December 31, 1994. Sales of IONSCAN(R) instruments and related products
decreased by approximately $80,000, or 1.6%. The decrease was due, in part, to
the lower selling price of the new Model 400 IONSCAN(R), which was introduced in
the first
19
<PAGE> 21
quarter of 1995. This reduction in selling price, coupled with other
improvements of the new model, contributed to a 36.6% increase in unit sales.
Sales of instruments other than IONSCAN(R) products increased in 1995 by
approximately $114,000, or 33.0%, principally due to the award in 1995 of the
contract to build four heavy water analyzers for use at a nuclear facility in
Asia, which was completed in mid-1996. The introduction of the Model 400
resulted in reduced sales of the Model 350. As a result, the Company reduced the
carrying value of the Model 350s remaining in inventory.
Revenues of the research and development business increased by
approximately $754,000, or 253%, in 1995 as compared to 1994. The improved
revenues are attributable to work performed in 1995 under the Company's contract
with the Emergencies Science Division, Environment Canada to design and build an
airborne laser fluorosensor system.
The Company introduced and made a limited distribution of DrugAlert(TM) in
1995. Sales of DrugAlert(TM) were not significant.
Gross Profit. Gross profit increased by $1.4 million, or 96.1%, to $2.8
million from $1.4 million for fiscal 1994. As a percentage of sales, gross
profit increased to 43.5% from 25.6%. As a percentage of sales, gross profit for
the research and development business decreased to 5.1% from 12.1%. The decrease
was due to lower margins on 1995 contracts. As a percentage of sales, gross
profit for the instruments business increased to 53.1% from 26.4%. The 1995
gross profit was impacted by the write down in 1994 of the carrying value of the
Model 350 inventory which aggregated approximately $442,000, approximately
$155,000 of which related to excess spare parts inventory and the balance to
finished goods. In 1994, the Company took a $792,000 charge against its Model
350 inventory. The consumer products business had negative gross profit in 1995
due primarily to the expensing of tooling, software and other development costs.
Selling, General and Administrative. Selling, general and administrative
expenses decreased by approximately $47,000, or 1.4%, to $3.3 million from $3.4
million for fiscal 1994. As a percentage of revenues, selling, general and
administrative expenses decreased to 51.9% from 60.8%. The decrease as a
percentage of revenues was primarily attributable to such costs being spread
over a higher revenue base. Selling expenses increased by $759,000, or 48.3%, in
1995 as compared to 1994. The increase was primarily attributable to the
expenses associated with the Company's Paris, France and London, England offices
being open for a full year and marketing expenses associated with the
DrugAlert(TM) product. General and administrative expenses decreased by
approximately $806,000, or 45.3%, in 1995 as compared to 1994. This reduction
was attributable primarily to the recovery of $147,000 relating to the 1993
conversion of the Canadian pension plan from a defined benefit plan to a money
purchase plan, a reduction in accounts payable of $226,000 relating to a
settlement of professional fees and the effect of staff and expense reductions
implemented in late 1994.
Product Development. Product development expenses decreased by
approximately $177,000, or 33.3%, to $354,000 from $531,000 in fiscal 1994. As a
percentage of revenue, product development expenses decreased to 5.5% from 9.6%.
The 1994 level was attributable to the completion of the development of the
Company's new Model 400.
Other Income and Expense. Interest expense increased by approximately
$38,000, or 18.8%, in 1995 as compared to 1994. The increase resulted from
higher levels of borrowing at higher interest rates.
Other expense, net of income, in 1995 was approximately $52,000 as compared
to other income, net of expense, in 1994 of approximately $113,000. The
difference of $165,000 was attributable primarily to changes in exchange rates
which generated a gain of $135,000 in 1994 compared to a loss of $79,000 in
1995.
20
<PAGE> 22
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
operations data for the last two fiscal quarters of 1995, the four fiscal
quarters of 1996 and the first two fiscal quarters of 1997. This data is
unaudited but, in the opinion of management, reflects all adjustments,
consisting only of normal recurring adjustments, necessary for fair presentation
of this information in accordance with generally accepted accounting principles.
The operating results for any quarter are not necessarily indicative of results
for any future period or for the entire fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30,
1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............................. $1,434 $1,830 $2,354 $2,658 $2,340 $3,571 $3,622 $5,816
Cost of revenues...................... 952 757 1,236 1,411 1,002 1,715 1,461 2,494
------ ------ ------ ------ ------ ------ ------ ------
Gross profit........................ 482 1,073 1,118 1,247 1,338 1,856 2,161 3,322
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Selling, general and
administrative.................... 656 1,349 809 832 919 1,174 1,295 1,905
Product development................. 29 221 17 40 34 139 175 163
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses.......... 685 1,570 826 872 953 1,313 1,470 2,068
------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss)............... (203) (497) 292 375 385 543 691 1,254
Other (expense) income, net........... (99) (23) (103) 0 33 142 79 105
Income tax benefit.................... -- -- -- -- 125 266 75 56
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing
operations.......................... (302) (520) 189 375 543 951 845 1,415
Operation held for sale............... 139 157 -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)..................... $ (163) $ (363) $ 189 $ 375 $ 543 $ 951 $ 845 $1,415
====== ====== ====== ====== ====== ====== ====== ======
Net income (loss) per common share
(fully diluted)..................... $(0.05) $(0.11) $ 0.05 $ 0.10 $ 0.12 $ 0.18 $ 0.14 $ 0.22
====== ====== ====== ====== ====== ====== ====== ======
Weighted average common shares
outstanding (fully diluted)......... 3,412 3,415 3,479 3,489 4,619 5,376 6,109 6,418
</TABLE>
The following table sets forth, as a percentage of revenues, certain
consolidated statements of operations data for the last two fiscal quarters of
1995, the four fiscal quarters of 1996 and the first two fiscal quarters of
1997.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30,
1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.............. 66.4 41.4 52.5 53.1 42.8 48.0 40.3 42.9
----- ----- ----- ----- ----- ----- ----- -----
Gross profit................ 33.6 58.6 47.5 46.9 57.2 52.0 59.7 57.1
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Selling, general and
administration............ 45.7 73.7 34.4 31.3 39.3 32.9 35.8 32.8
Product development......... 2.0 12.1 0.7 1.5 1.5 3.9 4.8 2.8
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses................ 47.7 85.8 35.1 32.8 40.8 36.8 40.6 35.6
----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss)....... (14.1) (27.2) 12.4 14.1 16.4 15.2 19.1 21.5
Other (expense) income, net... (6.9) (1.3) (4.4) 0.0 1.4 4.0 2.1 1.8
Income tax benefit............ -- -- -- -- 5.3 7.4 2.1 1.0
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations.................. (21.0) (28.5) 8.0 14.1 23.1 26.6 23.3 24.3
Operation held for sale....... 9.7 8.6 -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)............. (11.3)% (19.9)% 8.0% 14.1% 23.1% 26.6% 23.3% 24.3%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
21
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
During 1995 and 1996, the Company used the net proceeds of private and
public sales of securities to fund a portion of its cash flow needs. Since
January 1, 1995, the Company has raised approximately $2.0 million from the
private sales of warrants, convertible debentures and Common Stock. During 1995
and 1996, the Company also financed a portion of its working capital needs
through the sale of its remaining interest in Labco, pursuant to which the
Company received $874,000. See "Certain Transactions--Sale of Subsidiary." In
November 1996, the Company completed a public offering of its Common Stock and
Common Stock Purchase Warrants, resulting in net proceeds of $10.4 million. A
portion of the net proceeds of that offering was used to repay the Company's
long-term indebtedness.
Cash used in operations was $1.3 million for the first six months of 1997,
$1.4 million in 1996 and $711,000 in 1995. Cash used in the first six months of
1997 resulted primarily from a significant increase in accounts receivable and
inventories, which more than offset net income of $2.3 million. Accounts
receivable increased as a result of higher sales, particularly during the month
of June. Inventories also increased substantially as the Company acquired the
materials necessary to support increased IONSCAN(R) production during the second
half of 1997. Cash used in operating activities during 1996 resulted primarily
from increases in accounts receivable and inventory, which more than offset net
income of $2.1 million for the year. Cash used in operating activities during
1995 resulted primarily from the loss of $827,000 recorded by the Company for
1995.
Net cash used in investing activities was $240,000 for the first six months
of 1997, $3.9 million in 1996 and $58,000 in 1995. Cash used in investing
activities during the first half of 1997 resulted primarily from capital
expenditures of $513,000, offset in part by the sale of investments. Cash used
in investing activities during 1996 resulted primarily from the investment of a
portion of the net proceeds of the Company's November 1996 public offering,
offset in part by the receipt of $574,000 in connection with the Company's sale
of its remaining interest in Labco. Cash used in investing activities during
1995 resulted primarily from the purchase of equipment, which was partially
offset by the receipt of an additional $300,000 in connection with the Labco
sale.
Cash provided by financing activities was $155,000 for the first six months
of 1997, $10.6 million in 1996 and $584,000 in 1995. Cash provided by financing
activities during the first six months of 1997 resulted primarily from the net
proceeds of certain option and warrant exercises, offset in part by the
repayment of indebtedness. Cash provided by financing activities in 1996
resulted primarily from the Company's November 1996 public offering, as well as
the conversion of $1.0 million of convertible subordinated debentures, offset in
part by the repayment of indebtedness. Cash provided by financing activities in
1995 resulted primarily from the receipt of net proceeds from the private
placement of securities, offset in part by the repayment of certain
indebtedness.
The Company's capital expenditures for the six months ended June 30, 1997
aggregated $513,000. Such expenditures consisted primarily of software upgrades
to various manufacturing information systems, computer hardware modernization
relating to the Company's network system and the acquisition of additional
equipment. The Company anticipates that total capital expenditures will be
approximately $500,000 for the remainder of 1997, substantially all of which
will relate to equipment. Also, the Company believes that it will require
approximately $1.0 million in additional investment in tooling, equipment,
fixtures and facility to meet its anticipated production levels for 1998.
The Company has substantial tax loss carryforwards to offset future tax
liabilities in the U.S.
As of June 30, 1997, the Company had cash and cash equivalents of $3.9
million and marketable securities of $4.1 million. The Company believes that its
existing cash balances, marketable securities, income from operations in future
periods and the net proceeds of this Offering will be sufficient to fund its
working capital requirements for at least the next twelve months.
22
<PAGE> 24
INFLATION
Inflation was not a material factor in either the sales or the operating
expenses of the Company during the periods presented herein.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") which establishes standards for computing and presenting earnings per
share. SFAS 128 replaces the presentation of primary earnings per share and
fully diluted earnings per share with basic earnings per share and diluted
earnings per share, respectively. Basic earnings per share excludes dilution and
is computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share is computed similarly to fully diluted earnings per share. The standard is
effective for financial statements for periods ending after December 15, 1997,
with earlier application not permitted.
Basic and diluted earnings per share using this standard would have been
$0.26 and $0.22 and $0.42 and $0.35, respectively, for the three months and six
months ended June 30, 1997, respectively, and $0.10 and $0.10 and $0.16 and
$0.15, respectively, for the three months and six months ended June 30, 1996,
respectively.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which requires disclosure of reportable operating segments and will be effective
for financial statements issued for fiscal years beginning after December 31,
1997. The Company will be reviewing this pronouncement to determine its
applicability to the Company, if any.
23
<PAGE> 25
BUSINESS
OVERVIEW
Barringer is the world's leading manufacturer (based on units sold) of high
sensitivity equipment used for detecting and identifying trace amounts of
plastic and other explosives and illegal drugs. The Company designs and produces
products that employ a proprietary application of ion mobility spectrometry
("IMS") technology that can detect and identify targeted compounds in amounts
smaller than one-billionth of a gram in approximately six seconds. The Company's
principal product, the IONSCAN(R), is a portable desktop system. As of June 30,
1997, the Company had sold over 500 units in 39 countries. The Company's
revenues have grown from $2.0 million for the year ended December 31, 1991 to
$10.9 million for the year ended December 31, 1996, representing a compounded
annual growth rate of 40.4% over the last five years. For the six months ended
June 30, 1997, the Company's revenues and net income were $9.4 million and $2.3
million, respectively.
The markets for the Company's IONSCAN(R) currently include aviation
security, other transport security, facilities protection, forensics, military,
corrections, customs and law enforcement. The Company's customers include the
FAA, the U.S. Coast Guard, the DEA and the FBI, as well as customs agencies in
France, Canada and Japan and various prison facilities in the U.S. and
elsewhere. The IONSCAN(R) is also installed at over 40 airports and
transportation centers throughout the world, including Gatwick and Heathrow
airports in the United Kingdom, John F. Kennedy International Airport, certain
British Rail terminals and the Eurotunnel. The Company believes that its
principal competitive advantages are the detection capability, reliability, cost
effectiveness, versatility, ease of use and portability of the IONSCAN(R). These
advantages enable the IONSCAN(R) to be used both in lieu of and in conjunction
with bulk imaging technologies, such as enhanced x-ray and CATSCAN.
INDUSTRY BACKGROUND
The Company believes that there are numerous potential applications for its
trace detection technology. Currently, the principal applications are explosives
detection and drug interdiction.
Explosives Detection
In the past several years, a number of events have contributed to increased
public concern regarding the threat of terrorism and have focused government
attention on the limited effectiveness of currently deployed x-ray and metal
detection equipment and on the need for advanced explosives detection
technology. As a result, several advanced technologies have been adapted for use
in explosives detection applications. These technologies include bulk imaging
techniques, such as enhanced x-ray and CATSCAN, as well as trace detection
techniques, such as IMS, gas chromatography and chemiluminescence. Bulk imaging
techniques offer certain advantages over conventional x-ray technology, but are
generally expensive to deploy (as much as $1.0 million per installation), are
non-portable and generally reject a large number of objects as a result of
perceived anomalies that are later determined not to be explosives. By
comparison, trace detection equipment is capable of detecting and identifying
minute amounts of chemical substances and is generally more portable and less
expensive than bulk imaging equipment.
While implementation of advanced detection strategies has varied
significantly around the world, the Company believes that aviation authorities,
including the FAA and BAA plc, formerly the British Airport Authority (the
"BAA"), have generally recognized that no one detection technology provides a
complete solution to the problem of enhancing existing detection capabilities.
Consequently, trace detection technology is frequently deployed as a complement
to bulk imaging equipment to resolve anomalies identified by bulk detectors and
in applications where it is impractical to use the larger, less mobile bulk
imaging detectors, such as checking carry-on baggage. Trace detection technology
is also deployed in lieu of bulk imaging equipment in certain installations
because of its relatively low cost, particularly in smaller airports and in less
developed countries.
24
<PAGE> 26
The development and deployment of advanced explosives detection technology
is being driven by recent government initiatives in the United States and
elsewhere in the world. For example, in response to the recommendations of the
White House Commission on Aviation Safety and Security (the "Gore Commission"),
in October 1996, the U.S. Congress appropriated $144 million for the procurement
of advanced explosives detection technology which the FAA is using to deploy
such technology in a limited number of the 400 busiest U.S. airports. In
addition, the BAA has installed enhanced detection technologies, including trace
detectors, in certain airports in Britain. Also, since the enactment of the
Aviation Security Act of 1990, the FAA has funded over $150 million for research
and development of advanced explosives detection technologies.
Trace detection technology has a broad range of other explosives detection
uses, including other transport security, facilities protection, forensics,
military and law enforcement. For instance, trace detection equipment has been
deployed by British Rail for use on trains traveling through the Eurotunnel.
Government agencies, military forces and private businesses have deployed trace
detection equipment at facilities, such as the World Trade Center, embassies and
public utilities, such as nuclear power plants, that are perceived as potential
targets of terrorist attacks. Law enforcement agencies, such as the FBI and the
New York City Police Department, and military forces also use trace detection
technology for forensic purposes. For example, the IONSCAN(R) was recently used
in connection with the investigations of the crash of TWA Flight 800 and the
1995 Oklahoma City bombing.
Drug Interdiction
As a result of increased drug usage, a heightened public awareness of
drug-related criminal activity generally and the use of more sophisticated
techniques by drug traffickers, government agencies have increased their
spending on drug interdiction efforts. For example, in fiscal year 1996, the
U.S. government spent $1.4 billion on drug interdiction efforts. The use of
conventional x-ray scanning, random searches and canines has had limited success
in suppressing illegal drug trafficking. Accordingly, customs and law
enforcement agencies have increasingly turned to advanced detection technology
to assist in their drug detection and interdiction efforts. For example, the
U.S. Coast Guard has deployed trace detection equipment onboard its ships to
search vessels at sea for illegal drugs. Similarly, prisons in the U.S. and
elsewhere are employing trace detection equipment to reduce drug use.
THE BARRINGER ADVANTAGE
The Company believes that its implementation of IMS technology gives the
IONSCAN(R) a distinct competitive advantage over other detection techniques,
including bulk imaging and other trace detection technologies. The IONSCAN(R)
can detect and identify targeted compounds in amounts smaller than one-billionth
of a gram. Existing bulk imaging technologies, in contrast, search for anomalies
that might indicate the presence of explosive materials but are not presently
capable of identifying specific compounds or detecting the presence of
explosives with the same sensitivity as the IONSCAN(R). In addition, because
bulk imaging technologies attempt to identify anomalies present in an object,
they reject a significantly higher number of objects that do not contain
explosives than the IONSCAN(R).
The Company believes that the portability and low cost of the IONSCAN(R)
make the IONSCAN(R) particularly attractive to customers seeking a
cost-effective solution to their need for advanced detection technology. The
portability of the IONSCAN(R) allows customers to deploy the equipment where
needed. The low cost of the IONSCAN(R) relative to other existing detection
technologies allows customers in smaller installations and in less developed
countries to obtain advanced detection technology without having to incur the
significant capital expenses currently necessary to deploy bulk imaging
technologies.
25
<PAGE> 27
The Company believes that the IMS technology used in the IONSCAN(R) also
makes the IONSCAN(R) more versatile and easier to use than other detection
technologies. For example, an IONSCAN(R) can be readily used in either an
explosives detection or drug interdiction application without modification.
Currently, trace detectors utilizing other detection technologies, such as gas
chromatography, can only perform one such application.
In addition the IONSCAN(R) has demonstrated its reliability in field use.
For example, based on sampling data obtained from the FAA as of July 15, 1997,
the IONSCAN(R)s deployed by the FAA to date have experienced a mean time between
failures in excess of 6,000 hours. The Company believes that this level of
reliability has not been duplicated by its competitors to date.
The Company believes that the advantages of the IONSCAN(R) have been
recognized by the Company's customers, as demonstrated by the sale of over 500
IONSCAN(R)s as of June 30, 1997.
GROWTH STRATEGY
The Company's objective is to maintain its position as the world's leading
provider of trace detection systems in its core markets and to become a leading
supplier of other advanced technology security solutions. The Company's strategy
for achieving this objective includes the following:
Further Penetrate Existing Markets. The Company sells its IONSCAN(R)
product in a variety of markets, including aviation security, other transport
security, facilities protection, forensics, military, corrections, customs and
law enforcement. The Company intends to extend its leadership in its existing
markets through continuous improvements to its IMS technology. In addition, the
Company intends to adapt its core IMS technology to expand its use in existing
markets. For example, the Company has received funding from the FAA for the
development of a document scanner and a token scanner for the purpose of
passenger screening at airports and an automated luggage screening system for
the purpose of screening checked luggage. See "--Product Development."
Leverage IMS Technology for New Applications. The Company believes that
the requirement for high-precision detection capability creates opportunities
for the Company's technology in applications other than explosives detection and
drug interdiction. Accordingly, the Company intends to develop products for new
applications such as quality monitoring, process control, and food and
perishable goods inspection. The Company believes that its IMS technology can
also be used to detect the presence of chemical and biological warfare agents.
Pursue Strategic Relationships and Acquisitions. An important element of
the Company's growth strategy is to extend its existing technology and market
expertise to attain leadership in other security markets through strategic
relationships and acquisitions. As these markets evolve and customers in both
commercial and government segments become more sophisticated, the Company
believes the ability to offer a broader scope of detection capability for use in
various current and emerging applications will become increasingly important.
Moreover, the Company believes that numerous security technologies exist that
are complementary to its own capabilities and for which the Company can provide
enhanced access to distribution, management, manufacturing and financial
resources.
Expand Sales and Marketing Capabilities. The Company intends to continue
to expand its sales and marketing capabilities both domestically and
internationally to capitalize on opportunities in its existing markets for new
installations as well as on opportunities in new markets. The Company intends to
hire additional sales and customer service personnel in Europe, certain
republics of the former Soviet Union, and the Middle East and, by the end of
1997, to open an office in Malaysia. Expanding its international sales and
marketing presence will provide the Company with better access to growing
foreign markets and to its existing international customer base.
IONSCAN(R) TECHNOLOGY
The IONSCAN(R) is a portable, desktop system that utilizes a proprietary
implementation of IMS technology to analyze samples for the presence of targeted
chemical compounds in amounts smaller
26
<PAGE> 28
than one-billionth of a gram. An operator collects samples, either by utilizing
a hand-held suction device that contains a special filter cartridge that
collects the sampled matter or by swiping a cloth or glove across the surface to
be tested and then transferring the sampled matter to the cartridge. After the
sample has been collected, the filter cartridge is placed onto a slide tray on
the front of the IONSCAN(R) and inserted into a heating chamber. The sample is
then rapidly heated, causing the sample to vaporize. The molecules contained in
the vapors from the sample are charged electrically, converting them into ions
that are collected and then propelled through a testing chamber containing a
controlled mixture of calibrant gases. The speed at which each ion travels
through the testing chamber will vary depending upon its molecular structure.
The IONSCAN(R) measures the time of flight of the ions through the testing
chamber and, utilizing proprietary software containing Company-developed
detection algorithms, determines whether the targeted chemicals are present and
reports the results to the user. If traces of any of the targeted chemical
compounds are present, the IONSCAN(R)'s alarm will ring, a red light on the
IONSCAN(R) will flash and the screen will display a list of the targeted
substances that were detected. If no traces of the targeted substances are
detected, the IONSCAN(R) will display a green light. The IONSCAN(R) analyzes a
sample in approximately six seconds. Because the IONSCAN(R)'s analysis takes
place under high temperature, there is virtually no residue from the sample and,
under normal operating conditions, additional sampling can take place almost
immediately with no need to clean out the testing chamber.
The Company also has developed the IONSCAN(R) Manager software for use in
conjunction with the IONSCAN(R). The IONSCAN(R) Manager provides the user with
enhanced graphic read-outs of test results enabling the user to view the data in
more detail. Utilizing this software, a user can view multiple test results at
the same time, switch back and forth between test results and highlight
particular areas of interest to obtain greater detail. This software also can be
used to print out or save data and to transfer test results onto a computer disk
for storage, transportation or other uses, such as manipulation in chemical
studies.
In addition, the Company has developed the Barringer Link software, which
allows a remote user to have access to the IONSCAN(R). Typically, this software
is used by the customer to select different testing algorithms for the
IONSCAN(R) or to troubleshoot problems with the unit. A customer has the
capability to test for a different set of chemical compounds by remotely
downloading the necessary algorithms onto its IONSCAN(R). For instance, if a
U.S. Coast Guard vessel on patrol needs the capability to test a suspect vessel
for a particular type of illegal drug, the required information can be
downloaded to its unit. In addition, the Barringer Link allows the Company or
the customer to run certain diagnostic programs to determine problems that may
have occurred within a particular unit and to correct certain software problems.
27
<PAGE> 29
CUSTOMERS
The following is a list of representative IONSCAN(R) installations as of
June 30, 1997.
EXPLOSIVES DETECTION
<TABLE>
<CAPTION>
MARKET INSTALLATION
---------------------- ------------------------------------------------------------
<S> <C>
Aviation Security Manchester Airport plc, UK
Aeroporti di Roma, Italy
Heathrow Airport Ltd., UK
Gatwick Airport Ltd., UK
Birmingham International Airport plc, UK
Bristol Airport plc, UK
Kuala Lumpur International Airport, Malaysia
John F. Kennedy International Airport (New York)
Luton International Airport, UK
Other Transport
Security Societe Nationale Companie Maritime, France
British Rail
Eurostar, UK
Societe Nationale des Chemins de Fer Francais (Le Shuttle)
The Channel Tunnel Group Ltd. (Eurotunnel)
Airmax, Inc. (Chicago)
Facilities Protection Gaz de France
Electricity de France
New York World Trade Center
Ronald Reagan Federal Office Building
Forensics Federal Bureau of Investigation
Department of Justice, Belgium
Ministry of Defense, Italy
Ministry of Justice, Taiwan
Stadt Polizei Zurich, Switzerland
Military Ministry of Defense, UK
Gendarmerie Nationale, France
Comando Generale Arma Dei Carabinieri, Italy
Aeronautica Militare, Italy
U.S. Army
U.S. Navy
U.S. Air Force
</TABLE>
28
<PAGE> 30
DRUG INTERDICTION
<TABLE>
<CAPTION>
MARKET INSTALLATION
-------------------- ------------------------------------------------------------
<S> <C>
Corrections California Department of Corrections
Pennsylvania Department of Corrections
Departamento del Distrito Federal (Reclusiorios Prisiones
Federales), Mexico
Correctional Service Canada
Customs U.S. Customs Service
Revenue Canada, Customs and Excise
HM Customs and Excise, UK
French Customs (Douanes)
Customs Bureau, Ministry of Finance, Japan
Australia Customs Service
Vietnam General Department of Customs
Korea Customs Service
Law Enforcement U.S. Coast Guard
Japan Coast Guard
U.S. Drug Enforcement Agency
Port Authority of New York and New Jersey
New York Police Department
Police Nationale, France
Home Office, UK
Ministero dell' Interno, Italy
Hong Kong Police
Harris County Parole Program (Texas)
Florida Public Housing Authorities
</TABLE>
29
<PAGE> 31
SALES AND MARKETING
The Company sells its products through a direct sales organization
comprised of 18 sales people located at its headquarters in New Jersey and at
offices in Toronto, London and Paris. The Company also intends to open an office
in Malaysia by the end of 1997. In addition, the Company utilizes a network of
49 independent sales and service representatives located in Europe, the Middle
East, Africa, Asia, South America and Australia. See "--Facilities." The Company
also has entered into sales representative agreements with Mitsubishi Heavy
Industries for distribution of the IONSCAN(R) in Japan. The Company's sales and
marketing efforts typically involve extensive customer visits, demonstrations
and field testing. Sales prospects generally are targeted by the Company or its
independent sales representatives, although the Company also responds to
requests for proposals.
Selling prices for the IONSCAN(R) average between $50,000 and $95,000 per
unit, depending principally on the configuration of the unit and the purchaser's
location. Once a sale is consummated, the Company provides training at a
customer's location to teach operators how to use the IONSCAN(R), including
proper sampling techniques. The Company generally provides a one-year parts and
labor warranty on its IONSCAN(R) instruments, although from time to time the
Company has provided extended warranties. To date, the Company's warranty claims
experience has not been significant. See "Risk Factors--Warranty Claims."
The Company does not actively market its other specialty instruments or its
contract research and development services. However, from time to time the
Company responds to appropriate requests for proposals for non-IONSCAN(R)
instruments and such services. Although sales of such instruments and such
services have been material to the Company's historic results from time to time,
as a result of the expected increase in sales of the IONSCAN(R), management
anticipates that revenues from those activities will become increasingly less
important to the Company's overall results of operations.
During the first six months of 1997, each of the Company's three largest
customers accounted for more than 10.0% of the consolidated revenues of the
Company. During 1996, one customer accounted for more than 10.0% of the
consolidated revenues of the Company. During 1995, no customer accounted for
more than 10.0% of the consolidated revenues of the Company. See "Risk
Factors--Dependence on Large Orders; Customer Concentrations."
BACKLOG
The Company measures its backlog of instrument revenues as orders for which
contracts or purchase orders have been signed, but that have not yet been
shipped and for which revenues have not yet been recognized. The Company
includes in its backlog only those customer orders that are scheduled for
delivery within the next 18 months. The Company typically ships its products
within three months of receiving an order. For competitive purposes, the Company
follows the practice of manufacturing to a sales forecast. As a result, the
Company has not historically had a material backlog of orders for its
instruments and, in the ordinary course of business, intends to have sufficient
inventory of IONSCAN(R)s on hand to allow shipment upon receipt of an order.
However, as a result of large orders received from the FAA and the U.S. Coast
Guard in the second quarter of 1997, the Company had a $2.6 million backlog of
orders for its IONSCAN(R)s at June 30, 1997. There can be no assurance that the
Company will have a material backlog of orders in any future period.
Substantially all of the Company's backlog at June 30, 1997 is expected to
be shipped during the current fiscal year. Any failure by the Company to meet an
agreed-upon schedule could lead to the cancellation of the related order. All
orders are subject to cancellation or delay by the customer and, accordingly,
there can be no assurance that such backlog will eventually result in revenues.
MANUFACTURING AND ASSEMBLY
The Company manufactures and assembles IONSCAN(R)s at its facility in
Toronto, Canada, and has recently expanded its capabilities to manufacture and
assemble IONSCAN(R)s at its facility in Murray
30
<PAGE> 32
Hill, New Jersey. The Company assembles IONSCAN(R)s from components supplied to
it by various suppliers and parts manufactured internally. Once the IONSCAN(R)
is assembled, the IONSCAN(R) is "burned in" for up to 400 hours using certain
chemicals to calibrate and tune the unit and to assure its proper functioning.
After successful completion of this procedure, the IONSCAN(R) is ready for
shipment to a customer.
Although many of the basic components of the IONSCAN(R), such as
chipboards, resistors, capacitors, liquid crystal displays and other similar
components, are readily available from a number of sources, the Company
typically purchases such components from single suppliers. A limited number of
components and sub-assemblies are manufactured for the Company, pursuant to the
Company's proprietary specifications, but the Company does not believe it is
dependent on any single source for these items. To date, the Company has not
experienced any difficulty in obtaining any components or sub-assemblies. See
"Risk Factors--Dependence on Limited Number of Suppliers."
COMPETITION
The Company competes with other entities, including Thermedics Detection
Inc. ("Thermedics"), InVision Technologies, Inc. and Vivid Technologies, Inc., a
number of which have significantly greater financial, marketing and other
resources than the Company. Principal competitive factors include selectivity
(the ability of an instrument to identify the presence of a particular
substance), sensitivity (the ability of an instrument to detect small amounts of
a particular substance), false alarm rate, price, marketing, ease of use and
speed of analysis. The Company believes that it competes effectively with
respect to each of these factors.
The Company competes for government expenditures with equipment
manufacturers utilizing other types of detection technologies, including bulk
imaging technologies, such as enhanced x-ray and CATSCAN, as well as with
manufacturers of other IMS equipment and manufacturers using other trace
particle detection technologies, such as gas chromatography and
chemiluminescence. Because trace particle detection equipment is used in certain
instances to verify detection results obtained by bulk imaging systems, the
IONSCAN(R) and other trace particle detection products are often used in
conjunction with bulk imaging technologies. As a result of recent government
initiatives, the Company anticipates that additional technologies, including
improved IMS technologies, will be developed and that new competitors will enter
the Company's markets. See "Risk Factors--Dependence on and Effects of
Government Regulation and Procurement Policies" and "--Competition."
In the trace particle detection market, the Company's main competitor is
Thermedics, which has greater financial, marketing and other resources than the
Company. However, the Company believes that the IONSCAN(R) has certain
advantages over Thermedics' instrument, including faster speed of analysis,
lower cost, greater portability, lower power consumption and lower weight.
Accordingly, the Company believes that it competes effectively with Thermedics
and will continue to do so, although no assurance can be given.
The Company also competes with the use of canines to locate the presence of
explosives or drugs. Although canines have a highly developed sense of smell and
are able to follow a trail, the Company believes that its IONSCAN(R) instruments
are more effective and cost-efficient than canines, because they can operate 24
hours a day, have greater selectivity than canines and can identify the
composition of the substance detected.
GOVERNMENT REGULATION
Although the Company's business is not subject to significant government
regulation, government regulation plays a large role in determining the demand
for the IONSCAN(R). In the U.S. and most foreign countries, the aviation
industry is highly regulated and authorities, such as the FAA in the U.S., have
the ability to recommend or mandate use of enhanced explosives detection
equipment.
31
<PAGE> 33
The FAA is currently developing a certification protocol for trace particle
detection equipment. Once the protocol is adopted, the Company believes that
only instruments meeting the FAA certification requirements will be approved for
use by airlines subject to FAA regulation. Although the final protocol has yet
to be adopted, based on early versions of the testing criteria, as well as
discussions with representatives of the FAA, the Company believes that the
IONSCAN(R) will meet the FAA's certification requirements, although no assurance
can be given. The FAA has approved the IONSCAN(R) for screening of electronic
carry-on items, such as cellular telephones, tape recorders and laptop
computers. See "Risk Factors--Dependence on and Effects of Government Regulation
and Procurement Policies."
PRODUCT DEVELOPMENT
The Company spent $651,000, $1.1 million and $1.4 million, respectively, on
research and development activities for the six months ended June 30, 1997 and
the years ended December 31, 1996 and 1995, respectively, of which $313,000,
$858,000 and $1.1 million, respectively, were funded under various research and
development grants and contracts. Substantially all of the Company's research
and development activities have related to the development and enhancement of
the Company's IONSCAN(R) technology and the development of new IONSCAN(R)
products.
The Company received a development grant from the FAA in October 1996 to
develop a document scanner that would scan boarding passes or other passenger
documents for the presence of explosives prior to boarding. The Company
delivered a prototype of the document scanner to the FAA in December 1996.
As part of the October 1996 grant, the FAA also funded the development of a
prototype token scanner system. The token scanner would sample tokens handled by
passengers for the presence of explosives prior to boarding. The Company
delivered a prototype of the token scanner to the FAA in the second quarter of
1997.
The Company received a design grant from the FAA in March 1997 for the
design of an automated luggage system that would scan checked baggage for the
presence of drugs or explosives. The grant does not require the production of a
prototype and no such prototype exists or is being built. However, under the
contract, the Company is required to deliver detailed design drawings to the FAA
in February 1998.
In addition to these government funded activities, the Company also engages
in internal product development activities. For example, the Company is
currently attempting to develop a hand-held version of the IONSCAN(R).
There can be no assurance that the Company will successfully complete the
development of the products described above or that any such products would, if
successfully developed, achieve market acceptance or a significant level of
sales. See "Risk Factors--Dependence on New Product Development; Technological
Advancement."
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
Certain of the technology used in the IONSCAN(R) is licensed by the Company
from the Canadian government as described below. While the Company holds patents
relating to certain components, systems and techniques used in the IONSCAN(R)
and while certain other elements of the IONSCAN(R) are protected by other
intellectual property rights, the Company has no comprehensive patent or similar
exclusive intellectual property right covering the IONSCAN(R) in its entirety.
In addition, the basic technology used in the IONSCAN(R) is not proprietary and
is available in the public domain. Accordingly, present and potential
competitors could use such basic technology to duplicate the performance of the
IONSCAN(R). See "Risk Factors--Limited Proprietary Technology."
The initial development of the IONSCAN(R) was funded in part by Transport
Canada and Revenue Canada. Pursuant to an agreement with the Canadian
government, the Company has a worldwide
32
<PAGE> 34
license to use certain unpatented technology developed from such work and pays
Revenue Canada a royalty equal to 1.0% of certain IONSCAN(R) sales. The initial
term of this license agreement expires on March 31, 1999. However, the Company
has entered into an agreement with Revenue Canada, pursuant to which the Company
has obtained the right to renew such licensing arrangement on a year-by-year
basis for up to ten additional years. Revenue Canada has retained the right to
use the technology and to produce products incorporating such technology
although, to date, Revenue Canada has not attempted to do so.
The Company believes that the IONSCAN(R) registered trademark has gained
recognition in the markets for the Company's products and is a valuable
trademark.
FACILITIES
The Company does not own any real property and currently conducts its
operations at the following leased premises:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE ANNUAL LEASE
LOCATION DESCRIPTION OF FACILITY FOOTAGE LEASE COST EXPIRATION
- -------------------------- ------------------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
219 South Street.......... Corporate headquarters, 4,910 $ 78,000 March 1998
Murray Hill, New Jersey sales, customer support
07974 and assembly
1730 Aimco Boulevard...... Research, manufacturing 28,380 $ 76,000* September 2005
Mississauga, Ontario, and assembly, sales,
Canada L4W 1V1 customer support and
administrative
Village Fret BAT-3453..... Sales and customer 2,500 $ 40,000 February 2000
BP 10614-4 support
Rue du Te
95724, Roissy C.D.G.
France
Unit 3 at Manor Royal..... Sales and customer 1,560 $ 16,000 February 1998
Crawley, West Sussex support
England RH10 2QU
</TABLE>
- ----------------------
* Increases to $115,000 on September 1, 2000.
The Company currently intends to relocate its New Jersey operations to
approximately 15,000 square feet of leased space in Warren, New Jersey. Although
no lease has been entered into as of the date hereof, the Company anticipates
that its rental expense for the new facility will be approximately $140,000 per
annum. The Company anticipates relocating to this new facility in the fourth
quarter of 1997. Management believes that the new facility will be sufficient to
satisfy the Company's U.S. operational needs for the foreseeable future.
EMPLOYEES
As of June 30, 1997, the Company had 106 full-time and 14 part-time
employees, of whom 58 were engaged in manufacturing, 28 were engaged in product
development activities and 34 were engaged in sales, service and general
administration. Of those engaged in product development, 14 have advanced
degrees (including 10 doctorates). None of the Company's employees is
represented by any union, and the Company considers its relationships with its
employees to be satisfactory.
LITIGATION
The Company is not a party to any material legal proceedings.
33
<PAGE> 35
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the Company's
executive officers and directors as of August 1, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------- --- ------------------------------------------------
<S> <C> <C>
Stanley S. Binder(1)........... 55 Chairman of the Board, Chief Executive Officer
and President
John H. Davies(1).............. 60 Executive Vice President and Director, President
and Chief Executive Officer of Barringer
Research Limited ("BRL")
Richard S. Rosenfeld........... 50 Vice President-Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
Kenneth S. Wood................ 45 Vice President and Secretary, President of
Barringer Instruments, Inc. ("BII")
John D. Abernathy(1)(2)(3)..... 60 Director
Richard D. Condon(2)........... 62 Director
John J. Harte(1)(3)............ 55 Director
James C. McGrath(2)(3)......... 55 Director
</TABLE>
- ----------------------
(1) Member of Executive Committee.
(2) Member of Audit and Finance Committee.
(3) Member of Executive Compensation Committee.
Mr. Stanley S. Binder joined the Company in July 1989 and has served as
Chairman of the Board since February 1991, Chief Executive Officer since July
1990 and President since July 1989. Mr. Binder also is an independent general
partner in the Special Situations Fund III, L.P. ("SSF III"), a substantial
investor in the Company. See "Certain Transactions--General." Mr. Binder is
chairman of the New Jersey Council of the American Electronics Association and a
member of the Board of Directors of the American Electronics Association.
Mr. John H. Davies joined the Company in October 1967 and has served as
Executive Vice President of the Company since January 1992. Mr. Davies has been
the President and Chief Executive Officer of BRL since August 1989.
Mr. Richard S. Rosenfeld, a certified public accountant, joined the Company
in January 1992 as Treasurer and Assistant Secretary. Since July 1993, he has
been Vice President-Finance and Chief Financial Officer of the Company.
Mr. Kenneth S. Wood joined the Company in April 1990 as Vice President of
Operations of BII. Since January 1992, he has served as Vice President of the
Company and the President of BII. He also has served as the Secretary of the
Company since March 1993. From July 1978 until April 1990, he was Program
Director for Lockheed Electronics, a company engaged in aerospace and defense
electronics.
Mr. John D. Abernathy, has served as a Director of the Company since
October 1993. Mr. Abernathy is a certified public accountant. Since January
1995, he has been Executive Director of the law firm of Patton Boggs, LLP. From
March 1994 to January 1995, he was an independent financial and management
consultant. From March 1991 to March 1994, he was the Managing Director of
Summit, Solomon & Feldesman, a law firm in dissolution since March 1993. From
July 1983 until June 1990, Mr. Abernathy was Chairman and Chief Executive
Partner of BDO Seidman, a public accounting firm. He also is a director of
Oakhurst Company, Inc., a distributor of automotive parts and accessories.
Mr. Richard D. Condon has served as a Director of the Company since
February 1992. Since January 1996, Mr. Condon has been a consultant to and
director of Amherst Process Instruments, Inc.,
34
<PAGE> 36
a scientific instrumentation company. From 1989 until December 1995, Mr. Condon
was a consultant to and director of Analytical Technology, Inc., Boston,
Massachusetts, a scientific instrumentation company.
Mr. John J. Harte has served as a Director of the Company since 1986. He
was Vice President, Special Projects of the Company from 1991 until January
1997. He is a certified public accountant and, since 1978, has been a Vice
President of Mid-Lakes Distributing Inc., a manufacturer and distributor of
heating and air conditioning parts and equipment located in Chicago, Illinois.
Mr. James C. McGrath, has served as a Director of the Company since January
1994. Mr. McGrath is an international security consultant. Since July 1989, he
has been President of McGrath International, Inc., a management consulting firm
specializing in the security field.
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. The Company's
Directors are elected by the holders of the Company's Common Stock, Class A
Convertible Preferred Stock and Class B Convertible Preferred Stock voting as a
single class. There are no family relationships among any of the directors or
executive officers.
Outside directors are entitled to an annual retainer of $2,500 per quarter
and a fee of $1,000 for each meeting attended and $500 for each committee
meeting attended (unless the committee meeting is held on the same day as a
meeting of the Board of Directors). In lieu of the annual retainer, Mr. Harte
receives a fee of $2,000 per month for services he renders to the Company, and a
fee of $1,000 for each meeting he attends in his capacity as a director. See
"Employment Agreements and Compensation Arrangements." Pursuant to the terms of
the Company's 1997 Stock Compensation Program (the "Stock Compensation
Program"), each director who has not been a full-time employee of the Company or
any subsidiary for at least the prior 12 months receives an option to purchase
3,000 shares of Common Stock each year on the earlier of (i) the date of the
Company's annual meeting of stockholders, or (ii) June 1. Options granted to
such directors under the Stock Compensation Program have an exercise price equal
to the fair market value per share as of the date of grant. See "--1997 Stock
Compensation Program."
Under the Company's 1991 Directors Warrant Plan (the "1991 Warrant Plan"),
each non-employee director, upon election or appointment to the Board, was
offered 3,750 warrants, at $0.40 per warrant, each of which was exercisable
within five years to purchase one share of Common Stock at an exercise price
determined by the Board at the time the warrants were issued, but not less than
the current market price for the shares underlying the warrants. The 1991
Warrant Plan required each such new director to use his or her first quarterly
director's fee to pay the purchase price for such warrants. The Board of
Directors terminated the 1991 Warrant Plan effective May 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Executive Compensation Committee is comprised of Messrs.
Abernathy, Harte and McGrath. During the fiscal year ended December 31, 1996,
Mr. Harte was also the Vice President, Special Projects, of the Company. Messrs.
Abernathy and McGrath were not officers or employees of the Company during
fiscal 1996.
Until November 1996, Mr. Harte was Chairman of the Board of Labco, and Mr.
Binder was a Director of Labco. Mr. Binder also served on the compensation
committee of Labco's Board of Directors. Except as described herein, no
executive officer of the Company and no member of the Compensation Committee is
a member of any other business entity that has an executive officer that sits on
the Company's Board or on the Executive Compensation Committee. In January 1996,
Mr. Binder received an option to purchase 10,000 shares of Labco common stock at
an exercise price equal to the fair market value of the Labco common stock on
the date of grant. For certain other transactions between Labco and the Company,
see "Certain Transactions--Sale of Subsidiary."
35
<PAGE> 37
EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid to the President
and Chief Executive Officer and each other executive officer of the Company
whose total annual salary and bonus for the year ended December 31, 1996
exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -----------------------------------
--------------------------------- RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS OTHER ANNUAL STOCK UNDERLYING LTIP COMPENSATION
POSITION YEAR ($) ($) COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS ($)(1)
- -------------------------- ------ -------- ------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley S. Binder......... 1996 $171,491 $63,000 -- -- 55,000 -- $2,925
President and Chief 1995 171,491 -- -- -- 45,000 -- 5,940
Executive Officer 1994 167,757 -- -- -- -- -- 5,940
John H. Davies............ 1996 125,275* 43,200* -- -- 38,250 -- $6,317*
Executive Vice President 1995 125,775* -- $ 12,149*(2) -- 31,250 -- 6,317*
of the Company 1994 120,582* -- -- -- -- -- 5,741*
Kenneth S. Wood........... 1996 111,815 39,600 -- -- 33,750 -- $2,199
President of Barringer 1995 111,815 -- -- -- 26,250 -- 2,283
Instruments, Inc. 1994 109,751 -- -- -- -- -- 2,436
Richard S. Rosenfeld...... 1996 96,000 34,200 -- -- 27,500 -- $1,872
Vice President-Finance, 1995 96,000 -- -- -- 22,500 -- 4,410
Chief Financial Officer 1994 90,400 -- -- -- -- -- 4,545
</TABLE>
- ----------------------
* Amounts converted to U.S. dollars at the average exchange rate for such
year.
(1) Represents amounts contributed by the Company pursuant to the Company's
tax-qualified 401(k) deferred compensation plan ("401(k) Plan"). In 1996,
the 401(k) Plan provided that the Company would make matching contributions
to the participants in the 401(k) Plan equal to 100% of the first 2.0% of a
participant's salary contributed and 50.0% of the next 5.0% of a
participant's salary contributed, which contributions vested proportionately
over a five-year period, commencing at the end of the participant's first
year with the Company.
(2) The other annual compensation for Mr. John Davies represented the payment of
previously accrued and unpaid vacation pay.
OPTION GRANTS
The following table summarizes certain information relating to the grant of
options to purchase Common Stock to each of the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR
NAME GRANTED(#)(2) FISCAL YEAR(3) BASE PRICE($/SH)
- ----------------------------------------------- ------------ ---------------- ----------------
<S> <C> <C> <C>
Stanley S. Binder.............................. 55,000 21.7% $ 1.00
John H. Davies................................. 38,250 15.1 1.00
Kenneth S. Wood................................ 33,750 13.3 1.00
Richard S. Rosenfeld........................... 27,500 10.9 1.00
</TABLE>
- ----------------------
(1) The Company did not grant stock appreciation rights in 1996.
(2) The stock options expire on April 25, 2001. Twenty-five percent of each
option grant is exercisable immediately, 50.0% is exercisable after the
first year, 75.0% is exercisable after the second year and 100% is
exercisable after the third year.
(3) Options covering a total of 253,000 shares of Common Stock were granted in
1996.
36
<PAGE> 38
OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of stock options during 1996 and
unexercised options held by such Named Executive Officers as of December 31,
1996.
AGGREGATED OPTION EXERCISES IN 1996 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS
SHARES AT YEAR-END(#) AT YEAR-END($)(1)
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley S. Binder..... -- -- 31,750 68,250 $ 216,156 $ 476,344
John H. Davies........ -- -- 22,062 47,438 150,208 331,105
Kenneth S. Wood....... -- -- 33,937 41,063 129,161 287,089
Richard S.
Rosenfeld........... -- -- 22,125 34,125 108,078 238,172
</TABLE>
- ----------------------
(1) Based on a closing bid price of $8.375 per share for the Common Stock as of
December 31, 1996.
BRL maintained a defined benefit pension plan for its Canadian employees
that was terminated on December 31, 1993. Mr. Davies was a participant in that
plan. His projected annual benefit at age 65 has been set at approximately
$54,000, which amount may be subject to change only in response to changes in
the Canadian pension regulatory scheme.
STOCK OPTION PLANS
1990 Option Plan
The Company maintained an option plan (the "1990 Option Plan") pursuant to
which the Company was authorized to grant options covering a total of 100,000
shares of Common Stock. As of December 31, 1996, options covering a total of
23,750 shares of Common Stock were outstanding thereunder and no further options
could be granted thereunder. All of such options expired in January 1997.
1997 Stock Compensation Program
In May 1997, the Company adopted the Stock Compensation Program in order to
promote the interests of the Company, its direct and indirect present and future
subsidiaries and its stockholders by providing eligible persons with the
opportunity to acquire an ownership interest, or to increase their ownership
interest, in the Company as an incentive to remain in the service of the
Company. The Stock Compensation Program authorizes the granting of incentive
stock options, non-qualified stock options, stock appreciation rights,
performance shares and stock bonus awards to employees and consultants of the
Company and its subsidiaries, including those employees serving as officers or
directors of the Company (the "Employee Plans"). The Stock Compensation Program
also authorizes automatic option grants to directors who are not otherwise
employed by the Company (the "Independent Director Plan"). In connection with
the Stock Compensation Program, 600,000 shares of Common Stock are reserved for
issuance, of which up to 500,000 shares may be issued under the Employee Plans
and up to 100,000 shares may be issued under the Independent Director Plan. The
Stock Compensation Program is administered by the Executive Compensation
Committee of the Board of Directors.
Options and awards granted under the Stock Compensation Program may have an
exercise or payment price as established by the Executive Compensation
Committee; provided that the exercise price of incentive stock options granted
under the Employee Plans may not be less than the fair market
37
<PAGE> 39
value of the underlying shares on the date of grant. Options granted under the
Independent Director Plan must have an exercise price equal to the fair market
value of the underlying shares on the date of grant.
Unless otherwise provided at the date of grant, no option or award may vest
within one year of the date of grant and no option or award may be exercised
more than 10 years from the date of grant. Options granted under the Independent
Director Plan vest one year following the date of grant and expire if not
exercised on or before the fifth anniversary thereof. Unless otherwise specified
by the Executive Compensation Committee, options and awards (other than pursuant
to the Independent Director Plan) vest in four equal installments on the first,
second, third and fourth anniversaries of the date of grant. Vesting of any
option or award granted under the Stock Compensation Program may be accelerated
in certain circumstances, including upon the occurrence of a "Change in Control
Event" (as defined in the Stock Compensation Program).
Options and awards granted under the Stock Compensation Program are
nontransferable, except by will or by the laws of descent and distribution.
However, the Executive Compensation Committee may permit the recipient of a
non-incentive stock option granted under the Employee Plans and options granted
under the Independent Director Plan to transfer the option to a family member or
a trust created for the benefit of family members. During the lifetime of a
participant, an option may be exercised only by the participant or a permitted
transferee. In the event that a participant's employment or service terminates
as a result of death, all vested awards will be paid to the participant's estate
by the Company and the participant's estate or any permitted transferee will
have the right to exercise vested options for a period ending on the earlier of
the expiration dates of such options or one year from the date of death. If the
participant's employment or service terminates as a result of retirement or a
"disability" (as set forth in the Stock Compensation Program), all vested awards
will be paid to the participant by the Company and the participant or any
permitted transferee will have the right to exercise vested options for a period
ending on the earlier of the expiration dates of such options or one year from
the date of termination. If the participant's employment or service terminates
for cause, all options and awards will automatically expire upon termination. If
the participant's employment or service terminates other than as a result of
death, disability, retirement or termination for cause, the participant will
have the right to collect all vested awards immediately and the participant or
any permitted transferee will have the right to exercise vested options for a
period ending on the earlier of the expiration dates of such options or awards
or 30 days from the date of termination, subject to extension at the discretion
of the Administrator, or three months from the date of termination in the case
of options granted pursuant to the Independent Director Plan. In all cases, any
unvested options or awards will terminate as of the date of termination of
employment or service.
The Stock Compensation Program will terminate on February 28, 2007, unless
earlier terminated by the Board of Directors. No options or awards may be
granted under the Stock Compensation Program after its termination; however,
termination of the Stock Compensation Program will not affect the status of any
option or award outstanding on the date of termination.
Incentive stock options exercisable for an aggregate of 135,500 shares of
Common Stock have been granted to date under the Employee Plans. These options
expire 10 years after the date of grant and have an exercise price, subject to
adjustment, of $9.375 per share. Such options are exercisable annually in 25%
increments beginning with the first anniversary of the date of grant. In
addition, pursuant to the terms of the Independent Director Plan, options
exercisable for an aggregate of 12,000 shares were granted to the Company's
independent directors. These options become exercisable one year from the date
of grant, expire five years from the date of grant and have an exercise price,
subject to adjustment, of $13.875 per share.
Exercise Program
In connection with the options granted by the Company to its employees, the
Board of Directors has approved a stock option exercise program (the "Exercise
Program"). The Exercise Program
38
<PAGE> 40
permits all employees of the Company and its subsidiaries who are granted stock
options (pursuant to either qualified or non-qualified plans) to finance the
exercise of such options by causing the Company to issue the shares underlying
such options upon receipt by the Company from the employee of a full-recourse
demand note evidencing indebtedness to the Company in an amount equal to the
exercise price. Such loans, which are secured by the underlying shares of Common
Stock, are interest-free for one year from the date on which the employee
exercises his or her option, after which interest accrues at the prime rate,
which rate is changed monthly. The loans are repaid with a portion of the
proceeds from the sale of the Common Stock to be received by the employees upon
the exercise of their options.
Pursuant to the Exercise Program, on April 21, 1994, Mr. Binder and Mr.
Wood exercised options to purchase 37,500 shares of Common Stock and 10,000
shares of Common Stock, respectively, in exchange for which Mr. Binder and Mr.
Wood executed notes payable to the Company in the amount of $203,000, and
$71,600, respectively. In 1995, for the period in which no interest accrued to
the Company (from January 1, 1995 through April 21, 1995), Mr. Binder and Mr.
Wood received benefits of $5,469 and $1,929, respectively, under the Exercise
Program, representing interest otherwise payable on such notes.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
The Company has entered into an Employment Agreement with Mr. Binder, the
President and Chief Executive Officer of the Company (the "Employment
Agreement"), pursuant to which Mr. Binder receives $171,000 annually as
compensation, subject to increases equal to percentage increases in the Consumer
Price Index as well as increases authorized by the Executive Compensation
Committee. The Employment Agreement provides that it will be automatically
renewed each year, unless either party gives the other six months' prior written
notice of non-renewal. In addition, under the Employment Agreement Mr. Binder
received an option to purchase 25,000 shares of Common Stock at an exercise
price of $4.00 per share, which approximated market value at the time of grant.
In addition, Mr. Binder received a non-qualified option to purchase 25,000
shares of Common Stock at an exercise price of $8.00 per share, subject to
anti-dilution provisions, which option became exercisable immediately as to all
shares subject thereto. Such non-qualified option has been exercised by Mr.
Binder, pursuant to the Stock Option Exercise Program. See "Certain
Transactions."
The Company has entered into employment agreements with Messrs. Wood and
Rosenfeld which run for a term of one year from November 1, 1996, subject to
automatic renewal unless either the employee or the Company gives the other
party to the employment agreement 90 days' prior written notice of non-renewal.
Pursuant to the employment agreements, Messrs. Wood and Rosenfeld receive annual
base salaries of $111,815 and $96,000, respectively, subject to periodic
increases at the discretion of the Board of Directors, and are entitled to
participate in any cash bonus plan maintained by the Company. Both of the
employment agreements provide, among other things, that, in the event of a
termination of employment by the Company without cause, or a termination by the
employee in certain circumstances following a "change in control" of the
Company, the employee will be entitled to receive certain severance benefits
(payable in equal monthly installments) determined on a formula basis. Both of
the employment agreements also contain certain confidentiality and
non-competition provisions which continue in effect following the termination of
the employee's employment by the Company.
The Company has entered into a Consulting Agreement with Mr. Harte (the
"Consulting Agreement") pursuant to which Mr. Harte receives $2,000 per month as
compensation. The Consulting Agreement provides that it will be automatically
renewed each year, unless either party gives the other six months' prior written
notice of non-renewal. In addition, under the Consulting Agreement, Mr. Harte is
entitled to participate in any grant of stock options to outside board members.
39
<PAGE> 41
INDEMNIFICATION OF THE DIRECTORS AND OFFICERS
The Certificate of Incorporation and the Company's by-laws, as amended
("By-laws"), provide that the Company shall, to the fullest extent permitted by
law, indemnify each person (including the heirs, executors, administrators and
other personal representatives of such person) against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually and
reasonably incurred by such person in connection with any threatened, pending or
actual suit, action or proceeding (whether civil, criminal, administrative or
investigative in nature or otherwise) in which such person may be involved by
reason of the fact that he or she is or was a director or officer of the Company
or is serving any other incorporated or unincorporated enterprise in any of such
capacities at the request of the Company. Such provisions may provide
indemnification to the officers and directors of the Company for liability under
the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
40
<PAGE> 42
CERTAIN TRANSACTIONS
GENERAL
In May 1995, the Company sold to SSF III, which is controlled by Mr. Marxe
and of which Mr. Binder is an independent general partner with approximately a
0.01% interest in such partnership, and to the Special Situations Cayman Fund,
LP, an affiliate of SSF III (collectively, with SSF III, "SSF"), an aggregate of
125 units at a purchase price of $6,000 per unit for an aggregate purchase price
of $750,000. Each unit consisted of 2,500 shares of Common Stock and a five-year
warrant to purchase 2,500 shares of Common Stock at $1.96 per share, subject to
certain anti-dilution provisions. As an inducement to enter into the transaction
and in lieu of a transaction fee, the Company also issued to SSF warrants,
exercisable for three years, to purchase an aggregate of 37,500 shares of Common
Stock at $1.96 per share, subject to certain anti-dilution provisions. In
addition, in June 1995, the Company sold 22 units to certain officers and
directors of the Company for an aggregate purchase price of $132,000. Such units
were identical to those sold to SSF.
For a description of certain transactions between Labco and the Company,
see "--Sale of Subsidiary" and "Management--Compensation Committee Interlocks
and Insider Participation."
In July 1996, the Company sold to SSF $450,000 in principal amount of the
Company's 6% Subordinated Convertible Debentures due 1997 (the "Debentures").
The Debentures bore interest at the rate of 6.0% per annum, were convertible
into shares of Common Stock at a conversion rate of $2.75 and, pursuant to their
terms, matured 30 days after the consummation of the Company's November 1996
public offering, unless converted prior thereto. Certain officers and directors
of the Company purchased an additional $100,000 in aggregate principal amount of
the Debentures. All of the Debentures were converted into shares of Common Stock
in December 1996.
Mr. Abernathy is currently the Executive Director of Patton Boggs, LLP, a
Washington, D.C. law firm. During 1996, the Company retained Patton Boggs, LLP
to represent the Company in various matters and has retained such firm in 1997.
SALE OF SUBSIDIARY
Prior to December 1995, the Company controlled Labco, a publicly traded
company that provides comprehensive laboratory-based analytical and consulting
services in the United States and Mexico, including environmental monitoring and
geochemical analysis for the hydrocarbon and mineral exploration industries. In
order to focus its resources on its core business and to increase working
capital, in December 1995 the Company entered into a Stock Purchase Agreement
with Labco (the "Stock Purchase Agreement") pursuant to which the Company sold
back to Labco 647,238 shares of Labco's common stock for an aggregate purchase
price of $809,000. The purchase price consisted of the cancellation of all
inter-company obligations and $300,000 in cash. After giving effect to the sale,
the Company continued to own 437,475 shares of Labco's common stock. However,
under the terms of the Stock Purchase Agreement, Labco retained an additional
88,260 shares of Labco common stock owned by the Company (the "Retained
Shares"), subject to the return of the Retained Shares to the Company upon Labco
meeting certain pre-tax earnings goals for 1996. The Company also agreed to
terminate all voting arrangements allowing it to vote shares of Labco common
stock not owned by it and agreed for a period of 24 months not to enter into any
such voting arrangements. See Note 2 of the Notes to Consolidated Financial
Statements.
In October 1996, the Company and Labco entered into a Termination Agreement
(the "Termination Agreement") pursuant to which Labco agreed to waive its right
of first refusal with respect to, and to terminate the other restrictions on,
the transfer of the Company's remaining Labco shares. The Company agreed that,
for a period of three months from the date of the Termination Agreement, it
would sell such shares at a price of at least $1.6875 per share (the "Target
Price") in a distribution in which it would not knowingly sell more than 75,000
shares to any one purchaser or group of related purchasers. Under the
Termination Agreement, for such three-month period, the Company agreed to
41
<PAGE> 43
sell its Labco shares as provided above upon receipt of an offer to acquire such
shares at a price per share at least equal to the Target Price. The restrictions
described above also applied to any shares of Labco common stock issuable to the
Company upon the exercise of certain warrants held by the Company. Labco
registered the Company's Labco shares for resale pursuant to the Securities Act
to facilitate such sales.
In the Termination Agreement, the Company also agreed to surrender to Labco
the Retained Shares and to terminate all remaining inter-company arrangements.
In addition, upon the disposition by the Company of at least 250,000 of its
shares of Labco common stock, Messrs. Binder and Harte agreed to resign their
positions with Labco.
As of December 31, 1996, the Company had sold its entire interest in Labco
and, pursuant to the terms of the Termination Agreement, Messrs. Binder and
Harte had resigned their respective positions with Labco.
42
<PAGE> 44
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of August 1, 1997, the number of shares
of Class A Convertible Preferred Stock, Class B Convertible Preferred Stock and
Common Stock owned by each Named Executive Officer, each director and all
directors and executive officers as a group and any persons (including any
"group" as used in Section 13(d)(3) of the Exchange Act) known by the Company to
own beneficially 5% or more of such securities. As of August 1, 1997, there were
5,475,179 shares of Common Stock, 45,146 shares of Class A Convertible Preferred
Stock and 22,500 shares of Class B Convertible Preferred Stock issued and
outstanding. As of that date, none of the executive officers and directors of
the Company owned shares of the Company's Class A Convertible Preferred Stock or
Class B Convertible Preferred Stock. The business address for all of the
executive officers and directors of the Company is 219 South Street, Murray
Hill, New Jersey 07974.
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP BENEFICIAL OWNERSHIP BENEFICIAL
OF CLASS A OF CLASS B OF COMMON STOCK SHARES OWNERSHIP
CONVERTIBLE CONVERTIBLE PRIOR TO BEING OF COMMON STOCK
PREFERRED STOCK PREFERRED STOCK OFFERING(1)(2) OFFERED(3) AFTER OFFERING(1)(3)
--------------- --------------- -------------------- ------- ---------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER NUMBER PERCENT
OF OF OF OF OF OF OF OF OF
NAME SHARES CLASS SHARES CLASS SHARES CLASS SHARES SHARES CLASS
- --------------------------- ------ ------- ------ ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley S. Binder(4)....... -- -- -- 133,136 2.4% 33,355 99,781 1.3%
John H. Davies(5).......... -- -- -- 109,107 2.0 10,000 99,107 1.3
Ludo R. Daubner(6)......... -- -- -- 16,063 * 5,000 11,063 *
John J. Harte(7)........... -- -- -- 49,600 * 7,500 42,100 *
Richard D. Condon(8)....... -- -- -- 22,000 * 0 22,000 *
John D. Abernathy(9)....... -- -- -- 24,704 * 7,500 17,204 *
David Martinak(10)......... -- -- -- 4,895 * 3,645 1,250 *
James C. McGrath(11)....... -- -- -- 20,750 * 0 20,750 *
Kenneth S. Wood(12)........ -- -- -- 46,261 * 10,000 36,261 *
Richard S. Rosenfeld(13)... -- -- -- 41,286 * 5,000 36,286 *
All directors and executive
officers as a group
consisting of ten (10)
persons.................. -- -- -- 467,802 8.2 82,000 385,802 4.9
Austin W. Marxe(14)........ -- -- -- 1,026,822 18.0 0 1,026,822 12.8
153 E. 53rd St.
NY, NY 10022
Perkins Capital Management,
Inc.(15) ................ -- -- -- 721,159 13.5 0 721,159 9.4
708 East Lake Street
Wayzata, MN 55391
Ronald and Kathleen
Hanna.................... 21,549 47.7% -- -- 7,795 * 0 7,795 *
135 South Horizon Circle
Prescott, AZ 86303
Max Gerber................. -- 12,500 55.6% 4,447 * 0 4,447 *
26 Broadway
New York, NY 10004-1776
Paul Spitzberg............. -- 10,000 44.4 3,558 * 0 3,558 *
16 Whiteowl Road
Tenafly, NJ 07670
</TABLE>
- ----------------------
* Less than 1%
(1) Assumes the exercise of all outstanding warrants for Common Stock, the
conversion of each outstanding share of Class A Convertible Preferred Stock
and Class B Convertible Preferred Stock into Common Stock and the exercise
of all options exercisable within 60 days of August 1, 1997 for each person
or entity.
(2) Certain amounts shown are subject to adjustment in certain circumstances.
43
<PAGE> 45
(3) Assumes the exercise of the Underwriters' over-allotment option in full.
(4) Includes 54,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of August 1, 1997 and 12,500 shares of
Common Stock issuable upon exercise of warrants owned by Mr. Binder.
Excludes shares of Common Stock beneficially owned by SSF III of which Mr.
Binder is an independent general partner. Mr. Binder disclaims any
beneficial interest in such shares.
(5) Includes 37,875 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of August 1, 1997 and 12,500 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Davies.
(6) Mr. Daubner is a Vice President of BRL. Includes 6,200 shares of Common
Stock issuable upon the exercise of options exercisable within 60 days of
August 1, 1997. Also includes 1,000 shares of Common Stock owned by Mr.
Daubner's spouse.
(7) Includes 12,000 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of August 1, 1997.
(8) Includes 12,000 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of August 1, 1997 and 5,000 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Condon.
(9) Includes 12,000 shares of Common Stock issuable upon the exercise of
options exercisable with 60 days of August 1, 1997 and 6,250 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Abernathy.
(10) Mr. Martinak is the Vice President, Sales of BRL. Includes 1,250 shares of
Common Stock issuable upon the exercise of options exercisable within 60
days of August 1, 1997.
(11) Includes 12,000 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of August 1, 1997 and 3,750 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. McGrath.
(12) Includes 32,625 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of August 1, 1997.
(13) Includes 27,250 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of August 1, 1997 and 5,000 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Rosenfeld.
Also includes 3,636 shares of Common Stock owned by Mr. Rosenfeld as
custodian for a minor child.
(14) Includes (i) 502,580 shares of Common Stock and 256,667 shares of Common
Stock issuable upon the exercise of warrants owned by SSF III, and (ii)
174,242 shares of Common Stock and 93,333 shares of Common Stock issuable
upon the exercise of warrants owned by Special Situations Cayman Fund, L.P.
(the "Cayman Fund"). AWM Investment Company, Inc. ("AWM") is the sole
general partner of the Cayman Fund and the sole general partner of MGP
Advisors Limited ("MGP"), a general partner of SSF III. Mr. Marxe is the
President and Chief Executive Officer of AWM and the principal limited
partner of MGP. Accordingly, Mr. Marxe may be deemed to be the beneficial
owner of all of the shares of Common Stock held by SSF III and the Cayman
Fund. Mr. Binder is an independent general partner of SSF III. Mr. Binder
disclaims beneficial ownership of all shares held by SSF III.
(15) Consists of 421,159 shares of Common Stock owned by clients of Perkins
Capital Management, Inc. ("Perkins Capital") and 300,000 shares of Common
Stock held by The Perkins Opportunity Fund (the "Perkins Fund"), for which
Perkins Capital acts as investment adviser. Perkins Capital disclaims any
beneficial interest in the shares of Common Stock held by the Perkins Fund.
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following is a brief summary of certain provisions of the capital stock
of the Company. Such summary does not purport to be complete and is qualified in
all respects by reference to the actual text of the Certificate of
Incorporation, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.01 per share, 1,000,000 shares of Convertible
Preferred Stock, par value $1.25 per share, and 4,000,000 shares of Preferred
Stock, par value $2.00 per share, of which 270,000 shares are designated as
Class A Convertible Preferred Stock and 730,000 shares are designated as Class B
Convertible Preferred Stock. As of August 1, 1997, the Company had outstanding
5,475,179 shares of Common Stock, no shares of Convertible Preferred Stock,
45,146 shares of Class A Convertible Preferred Stock and 22,500 shares of Class
B Convertible Preferred Stock. The Company currently intends to redeem the
outstanding shares of Class A Convertible Preferred Stock and Class B
Convertible Preferred Stock as soon as permitted under the terms thereof. Upon
completion of this Offering, the Company will have outstanding 7,475,179 shares
of Common Stock (7,693,179 shares if the Underwriters' over-allotment option is
exercised in full). In addition, the Company will have 1,502,899 shares of
Common Stock reserved for issuance pursuant to options, warrants and convertible
securities outstanding as of August 1, 1997. See "Shares Eligible For Future
Sale." As of August 1, 1997, there were approximately 1,000 record holders of
Common Stock.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share on all matters on which the holders of Common Stock are entitled to vote.
Subject to the rights of the outstanding shares of Convertible Preferred Stock
and Preferred Stock, the holders of the Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation or dissolution after
payment or provision for all liabilities and the preferential liquidation rights
of the Convertible Preferred Stock and Preferred Stock then outstanding. The
holders of Common Stock have no pre-emptive rights to purchase any shares of any
class of stock of the Company. All outstanding shares of Common Stock are, and
the shares of Common Stock to be issued by the Company pursuant to the Offering
will be, upon payment therefor, fully paid and non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more classes
or series, and the Board of Directors is authorized, subject to any limitations
prescribed by Delaware law, to fix the rights, preferences and privileges of the
shares and the qualifications, limitations or restrictions thereon, the number
of shares constituting such class or series and the designation thereof, without
any further vote or action by the stockholders. Unless the designations
establishing a particular series of Preferred Stock provide that the shares of
such series of Preferred Stock rank junior to the Convertible Preferred Stock,
all outstanding shares of Preferred Stock will rank pari passu with the
Convertible Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
Depending upon the rights of such Preferred Stock, the issuance of additional
Preferred Stock could adversely affect the holders of Common Stock. For example,
Preferred Stock issued by the Company may rank senior to the Common Stock as to
dividend rights,
45
<PAGE> 47
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of Common Stock. Accordingly, the issuance of shares
of Preferred Stock may discourage bids for the Common Stock at a premium or may
otherwise adversely affect the market price of the Common Stock.
The Board of Directors has designated two series of Preferred Stock, the
Class A Convertible Preferred Stock and the Class B Convertible Preferred Stock.
As indicated above, the Company currently intends to redeem the outstanding
shares of Class A Convertible Preferred Stock and Class B Convertible Preferred
Stock as soon as permitted under the terms thereof. Based on the recent trading
history for the Common Stock, the Company anticipates that it will be permitted
to redeem the outstanding shares of Class A Convertible Preferred Stock and
Class B Convertible Preferred Stock on or about September 18, 1997.
Class A Convertible Preferred Stock
Holders of Class A Convertible Preferred Stock are entitled to receive or
have set apart for payment, when and as declared by the Board of Directors,
cumulative dividends at an annual rate of $0.16 per share, payable semi-annually
in cash or shares of Common Stock at the Company's option. Holders of shares of
Class A Convertible Preferred Stock are entitled to convert each share of Class
A Convertible Preferred Stock into 0.361745 of a share of Common Stock. The
number of shares of Common Stock into which each share of Class A Convertible
Preferred Stock is convertible is subject to adjustment in certain events. The
Class A Convertible Preferred Stock is redeemable any time, at the Company's
option, after the closing price of the Common Stock has been $12.00 or more for
90 consecutive trading days, in whole or in part, at $2.00 per share, plus
accrued dividends. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, holders of Class A
Convertible Preferred Stock will be entitled to a liquidation preference of
$2.00 per share plus accrued dividends. Holders of Class A Convertible Preferred
Stock are entitled to vote on all matters on which the holders of shares of
Common Stock are entitled to vote, vote together with the holders of the Common
Stock the Convertible Preferred Stock and the Class B Convertible Preferred
Stock as a single class, and in such circumstances will be entitled to that
number of votes which is equal to the number of shares of Common Stock into
which each share of Class A Convertible Preferred Stock held by such holder is
then convertible. Holders of Class A Convertible Preferred Stock also are
entitled to vote as a class in certain limited circumstances.
Class B Convertible Preferred Stock
Holders of Class B Convertible Preferred Stock are entitled to receive or
have set apart for payment, when and as declared by the Board of Directors,
cumulative dividends at an annual rate of $0.16 per share, payable semi-annually
in cash or shares of Common Stock at the Company's option. Holders of shares of
Class B Convertible Preferred Stock are entitled to convert each share of Class
B Convertible Preferred Stock at any time after the date of issuance thereof,
into 0.355839 of a share of Common Stock. The number of shares of Common Stock
into which each share of Class B Convertible Preferred Stock is convertible is
subject to adjustment in certain events. The Class B Convertible Preferred Stock
is redeemable any time, at the Company's option, after the closing price of the
Common Stock has been $12.00 or more for 90 consecutive trading days, in whole
or in part, at $2.00 per share, plus accrued dividends. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company, holders of Class B Convertible Preferred Stock will be entitled
to a liquidation preference of $2.00 per share, plus accrued dividends. Holders
of Class B Convertible Preferred Stock are entitled to vote on all matters on
which the holders of Common Stock are entitled to vote, vote together with the
holders of Common Stock, the Convertible Preferred Stock and the Class A
Convertible Preferred Stock as a single class, and in such circumstances will be
entitled to that number of votes which is equal to the number of shares of
Common Stock into which each share of Class B Convertible Preferred Stock held
by such holder is then convertible. Holders of Class B Convertible Preferred
Stock also are entitled to vote as a class in certain limited circumstances.
46
<PAGE> 48
CONVERTIBLE PREFERRED STOCK
No Convertible Preferred Stock is currently issued or outstanding, and the
Company has no current plan to issue any shares of Convertible Preferred Stock.
Holders of Convertible Preferred Stock, when and if issued, will be entitled to
receive or have set apart for payment, when and as declared by the Board of
Directors, cumulative dividends at an annual rate of $.10 per share, payable
semi-annually in Common Stock. Holders of shares of Convertible Preferred Stock
will be entitled to convert each share of Convertible Preferred Stock at any
time prior to the fourth anniversary of the date of issuance thereof, into one
share of Common Stock. The Company will be entitled to force a conversion of the
Convertible Preferred Stock, but not with respect to less than all of the
outstanding shares, upon the occurrence of certain events. The number of shares
of Common Stock into which each share of Convertible Preferred Stock is
convertible is subject to adjustment in certain events. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company, holders of Convertible Preferred Stock will be entitled to a
liquidation preference of $1.25 per share. Holders of Convertible Preferred
Stock will be entitled to vote on all matters on which the holders of Common
Stock vote, vote together with the Common Stock, the Class A Convertible
Preferred Stock and the Class B Convertible Preferred Stock as a single class,
and in such circumstances will be entitled to that number of votes which is
equal to the number of shares of Common Stock into which each share of
Convertible Preferred Stock held by such holder is then convertible. Holders of
Convertible Preferred Stock will also be entitled to vote as a class in certain
circumstances including, a merger, consolidation, a sale of substantially all of
the Company's assets and the adoption of stock option or other incentive plans.
CERTAIN CHARTER PROVISIONS
The Certificate of Incorporation contains provisions which require the
favorable vote by the holders of not less than 80.0% of the outstanding shares
of Common Stock for the approval of any merger, consolidation or other
combination with, or sale, lease or exchange of all or substantially all of the
assets of the Company to, another entity holding more than 10.0% of the
Company's outstanding voting equity securities or any affiliate of such entity.
These provisions could discourage potential acquisition proposals, delay or
prevent a change in control of the Company and limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law generally restricts a
corporation from entering into certain business combinations with an interested
stockholder (defined as any person or entity that is the beneficial owner of at
least 15.0% of a corporation's voting stock) or its affiliates for a period of
three years after the date of the transaction in which the person became an
interested stockholder unless (i) the transaction is approved by the board of
directors of the corporation prior to such business combination, (ii) the
interested stockholder acquires 85.0% of the corporation's voting stock in the
same transaction in which it exceeds 15.0%, or (iii) the business combination is
approved by the board of directors and by a vote of two-thirds of the
outstanding voting stock not owned by the interested stockholder. The Delaware
General Corporation Law provides that a corporation may elect not to be governed
by Section 203. At present, the Company does not intend to make such an
election. Section 203 may render more difficult a change in control of the
Company or the removal of incumbent management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
47
<PAGE> 49
COMMON STOCK PURCHASE WARRANTS
In connection with its November 1996 public offering, the Company issued an
aggregate of 1,437,500 Common Stock Purchase Warrants (the "Warrants"). Each
Warrant entitles the registered holder thereof to purchase one-quarter of a
share of Common Stock at an exercise price of $9.847 per share prior to November
12, 1999, subject to adjustment in certain circumstances. The Warrants are
subject to redemption by the Company, at $0.25 per Warrant (subject to
adjustment under certain circumstances), upon not less than 30 days' prior
written notice, if the bid price of the Common Stock as reported by Nasdaq
averages in excess of 200% of the exercise price of the Warrants for a period of
30 days ending within 15 days of the redemption notice date. The Company may, in
its sole discretion, lower the exercise price of the Warrants for a period of
not less than 30 days on not less than 30 days' prior written notice. Except as
described above, modification of the number of securities purchasable upon the
exercise of any Warrant, the exercise price and the expiration date with respect
to any Warrant or any other modification to the Warrants requires the consent of
the holders of two-thirds of the outstanding Warrants.
In connection with the November 1996 public offering, the Company sold to
Janney, Montgomery Scott, Inc. Underwriter's Warrants (the "Underwriter's
Warrants") to purchase from the Company 125,000 shares of Common Stock at an
exercise price of $10.276 per share and 125,000 Warrants at an exercise price of
$0.06 per Warrant. The Underwriter's Warrants are exercisable with respect to
the Common Stock for a period of four years commencing November 12, 1997 and
with respect to the Warrants for a period of two years commencing November 12,
1997.
48
<PAGE> 50
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, based on shares outstanding as of August
1, 1997, the Company will have outstanding approximately 7,475,179 shares of
Common Stock assuming no exercise or conversion of options, warrants and
convertible securities after August 1, 1997. All of the outstanding shares,
including the 2,000,000 shares offered hereby (2,218,000 shares if the
Underwriters' over-allotment option is exercised in full), will be freely
tradable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act. An additional 1,502,899 shares of Common Stock are
issuable upon the conversion or exercise of stock options, warrants and
convertible securities outstanding as of August 1, 1997, 1,346,649 of which have
been registered for resale by the holders thereof and are, therefore, freely
tradable and the balance of which are subject to registration rights pursuant to
which the holders thereof can cause the Company to effect the registration of
such shares for resale.
The holders of an aggregate of 770,297 shares of Common Stock (including
555,250 shares issuable upon the exercise or conversion of outstanding options,
warrants and convertible securities), have agreed with the Underwriters not to
offer or sell, directly or indirectly, or otherwise reduce their risk in, any
securities of the Company, other than pursuant to the exercise of the
Underwriters' over-allotment option, for a period of 90 days after the date of
this Prospectus, subject to certain exceptions, without the prior written
consent of Robertson, Stephens & Company. Following the lock-up period, all of
the shares subject to the lock-up agreements will be available for immediate
sale.
Sales of substantial amounts of such shares in the public market, or the
perception that such sales might occur, could adversely affect the market price
of the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See "Risk Factors--Shares
Eligible for Future Sale."
49
<PAGE> 51
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC and Pacific Growth Equities, Inc. (the
"Representatives"), have severally agreed with the Company, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
numbers of shares of Common Stock set forth opposite their names below. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Robertson Stephens & Company LLC.................................................
Pacific Growth Equities, Inc. ...................................................
---------
Total........................................................................ 2,000,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company and certain Selling Stockholders have granted to the
Underwriters an option, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to 300,000 additional shares of Common Stock at
the same price per share as the Company receives for the 2,000,000 shares that
the Underwriters have agreed to purchase. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of Common Stock to be purchased by it shown in the above table
represents as a percentage of the 2,000,000 shares offered hereby. If purchased,
such additional shares will be sold by the Underwriters on the same terms as
those on which the 2,000,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
The executive officers and directors of the Company, who hold an aggregate
of 770,297 shares of Common Stock (including 555,250 shares issuable upon the
exercise or conversion of outstanding options, warrants and convertible
securities), have agreed with the Underwriters that, for a period of 90 days
from the date of this Prospectus (the "Lock-Up Period"), other than pursuant to
the exercise of the Underwriters' over-allotment option, they will not offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, now owned or hereafter acquired
directly by such holders or with respect to which such holders have or hereafter
acquire the power of disposition (subject to certain exceptions) without the
prior written consent of Robertson, Stephens & Company LLC, which may, in its
sole discretion and at any time or from time to time, without notice, release
all or any portion of the shares subject to the lock-up agreements. In addition,
the Company has agreed that during the Lock-Up Period, it will not, without the
prior written consent of Robertson, Stephens & Company LLC, issue, sell,
contract to sell or otherwise dispose of any shares of Common Stock, any options
or warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock other than the
issuance of Common Stock upon the exercise of outstanding options and warrants
and the Company's issuance of options under existing employee stock option
plans.
50
<PAGE> 52
The offering price of the Common Stock was determined by negotiations among
the Company and the Representatives of the Underwriters, based in part upon the
market price for the Common Stock as reported on the Nasdaq National Market.
In connection with this Offering, certain Underwriters and selling group
members (if any) who are qualified market makers on The Nasdaq Stock Market may
engage in passive market making transactions in the Common Stock on The Nasdaq
Stock Market in accordance with Rule 103 of Regulation M under the Exchange Act
during the business day prior to the pricing of this Offering before the
commencement of offers or sales of the Common Stock. Passive market makers must
comply with applicable volume and price limitations and must be identified as
such. In general, a passive market maker must display its bid at a price not in
excess of the highest independent bid for such security; if all independent bids
are lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
Certain persons participating in this Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
Common Stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with this Offering. Such transactions may
be effected on The Nasdaq Stock Market, in the over-the-counter market or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
51
<PAGE> 53
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.,
Roseland, New Jersey. Certain legal matters will be passed upon for the
Underwriters by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements included in the Prospectus of
Barringer Technologies Inc. and subsidiaries as of December 31, 1995 and 1996
and each of the years in the three year period ended December 31, 1996, have
been audited by BDO Seidman, LLP, independent certified public accountants, as
stated in their reports appearing herein and elsewhere in the Registration
Statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form SB-2 under
the Securities Act with respect to the securities offered hereby. This
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. Statements contained in
this Prospectus as to the content of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048; and
500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the public reference section of the Commission at its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates, or from the Commission's Internet web site at
http://www.sec.gov. In addition, such materials also may be inspected and copied
at the offices of The Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C.
20006.
52
<PAGE> 54
BARRINGER TECHNOLOGIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and
June 30, 1997 (unaudited)........................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995
and 1996 and for the Six Months Ended June 30, 1996 (unaudited)
and 1997 (unaudited)................................................................ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994,
1995 and 1996 and for the Six Months Ended June 30, 1997 (unaudited)................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996 and for the Six Months Ended June 30, 1996 (unaudited)
and 1997 (unaudited)................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Barringer Technologies Inc.
Murray Hill, New Jersey
We have audited the accompanying consolidated balance sheets of Barringer
Technologies Inc. as of December 31, 1995 and 1996 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 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 presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Barringer
Technologies Inc. at December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
/s/ BDO Seidman, LLP
---------------------
Woodbridge, New Jersey BDO Seidman, LLP
February 12, 1997
F-2
<PAGE> 56
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 43 $ 5,276 $ 3,896
Marketable securities................................. -- 4,328 4,055
Trade receivables, less allowances of $41, $63 and
$157............................................... 1,533 3,521 6,352
Inventories........................................... 1,621 2,270 3,424
Prepaid expenses and other............................ 250 498 495
Deferred tax asset (note 8)........................... 225 731 1,031
-------- -------- --------
Total current assets............................... 3,672 16,624 19,253
Equipment, net (note 4)................................. 586 595 1,066
Investment in unconsolidated subsidiary (note 2)........ 334 -- --
Other................................................... 143 104 66
-------- -------- --------
$ 4,735 $ 17,323 $ 20,385
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank indebtedness and other notes (note 5)............ $ 744 $ 174 --
Accounts payable...................................... 1,278 1,009 $ 1,266
Accrued liabilities................................... 696 536 717
Accrued payroll and related taxes..................... 257 522 410
Accrued commission.................................... 27 112 446
Current portion of long-term debt (note 6)............ 300 -- --
-------- -------- --------
Total current liabilities.......................... 3,302 2,353 2,839
Other non-current liabilities........................... 108 117 121
Commitments (notes 9 and 10)
Stockholders' equity (notes 6 and 7):
Preferred stock, $2.00 par value, 4,000 shares
authorized. 270 shares designated class A
convertible preferred stock, 83, 60 and 58 shares
outstanding, less discount of $64, $47 and $45,
respectively....................................... 101 74 71
730 shares designated class B convertible preferred
stock, 258, 123 and 23 shares outstanding,
respectively....................................... 515 245 45
Common stock, $0.01 par value, 5,000, 7,000 and 20,000
shares authorized, respectively and 3,479, 5,357
and 5,470 shares outstanding, respectively......... 35 54 55
Additional paid-in capital............................ 17,685 29,430 29,952
Accumulated deficit................................... (16,542) (14,522) (12,268)
Cumulative foreign currency translation adjustment.... (456) (415) (417)
-------- -------- --------
1,338 14,866 17,438
Less: common stock in treasury, at cost, 31 shares.... (13) (13) (13)
-------- -------- --------
Total stockholders' equity......................... 1,325 14,853 17,425
-------- -------- --------
$ 4,735 $ 17,323 $ 20,385
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 57
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------------- ------------------
1994 1995 1996 1996 1997
------- ------ ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ 5,514 $6,374 $10,923 $5,012 $9,438
Cost of revenues................................. 4,100 3,601 5,363 2,647 3,955
------- ------ ------- ------ ------
Gross profit................................... 1,414 2,773 5,560 2,365 5,483
Operating expenses:
Selling, general and administrative............ 3,352 3,305 3,734 1,641 3,200
Product development............................ 531 354 230 57 338
------- ------ ------- ------ ------
3,883 3,659 3,964 1,698 3,538
------- ------ ------- ------ ------
Operating income (loss)...................... (2,469) (886) 1,596 667 1,945
Other income, (expense):
Interest expense............................... (202) (240) (228) (130) (5)
Equity in earnings of unconsolidated
subsidiary................................... -- -- 117 20 --
Gain on sale of investment in unconsolidated
subsidiary................................... -- -- 123 -- --
Investment income.............................. -- -- 72 42 212
Other, net..................................... 113 (52) (12) (35) (23)
------- ------ ------- ------ ------
(89) (292) 72 (103) 184
Income (loss) before income tax (provision)
benefit................................... (2,558) (1,178) 1,668 564 2,129
Income tax (provision) benefit (note 8).......... (75) -- 391 -- 131
------- ------ ------- ------ ------
Income (loss) from continuing operations..... (2,633) (1,178) 2,059 564 2,260
Operation held for sale (note 2):
Income from operations......................... 68 258 -- -- --
Gain on sale of portion of investment.......... -- 93 -- -- --
------- ------ ------- ------ ------
68 351 0 0 0
------- ------ ------- ------ ------
Net income (loss)....................... (2,565) (827) 2,059 564 2,260
Preferred stock dividends........................ (108) (82) (39) (24) (6)
------- ------ ------- ------ ------
Net income (loss) attributable to common
stockholders................................... $(2,673) $ (909) $ 2,020 $ 540 $2,254
======= ====== ======= ====== ======
Primary per share data (note 1):
Continuing operations.......................... $ (0.97) $(0.39) $ 0.48 $ 0.16 $ 0.36
Income from operation held for sale............ 0.02 0.08 -- -- --
Gain on sale of operation held for sale........ -- 0.03 -- -- --
------- ------ ------- ------ ------
$ (0.95) $(0.28) $ 0.48 $ 0.16 $ 0.36
======= ====== ======= ====== ======
Fully diluted per share data (note 1):
Continuing operations.......................... $ (0.97) $(0.39) $ 0.44 $ 0.15 $ 0.35
Income from operation held for sale............ 0.02 0.08 -- -- --
Gain on sale of operation held for sale........ -- 0.03 -- -- --
------- ------ ------- ------ ------
$ (0.95) $(0.28) $ 0.44 $ 0.15 $ 0.35
======= ====== ======= ====== ======
Weighted average common and common
equivalent shares outstanding:
Primary........................................ 2,827 3,283 4,221 3,483 6,176
======= ====== ======= ====== ======
Fully diluted.................................. 2,827 3,283 4,607 3,854 6,388
======= ====== ======= ====== ======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 58
BARRINGER TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED CLASS A
STOCK PFD. STK.
TOTAL -------------- ------------- -------------
EQUITY SHRS AM'T SHRS AM'T SHRS AM'T
------- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--January 1, 1994.................................. $ 3,646 2,762 $28 445 $555 83 $101
Exercise of stock options/warrants...................... 168 72 1
Issuance of common stock pursuant to settlement of 1993
litigation............................................ 70 12
1994 dividend on preferred stock........................ 0 26
Net loss................................................ (2,565)
Translation adjustment.................................. (133)
------- ------ --- ---- ----- --- ----
Balance--December 31,1994................................. 1,186 2,872 29 445 555 83 101
Sale of units in private placement, net................. 888 383 4
Conversion of preferred stock........................... 0 159 2 (445) (555)
Change in warrant exercise price in payment of debt..... 10
1995 dividend on preferred stock........................ 0 65
Net loss................................................ (827)
Translation adjustment.................................. 68
------- ------ --- ---- ----- --- ----
Balance--December 31, 1995................................ 1,325 3,479 35 0 0 83 101
Sale of securities, net of expense ($741)............... 10,401 1,437 14
Conversion of preferred stock........................... 0 55 1 (23) (27)
Exercise of stock options and warrants.................. 42 15
Conversion of debentures................................ 1,000 364 4
Preferred stock dividends............................... (15) 7
Net income.............................................. 2,059
Translation adjustment.................................. 41
------- ------ --- ---- ----- --- ----
Balance--December 31, 1996................................ 14,853 5,357.. 54 0 0 60 74
Conversion of preferred stock........................... 0 37 (2) (3)
Exercise of stock options and warrants.................. 249 76 1
Repayment of stockholder loan........................... 71
Net income for the period............................... 2,260
Translation adjustment.................................. (2)
Preferred stock dividends............................... (6)
------- ------ --- ---- ----- --- ----
Balance--June 30, 1997 (unaudited)........................ $17,425 5,470.. $55 0 $ 0 58 $71
======= ====== === ==== ===== === ====
<CAPTION>
CLASS B
PFD. STK.
--------------- PAID IN ACCUM. FOREIGN TREAS.
SHRS AM'T CAPITAL DEFICIT TRANSL STOCK
---- ----- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance--January 1, 1994.................................. 318 $ 635 $15,683 $(12,960) $ (391) $ (5)
Exercise of stock options/warrants...................... 167
Issuance of common stock pursuant to settlement of 1993
litigation............................................ 78 (8)
1994 dividend on preferred stock........................ 108 (108)
Net loss................................................ (2,565)
Translation adjustment.................................. (133)
--- ----- ------- -------- ----- ----
Balance--December 31,1994................................. 318 635 16,036 (15,633) (524) (13)
Sale of units in private placement, net................. 884
Conversion of preferred stock........................... (60) (120) 673
Change in warrant exercise price in payment of debt..... 10
1995 dividend on preferred stock........................ 82 (82)
Net loss................................................ (827)
Translation adjustment.................................. 68
--- ----- ------- -------- ----- ----
Balance--December 31, 1995................................ 258 515 17,685 (16,542) (456) (13)
Sale of securities, net of expense ($741)............... 10,387
Conversion of preferred stock........................... (135) (270) 296
Exercise of stock options and warrants.................. 42
Conversion of debentures................................ 996
Preferred stock dividends............................... 24 (39)
Net income.............................................. 2,059
Translation adjustment.................................. 41
--- ----- ------- -------- ----- ----
Balance--December 31, 1996................................ 123 245 29,430 * (14,522) (415) (13)
Conversion of preferred stock........................... (100) (200) 203
Exercise of stock options and warrants.................. 248
Repayment of stockholder loan........................... 71
Net income for the period............................... 2,260
Translation adjustment.................................. (2)
Preferred stock dividends............................... (6)
--- ----- ------- -------- ----- ----
Balance--June 30, 1997 (unaudited)........................ 23 $ 45 $29,952* $(12,268) $ (417) $(13)
=== ===== ======= ======== ===== ====
</TABLE>
- ------------
* At December 31, 1996 and June 30, 1997, net of notes receivable of $274 and
$203, respectively, from the sale of stock.
See notes to consolidated financial statements.
F-5
<PAGE> 59
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- -------------------
1994 1995 1996 1996 1997
------- ------ ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss)....................................... $(2,565) $ (827) $ 2,059 $ 564 $ 2,260
Items not affecting cash:
Depreciation and amortization......................... 711 362 115 75 80
Inventory write-down and receivable reserves.......... 1,210 656 22 -- 94
Minority interest..................................... (76) -- -- -- --
Income from and gain on sale of investment in Labco... -- (351) (240) (20) --
Pension recovery...................................... -- (147) -- -- --
Deferred tax (benefit), expense....................... 75 -- (506) -- (300)
Prepaid pension cost.................................. 132 (78) -- -- --
Other................................................. 235 71 50 19 (13)
(Increase) decrease in non-cash working capital
balances.............................................. 206 (397) (2,947) (1,083) (3,416)
------- ------ ------- ------- -------
Cash used in operating activities................... (72) (711) (1,447) (445) (1,295)
------- ------ ------- ------- -------
Investing activities:
Purchase of machinery and equipment................... (847) (358) (124) (47) (513)
Escrowed cash on sale of Canadian subsidiary.......... 225 -- -- -- --
Sale of (investment in) marketable securities......... -- -- (4,328) -- 273
Proceeds on sale of investment in Labco............... -- 300 574 -- --
Increase in investment in operation held for sale..... -- -- -- (21) --
------- ------ ------- ------- -------
Cash (used in) investing activities................. (622) (58) (3,878) (68) (240)
------- ------ ------- ------- -------
Financing activities:
Proceeds on issuance of Convertible Subordinated
Debentures.......................................... -- -- 1,000 -- --
Reduction in long-term debt........................... (184) -- (300) -- --
Increase (decrease) in bank debt and other............ 488 (412) (570) 487 (174)
Proceeds on issuance of equity securities............. 171 888 10,443 -- 264
Repayment of stockholder loan......................... -- -- -- -- 71
Rent inducement....................................... -- 108 -- -- --
Payment of dividends on preferred stock............... -- -- (15) -- (6)
------- ------ ------- ------- -------
Cash provided by financing activities............... 475 584 10,558 487 155
------- ------ ------- ------- -------
Increase (decrease) in cash and cash equivalents........ (219) (185) 5,233 (26) (1,380)
Cash and cash equivalents--beginning of period.......... 486 267 43 43 5,276
Less cash held for sale................................. -- (39) -- -- --
------- ------ ------- ------- -------
Cash and cash equivalents--end of period................ $ 267 $ 43 $ 5,276 $ 17 $ 3,896
======= ====== ======= ======= =======
Changes in components of non-cash working capital
balances related to operations:
Trade receivables..................................... $ 1,249 $ 38 $(2,010) $(1,125) $(2,925)
Inventories........................................... (987) (281) (649) (31) (1,154)
Other current assets.................................. (58) 60 (248) (26) 3
Other assets.......................................... -- (12) 39 -- --
Accounts payable and accrued liabilities.............. 2 (202) (79) 99 660
------- ------ ------- ------- -------
Decrease (increase) in operating assets net of operating
liabilities arising from cash transactions............ $ 206 $ (397) $(2,947) $(1,083) $(3,416)
======= ====== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 60
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements comprise the accounts of
the Company and its continuing subsidiary companies. All intercompany
transactions have been eliminated.
Principles of Translation
Assets and liabilities of the Company's foreign subsidiaries are translated
by using year-end exchange rates and statement of operation items are translated
at average exchange rates for the year. Translation adjustments are accumulated
in a separate component of stockholders' equity.
Inventories
Materials and supplies are carried at the lower of average cost or
replacement cost. Finished goods and work-in process are carried at the lower of
average cost or net realizable value.
Property and Equipment
Property and equipment are carried at cost. Depreciation of owned equipment
is computed on a straight-line basis over the estimated useful lives of the
related assets, generally from three to ten years. Leasehold improvements are
amortized over the term of the related lease, generally from five to ten years,
which approximates the useful lives of these improvements. Equipment under
capital leases is amortized on a straight-line basis over the term of the lease,
generally four to ten years, which approximates the estimated useful lives of
the leased equipment.
Per Share Data
Net income (loss) per share is computed by dividing net income (loss), less
preferred stock dividends, by the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
consist of the dilutive effect, if any, of unissued shares under options and
warrants, computed using the treasury stock method (using the average stock
prices for primary basis and the higher of average or period-end stock prices
for fully diluted basis). Fully diluted income (loss) per share is computed
assuming the conversion of convertible preferred stock and subordinated
debentures at the beginning of the period or the date of issuance, whichever is
later.
Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
Revenue Recognition
The Company recognizes revenue on the percentage of completion method for
its research and development contracts with progress measured based on the ratio
of costs incurred to the total estimated cost, and generally, when product is
shipped for all other sales. Where the Company receives contracts for the design
and construction of specialty instruments that require long manufacturing times,
the Company will also recognize revenue on the percentage of completion method
similar to its recognition method in the research and development business.
F-7
<PAGE> 61
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the years ended December 31, 1994, 1995 and 1996, the Company had
recognized revenues of $17,000, $264,000 and $49,000 respectively, on jobs in
process and had incurred related costs of $10,000, $183,000 and $25,000
respectively, of which $5,000, $210,000 and $0 respectively, were billed to
customers. For the six months ended June 30, 1997, the Company did not have any
significant contracts in progress.
Financial Instruments and Credit Risk Concentration
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Concentrations of credit risk with respect to such receivables are limited to
primarily governmental agencies. Marketable securities consists primarily of
investments in U.S. government and agency obligations and commercial paper.
Long-Lived Assets
Long-lived assets, such as property and equipment, are evaluated for
impairment when events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. If and when any such impairment
exists, the related assets will be written down to fair value. This policy is in
accordance with Statement of Financial Accounting Standards No. 121, ("SFAS
121") "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of", which the Company adopted effective for the year ended
December 31, 1996. No write-downs have been necessary through June 30, 1997 as a
result of SFAS 121.
Stock-Based Compensation
The Company has adopted the disclosure only provisions of SFAS 123,
"Accounting for Stock-Based Compensation", but applies Accounting Principle
Board Opinion No. 25 in accounting and measuring compensation expense related to
stock option plans. There was no compensation expense related to the issuance of
stock options for the years ended December 31, 1994, 1995 and 1996 and for the
six months ended June 30, 1996 and 1997. (see note 7 for pro-forma disclosure
required by SFAS 123).
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, marketable securities, accounts receivable, accounts
payable, accrued liabilities and notes payable approximate fair value because of
the immediate or short-term maturity of these financial instruments. The Company
has the ability and intent to hold all marketable securities through their
respective maturity dates.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Many of the
Company's estimates and assumptions used in the financial statements relate to
the Company's products, which are subject to technology and market changes. It
is reasonably possible that changes may occur in the near term that would affect
management's estimates with respect to accounts receivable, inventories,
equipment and deferred income taxes.
F-8
<PAGE> 62
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited Information
The consolidated balance sheet of the Company as of June 30, 1997, the
consolidated statements of operations and cash flows for the six months ended
June 30, 1996 and 1997, the consolidated statement of stockholders' equity for
the six months ended June 30, 1997 and the notes to such financial statements,
are unaudited. However, in the opinion of management, such financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
for a fair presentation. The results of operations for the interim periods are
not necessarily indicative of the results to be expected for any other interim
or annual period.
2. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
During the first quarter of 1995, the Company started to actively seek a
purchaser for its then 47% interest in Barringer Laboratories, Inc ("Labco").
Accordingly, the financial statements had been reclassified, where appropriate,
to reflect Labco as an operation held for sale.
Pursuant to the terms of a Stock Purchase Agreement, dated December 8, 1995
("Agreement"), by and between the Company and Labco, on December 13, 1995 the
Company sold to Labco 647,238 shares of Labco's common stock for an aggregate
purchase price of $809,000, resulting in a gain of $93,000. The purchase price
consisted of $300,000 in cash, cancellation of all amounts owed by the Company
to Labco pursuant to certain intercompany agreements (aggregating $452,000) and
cancellation of $57,000 in accounts receivable due to Labco. After giving effect
to the sale of the Labco shares, the Company continued to own 432,475 shares of
Labco stock representing a 26% ownership interest.
In October 1996, the Company and Labco entered into a Termination Agreement
(the "Termination Agreement") pursuant to which, among other things, the Company
agreed that, for a period of three months from the date of the Termination
Agreement, it would sell its remaining shares in Labco at a price of at least
$1.6875 per share. During 1996, the Company sold all of its remaining shares and
warrants in Labco and recognized a gain on such sales of $123,000. In addition
to the gain on the sale of its Labco investment, the Company recorded $117,000
of income representing its proportionate share of Labco's net income for 1996.
3. INVENTORIES
At December 31, 1995 and 1996 and June 30, 1997, the Company had parts,
subassemblies and work in process of $1,010,000, $1,483,000, and $2,953,000 and
finished goods of $611,000, $787,000, and $471,000, respectively.
4. MACHINERY AND EQUIPMENT
The major categories of machinery and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- -----------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Office equipment.......................... $ 350,000 $ 395,000 $ 772,000
Machinery and equipment................... 1,687,000 1,857,000 1,569,000
Leasehold improvement..................... 64,000 64,000 67,000
---------- ---------- ----------
2,101,000 2,316,000 2,408,000
Accumulated depreciation.................. (1,515,000) (1,721,000) (1,342,000)
---------- ---------- ----------
Totals...................................... $ 586,000 $ 595,000 $ 1,066,000
========== ========== ==========
</TABLE>
F-9
<PAGE> 63
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. BANK INDEBTEDNESS AND OTHER NOTES PAYABLE
The Company's Canadian subsidiary, Barringer Research Ltd. ("BRL"), had a
financing arrangement with the Ontario Development Corporation ("ODC") for a
$730,000 export line of credit. The rate of interest was adjusted quarterly and
was 10% at December 31, 1996 and outstanding borrowings totaled $150,000. The
ODC has informed the Company that this facility will no longer be available due
to the phasing out of the ODC by the Canadian government. In January 1997, the
Company paid all amounts owed to the ODC and the facility was terminated.
BRL's line of credit arrangement with the Toronto-Dominion Bank ("Bank")
was terminated by BRL in December 1996 upon the payment of all amounts due to
the Bank. During December 1996, the Company placed in an interest bearing
account $280,000 in order to secure a performance bond that was previously
issued by the Bank. At December 31, 1996, this deposit was restricted. On
February 12, 1997, the bond was canceled and the deposit released.
6. CURRENT PORTION OF LONG-TERM DEBT AND OTHER NON-CURRENT LIABILITIES
(a) Current portion of long-term debt at December 31, 1995, consisted of
amounts due on the 12 1/2% Convertible Subordinated Debentures which were repaid
on July 15, 1996 with a portion of the net proceeds from the sale of $1,000,000
of 6% Convertible Subordinated Debentures due 1997 (see note 7).
(b) Other non-current liabilities represent rents payable on the Company's
Canadian facility.
7. STOCKHOLDERS' EQUITY
Public Offering
On November 12, 1996, the Company completed the sale of 1,250,000 shares
("Shares") of common stock and 1,250,000 Common Stock Purchase Warrants
("Warrants") in a public underwriting. On December 12, 1996, the underwriters
exercised their over-allotment option and acquired an additional 187,500 Shares
and 187,500 Warrants. The aggregate net proceeds to the Company, after all
expenses of the offering, was approximately $10,401,000.
Private Offerings
On May 9, 1995, the Company completed the private placement of its
securities to two institutional investors. The private placement consisted of
125 units priced at $6,000 each for an aggregate sales price of $750,000. Each
unit ("Unit") consisted of 2,500 shares of the Company's common stock and a
five-year warrant to purchase 2,500 shares of the Company's common stock at
$1.96 per share. In addition, in order to induce the institutional investors to
enter into this transaction, an additional three-year warrant to acquire 37,500
shares of the Company's common stock at $1.96 per share was issued.
On June 30, 1995, the Company completed an additional private placement in
which it sold an additional 28 Units, including 22 Units to 17 members of senior
management and the Company's Board of Directors, for proceeds aggregating
$168,000. This private placement did not include the additional three-year
warrant.
On July 10, 1996, the Company completed the sale of $1,000,000 of its 6%
Convertible Subordinated Debentures, ("Debentures") due 1997, in a private
transaction to private investors including members of management. These
debentures are convertible into shares of the Company's Common Stock at the rate
of $2.75 per share and mature on the earlier of (i) 30 days after the completion
of an underwritten public offering or a private placement by the Company of its
equity securities pursuant
F-10
<PAGE> 64
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to which the Company receives net proceeds in an aggregate amount in excess of
$5,000,000, or (ii) July 9, 1997. Interest is payable semi-annually. A portion
of the net proceeds of the sale of these debentures were used to repay the
12 1/2% Subordinated Convertible Debentures due 1996. All of the Debentures were
converted into 363,628 shares of common stock in December 1996, as a result of
the public offering.
Due from Officers/Shareholders
In connection with the exercise of options to acquire 190,000 shares of the
Company's Common Stock, two officers of the Company signed full recourse
interest bearing (no interest the first year, prime rate thereafter) unsecured
promissory demand notes aggregating $274,000 that was available to them under
the Company's stock option purchase program. Under that program the Company has
arranged for a market-maker in the Company's Common Stock, to coordinate the
orderly sale in the open market of a portion of the Common Stock to be received
by the employees upon the exercise of their options in an amount sufficient to
repay the loan and related interest. As of June 30, 1997, $203,000 was still
outstanding.
Common Stock Outstanding or Reserved for Issuance
The following table sets forth the number of shares of Common Stock
outstanding as of December 31, 1996 as well as the number of shares of Common
Stock that would be outstanding in the event that all of the options and
warrants are exercised and all Series of Convertible Preferred Stock and
Debentures are converted into Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK
OUTSTANDING
EXERCISE, OR
CONVERSION OR RESERVED FOR
OPTION PRICE ISSUANCE
---------------- ------------
<S> <C> <C>
Common stock................................. 5,357,852
Class A convertible preferred stock.......... 0.361745 21,764
Class B convertible preferred stock.......... 0.355839 43,590
Stock options (i)............................ $1.00 to $14.00 461,000
Private placement warrants (ii).............. $1.96 412,499
Public warrants (iii)........................ $9.847 359,375
Underwriter's warrants (iii)................. $10.276 125,000
Underlying warrants (iii).................... $9.847 31,250
Other warrants (iv).......................... $4.82 to $12.46 55,000
---------
Total........................................ 6,867,330
=========
</TABLE>
All outstanding warrants expire between January 23, 1997 and April 25,
2001.
(i) Stock Compensation Plans
From time to time, the Company has granted non-qualified options to various
employees and directors. The Company applies APB Opinion 25, "Accounting for
Stock Issued to Employees", and related Interpretations in accounting for the
plans. Under APB Opinion 25, because the exercise price of the Company's stock
options issued to employees equals the market price of the underlying stock on
the date of grant, no compensation is recognized.
SFAS 123, "Accounting for Stock-Based Compensation", requires the Company
to provide pro forma information regarding net income (loss) and earnings (loss)
per share as if compensation cost
F-11
<PAGE> 65
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for the Company's stock option plans had been determined in accordance with the
fair value based method prescribed in SFAS 123. The Company estimates the fair
value of each stock option at the grant date by using the Black-Scholes
option-price model with the following weighted average assumptions used for
grants in 1995 and 1996, respectively: no dividend yield; expected volatility of
30%; risk-free interest rates of 7.11% and expected lives of 5 years for the
options.
Under the accounting provisions of SFAS 123, the Company's net income
(loss), primary earnings (loss) per share and fully diluted earnings (loss) per
share would have been reduced (increased) to the pro-forma amounts indicated
below.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1995 1996
--------- ----------
<S> <C> <C>
Net income (loss):
As reported......................................... $(827,000) $2,059,000
Pro-forma........................................... $(884,000) $1,986,000
Primary earnings (loss) per share from continuing
operations:
As reported......................................... $ (0.39) $ 0.48
Pro-forma........................................... $ (0.40) $ 0.47
Fully diluted earnings (loss) per share from
continuing operations:
As reported......................................... $ (0.39) $ 0.44
Pro-forma........................................... $ (0.40) $ 0.43
</TABLE>
At the May 13, 1997 Annual Meeting of Stockholders, the Company's
stockholders approved the adoption of the Company's 1997 Stock Compensation
Program ("Program"). The Program authorizes the granting of incentive stock
options, non-qualified supplementary options, stock appreciation rights,
performance shares and stock bonus awards to employees and consultants of the
Company and its subsidiaries, including those employees serving as officers or
directors of the Company ("Employee Plans"). The Program also authorizes
automatic option grants to directors who are not otherwise employed by the
Company ("Independent Director Plan"). In connection with the Program, 600,000
shares of Common Stock are reserved for issuance, of which up to 500,000 shares
may be issued under the Employee Plans and up to 100,000 shares may be issued
under the Independent Director Plan. In the event that an option or award
granted under the Program expires, is terminated or forfeited or certain
performance objectives with respect thereto are not met prior to exercise or
vesting, then the number of shares of Common Stock covered thereby will again
become eligible for grant under the Program. The Company will receive no
consideration for grants of options or awards under the Program.
F-12
<PAGE> 66
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's outstanding options as of December
31, 1995 and 1996 and June 30, 1997 and changes during the periods ending on
those dates is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------- SIX MONTHS
ENDED
1995 1996 JUNE 30, 1997
------------------- ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--
beginning of period................ 58,750 $12.38 240,125 $ 4.54 461,000 $ 2.19
Granted.......................... 181,375 2.00 253,000 1.00 147,500 9.74
Exercised........................ 0 (1,250) 2.00 (16,312) 1.21
Forfeited........................ 0 (30,875) 10.66 (29,250) 10.88
-------- -------- -------
Outstanding--end of period......... 240,125 4.54 461,000 2.19 562,938 3.75
======== ======== =======
Options exercisable--period-end.... 126,800 $ 6.38 164,200 $ 3.49 230,619 $ 1.94
Fair value of options granted
during the period................ $ 0.70 $ 0.40 $ 5.39
======== ======== =======
</TABLE>
On February 28, 1997, options to acquire 135,500 shares of the Company's
common stock at $9.375 per share, which was the market value at date of grant,
were issued to officers and key employees of the Company, pursuant to the
Employee Plan. These options expire on February 28, 2007 and are exercisable as
to 25% of the optioned shares after the first year, 50% after the second year,
75% after the third year and 100% after the fourth year. On May 13, 1997,
options to acquire 12,000 shares of the Company's common stock at $13.875 per
share, which was the market value at date of grant, were issued to the Company's
independent directors pursuant to the Independent Director Plan. These options
expire on May 13, 2002 and are exercisable as to 100% after the first year. The
options issued in 1996 expire on April 25, 2001 and are exercisable as to 25% of
the optioned shares immediately, 50% after the first year, 75% after the second
year and 100% after the third year. The options issued in 1995 expire on March
10, 2000 and are exercisable as to 40% of the optioned shares after the first
year, 60% after the second year, 80% after the third year and 100% after the
fourth year.
The following table summarizes information about stock options outstanding
at June 30, 1997.
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ------------------------
-------------------------------------------- NUMBER
NUMBER WEIGHTED-AVERAGE EXERCISABLE
EXERCISE OUTSTANDING AT REMAINING EXERCISE AT EXERCISE
PRICE JUNE 30, 1997 CONTRACTUAL LIFE PRICE JUNE 30, 1997 PRICE
- ------------------------- -------------- ---------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$ 1.00 239,438 3.8 years $ 1.00 119,719 $ 1.00
2.00 170,250 2.7 years 2.00 102,150 2.00
9.38 132,500 9.8 years 9.38 0 9.38
13.88 12,000 4.8 years 13.88 0 13.88
14.00 8,750 0.7 years 14.00 8,750 14.00
------- -------
1.00 to 14.00 562,938 4.8 years $ 3.75 230,619 $ 1.94
======= =======
</TABLE>
F-13
<PAGE> 67
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISABLE
NUMBER ----------------------------
OUTSTANDING AT WEIGHTED-AVERAGE NUMBER
EXERCISE DECEMBER 31, REMAINING EXERCISE EXERCISABLE AT EXERCISE
PRICE 1996 CONTRACTUAL LIFE PRICE DECEMBER 31, 1996 PRICE
- -------------------------- -------------- ---------------- -------- ----------------- --------
<S> <C> <C> <C> <C> <C>
$ 1.00 253,000 4.3 years $ 1.00 63,250 $ 1.00
2.00 175,500 3.2 years 2.00 70,200 2.00
12.00 23,750 0.1 years 12.00 23,750 12.00
14.00 8,750 1.2 years 14.00 7,000 14.00
------- -------
1.00 to 14.00 461,000 3.6 years $ 2.19 164,200 $ 3.49
======= =======
</TABLE>
(ii) Private Placement Warrants
In connection with the Company's private placement (see above) warrants to
purchase 420,000 shares of the Company's common stock at $1.96 per share were
sold to a group of private investors and senior management. The warrants expire
between May 9, 1998 and June 29, 2000.
(iii) Public Warrants
The public warrants (see above) are exercisable for three years and entitle
the registered holder to purchase one-quarter of a share of Common Stock at an
exercise price of $9.847 per share. The Warrant exercise price and the number of
shares issuable upon exercise of the Warrants are subject to adjustment under
certain circumstances. The Company may redeem outstanding Warrants commencing
six months from November 12, 1996 on not less than 30 days notice at a price of
$0.25 per Warrant (subject to adjustment under certain circumstances) if the
closing bid price of the Common Stock averages in excess of 200% of the exercise
price for a period of 30 days' ending within 15 days of the redemption notice
date.
In connection with the November 1996 public offering, the underwriter
received a warrant ("Underwriter's Warrant") to purchase from the Company
125,000 shares of Common Stock at an exercise price of $10.276 per share
("Exercise Price") and 125,000 Warrants ("Underlying Warrant") at an exercise
price of $0.06 per Warrant. Each Underlying Warrant entitles the holder to
purchase one-quarter of a share of Common Stock at an exercise price of $9.847
per share. The Underwriter's Warrants are exercisable with respect to the Common
Stock for a period of four years commencing from November 12, 1997 and with
respect to the Underlying Warrants for a period of two years commencing from
November 12, 1997. These warrants contain certain registration rights.
(iv) Other warrants
In September 1994, the Company issued a warrant to purchase 6,250 shares of
the Company's common stock at $5.25 per share to the Ontario Development
Corporation in connection with their increase in the export financing facility
available to the Company's Canadian subsidiary, from $365,000 to $730,000) See
Note 5 for additional information. The warrant was exercised in 1997.
On December 31, 1991, the Board of Directors adopted the 1991 Directors
Warrant Plan ("Plan"). Pursuant to the Plan, each non-employee director will be
sold a five-year warrant to purchase 3,750 shares of Common Stock at an exercise
price to be determined by the Board at the time of such sale, but shall not be
less than the current market price for such shares at the time of issuance of
the
F-14
<PAGE> 68
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
warrant. During 1997, 3,750 warrants were exercised. During 1996, 3,750 warrants
expired. During 1995, no warrants were issued under the Plan.
On April 7, 1995, the Company issued warrants to purchase 6,250 shares of
the Company's common stock at $4.00 per share to Barringer Laboratories in
connection with their extending an intercompany obligation, which has
subsequently been paid. The warrant was exercised in 1996.
The other warrants expire between March 1, 1997 and January 12, 1999.
Increase in Authorized Shares
At the reconvened 1995 Annual Meeting of Stockholders, the Company's
stockholders approved an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of capital stock of the Company from
7,000,000 to 12,000,000, comprised of 7,000,000 shares of Common Stock,
1,000,000 shares of Convertible Preferred Stock, par value $1.25 per share and
4,000,000 shares of Preferred Stock, par value $2.00 per share. The stockholders
also approved a one-for-four reverse stock split of the Company's common stock.
At the May 13, 1997 Annual Meeting of Stockholders, the Company's
stockholders approved an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of common stock of the Company from
7,000,000 to 20,000,000.
8. INCOME TAXES
The provision (benefit) for income taxes related to continuing operations
are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -----------------------
1994 1995 1996 1996 1997
------- ---- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current tax expense:
U.S....................... -- -- -- -- --
Foreign (primarily
Canadian).............. -- -- $ 115,000 $ 44,000 $ 291,000
------- -- ----------- --------- ---------
Total current.......... $ 0 $ 0 115,000 44,000 291,000
------- -- ----------- --------- ---------
Deferred tax expense:
U.S....................... -- -- 574,000 4,000 394,000
Foreign (primarily
Canadian).............. -- -- 90,000 192,000 33,000
------- -- ----------- -------- ---------
Total deferred......... 0 0 664,000 196,000 427,000
------- -- ----------- -------- ---------
Change in valuation
allowance:
U.S....................... -- -- (726,000) (4,000) (449,000)
Foreign (primarily
Canadian).............. 75,000 -- (444,000) (236,000) (400,000)
-------- -- ----------- --------- ---------
Total change........... 75,000 0 (1,170,000) (240,000) (849,000)
-------- -- ----------- --------- ---------
Total income tax provision
(benefit)................. $75,000 $ 0 $ (391,000) $ 0 $(131,000)
======= == ========== ======== =========
</TABLE>
F-15
<PAGE> 69
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets are comprised of the following temporary differences
and carryforwards at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Nondeductible allowances against trade
receivables............................. $ 15,000 $ 24,000
Nondeductible inventory reserves.......... 90,000 106,000
Nondeductible expense accruals............ 50,000 72,000
Machinery and equipment................... 706,000 787,000
Tax benefit of Canadian operating loss and
investment credit carry forwards........ 401,000 217,000
Tax benefit of U.S. operating loss carry
forwards................................ 4,621,000 4,019,000
Other..................................... 41,000 35,000
------- --------
Gross deferred tax assets............... 5,924,000 5,260,000
Deferred tax assets valuation allowance... (5,699,000) (4,529,000)
------- --------
Net deferred tax assets......... $ 225,000 $ 731,000
======= ========
</TABLE>
As a result of the Company's historical trend of losses, a valuation
allowance has been provided for a substantial portion of the U.S. and Canadian
deferred tax assets. At December 31, 1995, the net deferred tax asset of
$225,000 related to the Company's Canadian subsidiary, which had available tax
credits and loss carryforwards. The Canadian subsidiary has a history of
profitability, despite the consolidated losses of the Company through December
31, 1995. At December 31, 1996, the net deferred tax asset of $731,000, included
approximately $525,000 and $206,000 related to the Company's Canadian and U.S.
operations, respectively. At June 30, 1997, the net deferred tax asset of
$1,031,000, included approximately $525,000 and $506,000 related to the
Company's Canadian and U.S. operations, respectively. Based on historical
results and estimated 1997 and 1998 earnings, which include earnings from
certain contracts, as well as available tax planning strategies, management
considers realization of the unreserved deferred tax asset more likely than not.
Additional reductions to the valuation allowance will be recorded when, in the
opinion of management, the Company's ability to generate taxable income is
considered more likely than not.
F-16
<PAGE> 70
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's income tax provision (benefit) differed from the amount of
income tax determined by applying the applicable statutory U.S. federal income
tax rate to pretax income from continuing operations as a result of the
following (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER ENDED
31, JUNE 30,
--------------------- -------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income taxes (benefit) computed at the U.S.
statutory rate................................. $(821) $(280) $ 567 $ 192 $ 724
Income not subject to U.S. tax, net.............. (154) (126) (112) (184) (296)
U.S. losses and expenses for which no tax benefit
has been recognized............................ 943 398 25 13 30
Utilization of U.S. net operating losses......... -- -- (340) (4) (314)
Change in net deferred tax assets................ 75 -- (506) -- (300)
Other............................................ 32 8 (25) (17) 25
----- ----- ----- ----- -----
Provision (benefit) for income taxes............. $ 75 $ 0 $(391) $ 0 $(131)
===== ===== ===== ===== =====
</TABLE>
At December 31, 1996, the Company has net operating loss carry forwards in
the U.S. of approximately $10,500,000 and $5,000,000 for federal and state
income tax purposes, respectively, which expire in varying amounts through 2011.
Canadian research and development investment tax credits of approximately
$217,000 will expire in varying amounts through 2006.
9. COMMITMENTS
The Company rents facilities, automobiles and equipment under various
operating leases. Rental expenses under such leases amounted to $325,000,
$280,000, and $191,000 for 1996, 1995 and 1994, respectively.
At December 31, 1996, the aggregate minimum commitments pursuant to
operating leases are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1997............................................... $298,000
1998............................................... 203,000
1999............................................... 149,000
2000............................................... 98,000
2001 and thereafter................................ 543,000
</TABLE>
10. PENSION PLAN
The Company's Canadian subsidiary's defined benefit pension plan, which
covered its Canadian employees, was terminated at December 31, 1993. At the same
time, it established a money purchase plan that is structured after the 401(k)
salary deferral plan available to all U.S. employees and as such, does not
establish any corporate obligation other than a discretionary matching formula
to employee contributions. As a result of the termination, the Company
recognized a gain of $206,000 in 1993, representing the excess of the Plan's
projected benefit obligation over the accumulated benefit obligation and
recognized an additional gain in 1995 of $172,000, representing the excess of
the Plan's assets over the cost of providing the annuities to the participants
for the value of their termination
F-17
<PAGE> 71
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
benefits. This excess was placed into a money purchase contract and used by the
Company to provide for its matching contributions under the new arrangement.
This amount is being carried as a deferred pension expense asset on the
consolidated balance sheet.
The Company maintains a 401(k) salary deferral plan instituted for all U.S.
employees with more than one year of service. As a money purchase plan, it does
not establish any Company liability other than a matching formula to employee
contributions. The aggregate cost of the plan for 1994, 1995, and 1996 and for
the six months ended June 30, 1996 and 1997 was $16,000, $15,700, $20,000,
$9,000 and $20,000, respectively.
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company made cash payments for interest of $239,000, $189,000,
$246,000, $107,000 and $2,000, for the years ended December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1996 and 1997, respectively.
Additionally, income taxes of $190,000, $0, $3,500, $0 and $158,000, were paid
for the years ended December 31, 1994, 1995 and 1996, and for the six months
ended June 30, 1996 and 1997, respectively.
In the three years ended December 31, 1996, the Company issued Preferred
Stock dividends in the amount $108,000, $82,000, and $24,000 in the form of
25,291, 65,417, and 7,949 shares of common stock, respectively. None were issued
in 1997.
In December 1996, the entire $1,000,000 of the Company's 6% Convertible
Subordinated Debentures were converted into 363,628 shares of the Company's
common stock as a result of the public offering (see note 7).
12. INFORMATION CONCERNING THE COMPANY'S PRINCIPAL ACTIVITIES
A summary of the Company's continuing operations by geographic area for
each of the three years in the period ended December 31, 1996 and the six months
ended June 30, 1996 and 1997 is as follows in thousands:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
United States.......................... $ 1,862 $ 1,867 $ 4,122 $ 1,394 $ 5,030
Canada................................. 5,593 5,110 7,887 3,690 6,429
Europe................................. -- 1,599 2,577 1,590 2,421
Eliminations........................... (1,941) (2,202) (3,663) (1,662) (4,442)
------- ------- ------- ------- -------
Totals......................... $ 5,514 $ 6,374 $10,923 $ 5,012 $ 9,438
======= ======= ======= ======= =======
</TABLE>
F-18
<PAGE> 72
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations:
United States........................ $(2,653) $(1,548) $ 1,152 $ (146) $ 1,241
Canada............................... 20 270 869 577 746
Europe............................... -- 100 38 133 273
------- ------- ------- ------- -------
$(2,633) $(1,178) $ 2,059 $ 564 $ 2,260
======= ======= ======= ======= =======
Identifiable assets:
United States........................ $ 6,400 $ 4,253 $16,650 $ 4,158 $17,978
Canada............................... 4,422 6,248 7,750 7,366 9,444
Europe............................... -- 696 1,256 1,210 1,530
Eliminations......................... (4,030) (6,462) (8,333) (6,853) (8,567)
------- ------- ------- ------- -------
Totals....................... $ 6,792 $ 4,735 $17,323 $ 5,881 $20,385
======= ======= ======= ======= =======
</TABLE>
For the year ended December 31, 1996, export sales, including sales from
Canada to other countries, comprised 53.0% of total revenues and were made
primarily to Western Europe, Asia and Central and South America.
A summary of the Company's continuing operations by principal activity for
the years ended December 31, 1994 and 1995 is as shown below. Starting in 1996
no segment, other than the Instruments segment, was material to the Company's
consolidated operations and accordingly, segment reporting is no longer
required.
<TABLE>
<CAPTION>
TOTAL ELIMINATION RES. & DEV. INSTRUMENTS CORP. & OTHER
------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1994:
Revenues.................. $ 5,514 $ 298 $ 5,216 --
====== ===== ====== ======
Operating income (loss)... $(2,469) $(208) $(1,075) $(1,186)
===== ====== ======
Interest expense and
other................... (89)
------
Loss before income
taxes................... $(2,558)
======
Depreciation and
amortization............ $ 320 $ 8 $ 280 $ 32
====== ===== ====== ======
Capital expenditures...... $ 491 -- $ 491 --
====== ===== ====== ======
Identifiable assets....... $ 5,003 $(4,030) $ 302 $ 5,486 $ 3,245
====== ===== ====== ======
Identifiable assets--held
for sale................ 1,789
------
Identifiable assets--per
balance sheet........... $ 6,792
======
</TABLE>
F-19
<PAGE> 73
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
TOTAL ELIMINATION RES. & DEV. INSTRUMENTS CORP. & OTHER
------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1995:
Revenues.................. $ 6,374 $ 1,052 $ 5,250 $ 72
======= ========== ========== ============
Operating income (loss)... $ (886) $ (311) $ 268 $ (843)
========== ========== ============
Interest expense and
other................... (292)
-------
Loss before income
taxes................... $(1,178)
=======
Depreciation and
amortization............ $ 362 $ 45 $ 314 $ 3
======= ========== ========== ============
Capital expenditures...... $ 359 $ 10 $ 349 --
======= ========== ========== ============
Identifiable assets....... $ 4,735 $(6,462) $ 275 $ 7,589 $ 3,333
======= ========== ========== ========== ============
</TABLE>
13. SALES TO MAJOR CUSTOMERS
During 1996, one customer accounted for approximately 11% of consolidated
revenues of the Company. During 1995, no customer accounted for more than 10% of
the consolidated revenues of the Company. During 1994, one customer accounted
for approximately 22% of consolidated revenues.
14. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1996, the Company recorded a deferred tax
benefit related to a decrease in the deferred tax asset valuation allowance of
$266,000. During the fourth quarter of 1995, the Company recorded adjustments
for estimated losses on inventories and receivables of approximately $450,000
and $200,000, respectively. During the fourth quarter of 1994, the Company
recorded adjustments for estimated losses on inventories and receivables of
approximately $800,000 and $515,000, respectively.
F-20
<PAGE> 74
SCHEDULE III
BARRINGER TECHNOLOGIES INC
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE
BALANCE -- --
BEGINNING OF END OF
PERIOD ADDITION DEDUCTION RECOVERY PERIOD
------------ -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and
sales allowances:
Six months ended June 30, 1997
(Unaudited)...................... $ 63,000 $100,000 $ 6,000 -- $157,000
Year ended December 31, 1996....... 41,000 52,000 30,000 -- 63,000
Year ended December 31, 1995....... 539,000 221,000 719,000 -- 41,000
Year ended December 31, 1994....... 25,000 526,000 17,000 $5,000 539,000
</TABLE>
F-21
<PAGE> 75
Graphic Description
Inside Back Cover
Photo 1 shows a schematic of the IONSCAN(R) heating and testing
chambers under the heading "IONSCAN(R) Technology at Work" surrounded by five
additional pictures. Picture 1 is headed "1 Particle Collected" and shows a
security agent collecting a sample from a briefcase. Picture 2 is headed "2
Sample Inserted" and shows a sample being inserted into the IONSCAN(R).
Picture 3 is headed "3 IONSCAN(R) Analyzes" and shows the IONSCAN(R) processing
a sample. Picture 4 is headed "4 Pass" and shows the IONSCAN(R)'s alarm
indicating "pass." Picture 5 is headed "5 Passenger Proceeds" and shows a
female passenger about to pick up her bag from the security station.
Photo 2 is a schematic drawing of a proposed automated luggage system
under the heading "New Product Development." The caption to the schematic reads
as follows:
"The FAA has recently awarded Barringer a contract to develop an
automated luggage trace explosives detection system. If successfully developed,
this product would provide high throughput testing of checked luggage with
minimal operator intervention."
Photo 3 shows a prototype of the Company's document scanner system.
The caption to the photograph reads as follows:
"Barringer has developed a Document Scanner under contract with the FAA
which could potentially provide passenger screening capabilities in airports
throughout the world."
<PAGE> 76
[Barringer Name and Logo]
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and the Company's by-laws, as amended ("By-laws"), provide that
the Company shall, to the fullest extent permitted by law, indemnify each person
(including the heirs, executors, administrators and other personal
representatives of such person) against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by such person in connection with any threatened, pending or actual
suit, action or proceeding (whether civil, criminal, administrative or
investigative in nature or otherwise) in which such person may be involved by
reason of the fact that he or she is or was a director or officer of the Company
or is serving any other incorporated or unincorporated enterprise in any of such
capacities at the request of the Company.
Section 145 of the General Corporation Law of the State of Delaware (the
"GCL") permits a corporation, under specified circumstances, to indemnify its
directors, officers, employees or agents against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been judged liable to the corporation unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
The Certificate of Incorporation also contains a provision limiting the
personal liability of directors to the fullest extent permitted or authorized by
the GCL or other applicable law. Under the GCL, such provision would not limit
liability of a director for (i) breach of the director's duty of loyalty, (ii)
acts or omissions not in good faith or involving intentional misconduct or
knowing violation of law, (iii) payment of dividends or repurchases or
redemptions of stock other than from lawfully available funds, or (iv) any
transactions from which the director derives an improper benefit.
II-1
<PAGE> 78
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses to be
incurred in connection with the issuance and distribution of the securities that
are the subject of this Registration Statement, other than underwriting
discounts and commissions. All expenses incurred with respect to the
distribution will be paid by the Company, and such amounts, other than the
Securities and Exchange Commission registration fee and the NASD filing fee, are
estimates only.
<TABLE>
<CAPTION>
EXPENSE
--------
<S> <C>
Securities and Exchange Commission registration fee............... $ 10,586
National Association of Securities Dealers, Inc. filing fee....... 3,994
Nasdaq National Market listing fee................................ 17,500
Accounting fees and expenses...................................... 35,000
Legal fees and expenses........................................... 85,000
Blue Sky fees and expenses........................................ 5,000
Printing and engraving expenses................................... 125,000
Miscellaneous..................................................... 17,920
-------
Total................................................... $300,000
=======
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act (all share and per share amounts have been adjusted to reflect the
one-for-four reverse stock split of the Common Stock, $.01 par value ("Common
Stock"), effected on September 25, 1995):
(i) In July 1996 the Company issued an aggregate amount of $1,000,000
of its 6% subordinated convertible debentures, due 1997 (the "Debentures")
to institutional and private investors and members of management for an
aggregate purchase price of $1,000,000. This transaction was completed
without registration under the Securities Act of the Debentures or the
shares of Common Stock into which such Debentures are convertible in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
There were no underwriters for this issuance.
(ii) In June 1995 the Company issued an aggregate of 28 units, each
unit consisting of 2,500 shares of Common Stock and a five-year warrant to
purchase 2,500 shares of Common Stock at $2.00 per share (a "Unit"), to
private investors and members of management, for an aggregate purchase
price of $168,000. This transaction was completed without registration
under the Securities Act of the shares of Common Stock or the warrants
comprising the Units or the shares of Common Stock underlying the warrants
in reliance upon the exemption provided by Section 4(2) of the Securities
Act. There were no underwriters for this issuance.
(iii) In May 1995 the Company issued an aggregate of 125 Units and one
three-year warrant to purchase 37,500 shares of Common Stock at $2.00 per
share, to two institutional investors, for an aggregate purchase price of
$750,000. This transaction was completed without registration under the
Securities Act of the shares of Common Stock or the warrants comprising the
Units, the shares of Common Stock underlying the warrants included in the
Units, the additional three-year warrant or the shares of Common Stock
underlying the three-year warrant, in reliance upon the exemption provided
by Section 4(2) of the Securities Act. There were no underwriters for this
issuance.
(iv) In April 1995, the Company issued warrants to purchase 6,250
shares of Common Stock at $4.00 per share to Labco in connection with its
extension of an intercompany obligation. This transaction was completed
without registration under the Securities Act of the warrants or the
underlying shares of Common Stock in reliance upon the exemption provided
by Section 4(2) of the Securities Act. There were no underwriters for this
issuance.
II-2
<PAGE> 79
(v) In September 1994, the Company issued a warrant to purchase 6,250
shares of Common Stock at $5.25 per share to the Ontario Development
Corporation (the "ODC") in connection with an increase in the export
financing facility made available by the ODC to the Company's Canadian
subsidiary. This transaction was completed without registration under the
Securities Act of the warrant or the underlying shares of Common Stock in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
There were no underwriters for this issuance.
(vi) At various times between October 1993 and May 1997, the Company
granted stock options to retain employees of the Company covering an
aggregate of 434,375 shares of Common Stock. These grants were exempt from
registration pursuant to Securities Act Release No. 33-6188 (Feb. 1, 1980).
No underwriter was involved in these grants.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended.*
3.2 By-laws of the Company (previously filed as Exhibit 3.2A to the Company's Annual
Report on Form 10-K/A-2 for the fiscal year ended December 31, 1994 (File No. 0-3207)
and incorporated herein by reference).
5.1 Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.**
10.1 Employment Agreement, dated as of July 10, 1989, between the Company and Stanley S.
Binder (previously filed as Exhibit 10.15 to the Company's Registration Statement on
Form S-1 (File No. 33-3162) and incorporated herein by reference).
10.2 Employment Agreement, dated November 1, 1996, between the Company and Richard S.
Rosenfeld (previously filed as Exhibit 10.2 to the Company's Registration Statement
on Form SB-2 (File No. 333-13703) and incorporated herein by reference).
10.3 Employment Agreement, dated November 1, 1996, between the Company and Kenneth S. Wood
(previously filed as Exhibit 10.3 to the Company's Registration Statement on Form
SB-2 (File No. 333-13703) and incorporated herein by reference).
10.4 Consulting Agreement, dated as of January 1, 1991, between the Company and John J.
Harte (previously filed as Exhibit 10.4 to the Company's Registration Statement on
Form SB-2 (File No. 333-13703) and incorporated herein by reference).
10.5 Form of 1995 nonqualified stock option agreement (previously filed as Exhibit 10.6 to
the Company's Registration Statement on Form SB-2 (File No. 333-13703) and
incorporated herein by reference).
10.6 Form of 1996 nonqualified stock option agreement (previously filed as Exhibit 10.3 to
the Company's Registration Statement on Form SB-2 (File No. 333-13703) and
incorporated herein by reference).
10.7 Description of 1991 Warrant Plan (previously filed as Exhibit 10.8 to the Company's
Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by
reference).
10.8 Description of Exercise Plan (previously filed as Exhibit 10.9 to the Company's
Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by
reference).
10.9 Barringer Technologies Inc. 1997 Stock Compensation Program.*
</TABLE>
II-3
<PAGE> 80
<TABLE>
<C> <S>
10.10 License Agreement, dated February 27, 1989, between Canadian Patents and Development
Limited -- Societe Canadienne Des Brevets Et D'Exploitation Limite and Barringer
Instruments Limited (the "License Agreement"), Supplement #1, dated March 4, 1991,
Assignment of License Agreement, dated January 2, 1992, to Her Majesty the Queen in
Right of Canada, as Represented By the Minister of National Revenue and Supplemental
Letter Agreement, dated October 7, 1996 (previously filed as Exhibit 10.10 to the
Company's Registration Statement on Form B-2 (File No. 333-13703) and incorporated
herein by reference).
10.11 Letter Agreement, dated July 25, 1997, by and between Barringer Research Limited and
Her Majesty the Queen in Right of Canada, as Represented By the Minister of National
Revenue.*
10.12 Termination Agreement, dated October 7, 1996, between the Company and Barringer
Laboratories Inc. (previously filed as Exhibit 10.11 to the Company's Registration
Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference).
10.13 Warrant Agreement by and between the Company and American Stock Transfer & Trust
Company (previously filed as Exhibit 4.1 to the Company's Registration Statement on
Form SB-2 (File No. 333-13703) and incorporated herein by reference).
10.14 Form of Warrant issued to Janney Montgomery Scott Inc. (previously filed as Exhibit
4.2 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and
incorporated herein by reference).
10.15 Lease, dated as of February 17, 1993, between the Company and Murray Hill Associates
(previously filed as Exhibit 10.17 to the Company's Registration Statement on Form
SB-2 (File No. 333-13703) and incorporated herein by reference).
10.16 Lease, dated as of July 27, 1995, between Barringer Research Limited and Lehndorff
Management Limited (previously filed as Exhibit 10.18 to the Company's Registration
Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference).
11.1 Computation of Earnings Per Share.*
21.1 List of the Company's Subsidiaries (previously filed as Exhibit 21 to the Company's
Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by
reference).
23.1 Consent of BDO Seidman, LLP, independent certified public accountants.
23.2 Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. (included in Exhibit 5.1
to this registration statement).**
24.1 Power of Attorney.*
27.1 Financial Data Schedule.*
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) For the purpose of determining any liability under the Securities
Act of 1933, as amended (the "Securities Act"), the information omitted
from the form of Prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of Prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act, shall be deemed a part of this Registration Statement as of the time
it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 81
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions on
indemnification, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-5
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorizes this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Borough of New Providence, State of New Jersey, on
August 14, 1997.
BARRINGER TECHNOLOGIES INC.
By: /s/ STANLEY S. BINDER
------------------------------------
Stanley S. Binder, President and
Chief Executive Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ -------------------------------------------------
<S> <C>
/s/ STANLEY S. BINDER President, Chief Executive Officer (Principal
- ------------------------------------------ Executive Officer) and Director
Stanley S. Binder
* Director
- ------------------------------------------
John D. Abernathy
* Director
- ------------------------------------------
Richard D. Condon
* Director
- ------------------------------------------
John H. Davies
* Director
- ------------------------------------------
John J. Harte
* Director
- ------------------------------------------
James C. McGrath
/s/ RICHARD S. ROSENFELD Vice President-Finance, Chief Financial Officer
- ------------------------------------------ and Treasurer (Principal Accounting Financial
Richard S. Rosenfeld Officer)
*By: /s/ STANLEY S. BINDER
-------------------------------------
Stanley S. Binder,
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 83
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement...............................................
3.1 Certificate of Incorporation of the Company, as amended.*....................
3.2 By-laws of the Company (previously filed as Exhibit 3.2A to the Company's
Annual Report on Form 10-K/A-2 for the fiscal year ended December 31, 1994
(File No. 0-3207) and incorporated herein by reference)......................
5.1 Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.**................
10.1 Employment Agreement, dated as of July 10, 1989, between the Company and
Stanley S. Binder (previously filed as Exhibit 10.15 to the Company's
Registration Statement on Form S-1 (File No. 33-3162) and incorporated herein
by reference)................................................................
10.2 Employment Agreement, dated November 1, 1996, between the Company and Richard
S. Rosenfeld (previously filed as Exhibit 10.2 to the Company's Registration
Statement on Form SB-2 (File No. 333-13703) and incorporated herein by
reference)...................................................................
10.3 Employment Agreement, dated November 1, 1996, between the Company and Kenneth
S. Wood (previously filed as Exhibit 10.3 to the Company's Registration
Statement on Form SB-2 (File No. 333-13703) and incorporated herein by
reference)...................................................................
10.4 Consulting Agreement, dated as of January 1, 1991, between the Company and
John J. Harte (previously filed as Exhibit 10.4 to the Company's Registration
Statement on Form SB-2 (File No. 333-13703) and incorporated herein by
reference)...................................................................
10.5 Form of 1995 nonqualified stock option agreement (previously filed as Exhibit
10.6 to the Company's Registration Statement on Form SB-2 (File No.
333-13703) and incorporated herein by reference).............................
10.6 Form of 1996 nonqualified stock option agreement (previously filed as Exhibit
10.3 to the Company's Registration Statement on Form SB-2 (File No.
333-13703) and incorporated herein by reference).............................
10.7 Description of 1991 Warrant Plan (previously filed as Exhibit 10.8 to the
Company's Registration Statement on Form SB-2 (File No. 333-13703) and
incorporated herein by reference)............................................
10.8 Description of Exercise Plan (previously filed as Exhibit 10.9 to the
Company's Registration Statement on Form SB-2 (File No. 333-13703) and
incorporated herein by reference)............................................
10.9 Barringer Technologies Inc. 1997 Stock Compensation Program.*................
10.10 License Agreement, dated February 27, 1989, between Canadian Patents and
Development Limited -- Societe Canadienne Des Brevets Et D'Exploitation
Limite and Barringer Instruments Limited (the "License Agreement"),
Supplement #1, dated March 4, 1991, Assignment of License Agreement, dated
January 2, 1992, to Her Majesty the Queen in Right of Canada, as Represented
By the Minister of National Revenue and Supplemental Letter Agreement, dated
October 7, 1996 (previously filed as Exhibit 10.10 to the Company's
Registration Statement on Form SB-2 (File No. 333-13703) and incorporated
herein by reference).........................................................
10.11 Letter Agreement, dated July 25, 1997, by and between Barringer Research
Limited and Her Majesty the Queen in Right of Canada, as Represented By the
Minister of National Revenue.*...............................................
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------- ----
<C> <S> <C>
10.12 Termination Agreement, dated October 7, 1996, between the Company and
Barringer Laboratories Inc. (previously filed as Exhibit 10.11 to the
Company's Registration Statement on Form SB-2 (File No. 333-13703) and
incorporated herein by reference)............................................
10.13 Warrant Agreement by and between the Company and American Stock Transfer &
Trust Company (previously filed as Exhibit 4.1 to the Company's Registration
Statement on Form SB-2 (File No. 333-13703) and incorporated herein by
reference)...................................................................
10.14 Form of Warrant issued to Janney Montgomery Scott Inc. (previously filed as
Exhibit 4.2 to the Company's Registration Statement on Form SB-2 (File No.
333-13703) and incorporated herein by reference).............................
10.15 Lease, dated as of February 17, 1993, between the Company and Murray Hill
Associates (previously filed as Exhibit 10.17 to the Company's Registration
Statement on Form SB-2 (File No. 333-13703) and incorporated herein by
reference)...................................................................
10.16 Lease, dated as of July 27, 1995, between Barringer Research Limited and
Lehndorff Management Limited (previously filed as Exhibit 10.18 to the
Company's Registration Statement on Form SB-2 (File No. 333-13703) and
incorporated herein by reference)............................................
11.1 Computation of Earnings Per Share.*..........................................
21.1 List of the Company's Subsidiaries (previously filed as Exhibit 21 to the
Company's Registration Statement on Form SB-2 (File No. 333-13703) and
incorporated herein by reference)............................................
23.1 Consent of BDO Seidman, LLP, independent certified public accountants........
23.2 Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. (included in
Exhibit 5.1 to this registration statement).**...............................
24.1 Power of Attorney.*..........................................................
27.1 Financial Data Schedule.*....................................................
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
Alston & Bird Draft 8/13/97
2,000,000 Shares(1)
BARRINGER TECHNOLOGIES INC.
Common Stock
UNDERWRITING AGREEMENT
September , 1997
ROBERTSON, STEPHENS & COMPANY LLC
PACIFIC GROWTH EQUITIES, INC.
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Barringer Technologies Inc., a Delaware corporation (the "Company"), and
certain stockholders of the Company named in Schedule B hereto (hereinafter
called the "Selling Stockholders") address you as the Representatives of each of
the persons, firms and corporations listed in Schedule A hereto (herein
collectively called the "Underwriters") and hereby confirm their respective
agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell 2,000,000
shares of its authorized and unissued Common Stock, $0.01 par value per share,
to the several Underwriters. The 2,000,000 shares of Common Stock, $0.01 par
value per share, of the Company to be sold by the Company are hereinafter called
the "Firm Shares." The Company and the Selling Stockholders also propose to
grant, severally and not jointly, to the Underwriters an option to purchase up
to 300,000 additional shares of the Company's Common Stock, $0.01 par value per
share (the "Option Shares"), as
- ----------
(1) Plus an option to purchase up to 300,000 additional shares from the Company
and certain stockholders of the Company to cover over-allotments.
<PAGE> 2
provided in Section 7 hereof. As used in this Agreement, the term "Shares" shall
include the Firm Shares and the Option Shares. All shares of Common Stock, $0.01
par value per share, of the Company to be outstanding after giving effect to the
sales contemplated hereby, including the Shares, are hereinafter referred to as
"Common Stock."
2. Representations, Warranties and Agreements of the Company and the
Selling Stockholders
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Stockholder that:
(a) A registration statement on Form SB-2 (File No. 333-33129) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "Preliminary
Prospectuses") and of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations have been delivered to you. The Company and
the transactions contemplated by this Agreement meet the requirements for using
Form SB-2 under the Act.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (l), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration
- 2 -
<PAGE> 3
Statement" as used in this Agreement shall mean such registration statement,
including financial statements, schedules and exhibits, in the form in which it
became or becomes, as the case may be, effective (including, if the Company
omitted information from the registration statement pursuant to Rule 430A(a) or
files a term sheet pursuant to Rule 434 of the Rules and Regulations, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and
Regulations) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such amendment
or the filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations); provided, however, that if in reliance on Rule 434 of the Rules
and Regulations and with the consent of Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, the Company shall have provided to the Underwriters
a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the Prospectus and the term sheet, together, will not be materially
different from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not
- 3 -
<PAGE> 4
included any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (hereinafter defined) and on
any later date on which Option Shares are to be purchased, (i) the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained and will contain all material information required to be included
therein by the Act and the Rules and Regulations and will in all material
respects conform to the requirements of the Act and the Rules and Regulations,
(ii) the Registration Statement, and any amendments or supplements thereto, did
not and will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (iii) the Prospectus, and any amendments
or supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation with full power and authority
(corporate and other) to own, lease and operate its properties and conduct its
business as described in the Prospectus; the Company owns all of the outstanding
capital stock of its subsidiaries free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; each of the Company and its
subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities which are material to the conduct of
its business, all of which are valid and in full force and effect; neither the
Company nor any of its subsidiaries is in violation of its respective charter or
bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other
- 4 -
<PAGE> 5
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which it or any of its subsidiaries or their respective properties
may be bound; and neither the Company nor any of its subsidiaries is in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or over
their respective properties of which it has knowledge. The Company does not own
or control, directly or indirectly, any corporation, association or other entity
other than those subsidiaries listed in Exhibit 21 to the Company's Registration
Statement on Form SB-2 (File No. 333-13703) filed with the Commission and
incorporated by reference into the Registration Statement.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, (ii) the charter or bylaws of the Company or
any of its subsidiaries, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties is
required for the execution and delivery of this Agreement and the consummation
by the Company or any of its subsidiaries of the transactions herein
contemplated, except such as may be required under the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (if applicable), or under
state or other securities or Blue Sky laws, all of which requirements have been
satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, any
of its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
- 5 -
<PAGE> 6
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of its subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement by the Act or the Rules and
Regulations which have not been accurately described in all material respects in
the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the Company
(including the Option Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms all material respects to the statements relating
thereto contained in the Registration Statement and the Prospectus (and such
statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares to be
purchased from the Company hereunder have been duly authorized for issuance and
sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar right
of stockholders exists with respect to any of the Firm Shares or Option Shares
to be purchased from the Company hereunder or the issuance and sale thereof
other than those that have been expressly waived prior to the date hereof and
those that will automatically expire upon and will not apply to the consummation
of the transactions contemplated on the Closing Date. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except as
may be required under the Act or under state or other securities or Blue Sky
laws. All issued and outstanding shares of capital stock of each subsidiary of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable, and were not issued in violation of or subject to any preemptive
right, or other rights to subscribe for or purchase shares and are owned by the
Company free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest. Except as disclosed in the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, neither the Company nor any subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible
- 6 -
<PAGE> 7
securities or obligations. The description of the Company's stock option, stock
bonus and other stock plans or arrangements, and the options or other rights
granted and exercised thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(g) BDO Seidman, LLP, which has examined the consolidated financial
statements of the Company, together with the related schedules and notes, as of
December 3l, 1995 and 1996 and for each of the years in the three (3) years
ended December 3l, 1996 filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent accountants
within the meaning of the Act and the Rules and Regulations; the audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information,
forming part of the Registration Statement and Prospectus, fairly present the
financial position and the results of operations of the Company and its
subsidiaries at the respective dates and for the respective periods to which
they apply; and all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) any transaction that is material to the
Company and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (iii) any obligation, direct or
contingent, that is material to the Company and its subsidiaries considered as
one enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
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<PAGE> 8
(i) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiaries has good and marketable
title to all properties and assets described in the Registration Statement and
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as would not
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) the agreements to which the
Company or any of its subsidiaries is a party described in the Registration
Statement and Prospectus are valid agreements, enforceable by the Company and
its subsidiaries (as applicable), except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) each of the Company and
its subsidiaries has valid and enforceable leases for all properties described
in the Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus, the Company owns or leases
all such properties as are necessary to its operations as now conducted or as
proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise; and
all tax liabilities are adequately provided for on the books of the Company and
its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with
insurers of recognized financial responsibility of the types and in the amounts
generally deemed adequate for their respective businesses and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the
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<PAGE> 9
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers, authorized dealers
or international distributors that might be expected to result in a material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise. No collective bargaining agreement exists with any of the
Company's employees and, to the best of the Company's knowledge, no such
agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names, copyrights and other
intellectual property rights which are necessary to conduct its businesses as
described in the Registration Statement and Prospectus; the expiration of any
patents, patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise; the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names, copyrights or other intellectual property rights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names,
copyrights or other intellectual property rights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(n) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on The Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from The Nasdaq National Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. ("NASD") is contemplating terminating such registration or
listing.
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the " 1940 Act"), and the rules and regulations
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<PAGE> 10
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company, each Selling
Stockholder and each of [Austin W. Marxe and Janney, Montgomery Scott, Inc.] has
agreed in writing that such person will not, for a period of 90 days from the
date that the Registration Statement is declared effective by the Commission
(the "Lock-up Period"), offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, or (iii) with the prior written consent of
Robertson, Stephens & Company LLC. The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation,
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<PAGE> 11
any put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, such person has also agreed and consented to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
the Securities held by such person except in compliance with this restriction.
The Company has provided to counsel for the Underwriters a complete and accurate
list of all security holders of the Company and the number and type of
securities held by each security holder. The Company has provided to counsel for
the Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and stockholders have agreed to such
or similar restrictions (the "Lock-up Agreements") presently in effect or
effected hereby. The Company hereby represents, warrants and agrees that it will
not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws, and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss. 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
(u) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
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<PAGE> 12
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
II. Each Selling Stockholder, severally and not jointly, represents and
warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has, and on the Closing Date and
any later date on which Option Shares are purchased will have, valid marketable
title to the Option Shares to be sold by such Selling Stockholder, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest other than pursuant to this Agreement; and upon delivery of such Option
Shares hereunder and payment of the purchase price as herein contemplated, each
of the Underwriters will obtain valid marketable title to the Option Shares
purchased by it from such Selling Stockholder, free and clear of any pledge,
lien, security interest pertaining to such Selling Stockholder or such Selling
Stockholder's property, encumbrance, claim or equitable interest, including any
liability for estate or inheritance taxes, or any liability to or claims of any
creditor, devisee, legatee or beneficiary of such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
an irrevocable Power of Attorney (the "Power of Attorney") appointing
____________ and _____________ as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Letter of Transmittal and
Custody Agreement (the "Custody Agreement") with _________________, as custodian
(the "Custodian"); each of the Power of Attorney and the Custody Agreement
constitutes a valid and binding agreement on the part of such Selling
Stockholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and each of such Selling
Stockholder's Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 6(h) hereof on behalf of
such Selling Stockholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Stockholder as provided in Section 3
hereof, to authorize the delivery of the Option Shares to be sold by such
Selling Stockholder under this Agreement and to duly endorse (in blank or
otherwise) the certificate or certificates representing such Option Shares or a
stock power or powers with respect thereto, to accept payment therefor, and
otherwise to act on behalf of such Selling Stockholder in connection with this
Agreement.
(c) All consents, approvals, authorizations and orders required for
the execution and delivery by such Selling Stockholder of the Power of Attorney
and the Custody Agreement, the execution and delivery by or on behalf of such
Selling Stockholder of this Agreement and the sale and delivery of the Option
Shares to be sold by such Selling Stockholder under this Agreement (other than,
at the time of the
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<PAGE> 13
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such Selling
Stockholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Stockholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and such Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Option Shares to be
sold by such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-up Period,
effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Stockholder or with respect to which such Selling
Stockholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners or
shareholders of such Selling Stockholder, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of Robertson, Stephens & Company LLC. The foregoing
restriction is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
Selling Stockholder. Such prohibited hedging or other transactions would
including, without limitation, any short sale (whether or not against the box)
or any purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities. Such
Selling Stockholder also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
securities held by such Selling Stockholder except in compliance with this
restriction.
(e) Certificates in negotiable form for all Option Shares to be sold
by such Selling Stockholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Stockholder, have been placed in
custody with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization,
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<PAGE> 14
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and the performance of this
Agreement and the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms and provisions of or
constitute a default under any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder, or any
Option Shares to be sold by such Selling Stockholder hereunder, may be bound or,
to the best of such Selling Stockholders' knowledge, result in any violation of
any law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over such Selling Stockholder or over the properties of such
Selling Stockholder, or, if such Selling Stockholder is other than a natural
person, result in any violation of any provisions of the charter, bylaws or
other organizational documents of such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Option Shares to be
sold by such Selling Stockholder that is contained in the representations and
warranties of such Selling Stockholder in such Selling Stockholder's Power of
Attorney or set forth in the Registration Statement or the Prospectus is, and at
the time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing Date
(hereinafter defined), and on any later date on which Option Shares are to be
purchased, was or will be, true, correct and complete, and does not, and at the
time the Registration Statement became or becomes, as the case may be, effective
and at all times subsequent thereto up to and on the Closing Date, and on any
later date on which Option Shares are to be purchased, will not, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date, or
any later date on which Option Shares are to be purchased, as the case may be,
and will advise one of its Attorneys and Robertson, Stephens & Company LLC prior
to the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, if any
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<PAGE> 15
statement to be made on behalf of such Selling Stockholder in the certificate
contemplated by Section 6(h) would be inaccurate if made as of the Closing Date
or such later date on which Option Shares are to be purchased, as the case may
be.
(k) Such Selling Stockholder does not have, or has waived prior to
the date hereof, any preemptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Shares that are to be sold by the
Company or any of the other Selling Stockholders to the Underwriters pursuant to
this Agreement; such Selling Stockholder does not have, or has waived prior to
the date hereof, any registration right or other similar right to participate in
the offering made by the Prospectus, other than such rights of participation as
have been satisfied by the participation of such Selling Stockholder in the
transactions to which this Agreement relates in accordance with the terms of
this Agreement; and such Selling Stockholder does not own any warrants, options
or similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than those described in the Registration Statement and the
Prospectus.
(l) Such Selling Stockholder is not aware that any of the
representations and warranties of the Company set forth in Section 2.I. above is
untrue or inaccurate in any material respects.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn, and not to take any other action with the purpose or effect
of receiving immediately available funds, until the business day following the
date of its delivery to the Company, and, in the event of any breach of the
foregoing, the Company shall reimburse the Underwriters for the interest lost
and any other expenses borne by them by reason of such breach), at the offices
of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., 65 Livingston Avenue,
Roseland, New Jersey 07068 (or at such other place as may be agreed upon among
the Representatives and the Company), at 7:00 A.M., San Francisco time (a) on
the third (3rd) full business day following the first day that Shares are
traded, (b) if this Agreement is executed and delivered after 1:30 P.M., San
Francisco time, the fourth (4th) full
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<PAGE> 16
business day following the day that this Agreement is executed and delivered, or
(c) at such other time and date not later than seven (7) full business days
following the first day that Shares are traded as the Representatives and the
Company may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section l0 hereof), such time and date of
payment and delivery being herein called the "Closing Date;" provided, however,
that if the Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 4(d) hereof, the Representatives
may, in their sole discretion, postpone the Closing Date until no later than two
(2) full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will be
made available to you at such office or such other location including, without
limitations in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representatives so
elect, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), on the inside front
cover concerning stabilization, over-allotment and passive market making by the
Underwriters, and under the caption "Underwriting" in any Preliminary Prospectus
and in the Prospectus constitutes the only information furnished by the
Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement, and you, on behalf of the respective
Underwriters, represent and warrant to the Company and the Selling Stockholders
that the statements made therein do not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
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<PAGE> 17
4. Further Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (l) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the
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<PAGE> 18
expense of such Underwriter, such amendment or amendments to the Registration
Statement and such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement or Prospectus
which shall not previously have been submitted to you a reasonable time prior to
the proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Act and the Rules and Regulations and
the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than the forty-fifth
(45th) day following the end of the fiscal quarter first occurring after the
first anniversary of the effective date of the Registration Statement, an
earnings statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and
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<PAGE> 19
covering a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's stockholders, (ii) concurrently with furnishing to
its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to stockholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to stockholders or prepared by the Company or any of its subsidiaries,
and (vi) any additional information of a public nature concerning the Company or
its subsidiaries, or its business which you may reasonably request. During such
five (5) year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and
shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to Section
11(a) hereof, or if the Underwriters shall terminate this Agreement pursuant to
Section 11(b)(i) hereof, the Company will reimburse the several Underwriters for
all out-of-pocket expenses (including fees and disbursements of Underwriters'
Counsel) incurred by the Underwriters in investigating or preparing to market or
marketing the Shares.
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<PAGE> 20
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the
prior written consent of Robertson Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Firm Shares and the Option Shares to be sold by the Company hereunder and
the Company's issuance of options or Common Stock under the Company's presently
authorized (the "Option Plan").
(1) During a period of ninety (90) days from the effective date of
the Registration Statement, the Company will not file a registration statement
registering shares under the Option Plan or other employee benefit plan.
5. Expenses.
(a) The Company agrees with each Underwriter [and each Selling
Stockholder] that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company [and the Selling Stockholders] in connection with the
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<PAGE> 21
performance of [its][their] obligations hereunder. [Any additional expenses
incurred as a result of the sale of the Shares by the Selling Stockholders will
be borne collectively by the Company and the Selling Stockholders.] The
provisions of this Section 5(a)(i) are intended to relieve the Underwriters from
the payment of the expenses and costs which the Selling Stockholders and the
Company hereby agree to pay, but shall not affect any agreement which the
Selling Stockholders and the Company may make, or may have made, for the sharing
of any of such expenses and costs. Such agreements shall not impair the
obligations of the Company and the Selling Stockholders hereunder to the several
Underwriters.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined. on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) listed
from time to time in The Wall Street Journal which represents the base rate on
corporate loans posted by a substantial majority of the nation's thirty (30)
largest banks (the "Prime Rate"). Any such interim reimbursement payments which
are not made to the Underwriters within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(iii) In addition to their other obligations under Section
8(b) hereof, each Selling Stockholder agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) hereof relating to such Selling Stockholder, it will
reimburse the Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of such
Selling Stockholder's obligation to reimburse the Underwriters for such expenses
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Selling Stockholders, together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Underwriters within
thirty (30) days
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<PAGE> 22
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Stockholder on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by- a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth in Sections 5(a)(ii),
5(a)(iii) and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the several
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company
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<PAGE> 23
and the Selling Stockholders of their respective obligations hereunder and to
the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company and the Selling Stockholders, dated
the Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) The Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation;
(ii) The Company and each subsidiary has the corporate power
and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
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<PAGE> 24
(iii) The Company and each subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its
properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company and its subsidiaries considered as one enterprise. To
such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other entity
other than those subsidiaries listed in Exhibit 21 to the Company's
Registration Statement on Form SB-2 (File No. 333-13703) filed with
the Commission and incorporated by reference into the Registration
Statement;
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company (including the
Option Shares to be sold by the Selling Stockholders) have been duly
and validly issued and are fully paid and nonassessable, and, to
such counsel's knowledge, will not have been issued in violation of
or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(v) All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and, to such counsel's
knowledge, have not been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first
refusal or other similar right and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest;
(vi) The Shares to be issued by the Company pursuant to the
terms of this Agreement have been duly authorized and, upon issuance
and delivery against payment therefor in accordance with the terms
hereof, will be duly and validly issued and fully paid and
nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right.
(vii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been
duly executed
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<PAGE> 25
and delivered by the Company and, assuming due authorization,
execution and delivery by you, is a valid and binding agreement of
the Company, enforceable in accordance with its terms, except
insofar as indemnification provisions may be limited by applicable
law and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally or by general equitable
principles;
(ix) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived
therefrom as to which such counsel need express no opinion), as of
the effective date of the Registration Statement, complied as to
form in all material respects with the requirements of the Act and
the applicable Rules and Regulations;
(xi) The information in the Prospectus under the caption
"Description of Capital Stock, " to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by such
counsel and is a fair summary of such matters and conclusions; and
the forms of certificates evidencing the Common Stock and filed as
exhibits to the Registration Statement comply with Delaware law;
(xii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes
are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement which are not described or referred to
therein or filed as required;
(xiv) The performance of this Agreement and the consummation
of the transactions herein contemplated (other than performance of
the Company's indemnification obligations hereunder, concerning
which no opinion need be expressed) will not (A) result in any
violation of the
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<PAGE> 26
Company's charter or bylaws, or (B) to such counsel's knowledge,
result in a material breach or violation of any of the terms and
provisions of, or constitute a default under, any bond, debenture,
note or other evidence of indebtedness, or any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument known to such counsel to which the
Company is a party or by which its properties are bound, or any
applicable statute, rule or regulation known to such counsel or, to
such counsel's knowledge, any order, writ or decree of any court,
government or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries, or over any of their
properties or operations;
(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or
body having jurisdiction over the Company or any of its
subsidiaries, or over any of their properties or operations is
necessary in connection with the consummation by the Company of the
transactions herein contemplated, except such as have been obtained
under the Act or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company
or any of its subsidiaries of a character required to be disclosed
in the Registration Statement or the Prospectus by the Act or the
Rules and Regulations, other than those described therein;
(xvii) To such counsel's knowledge, neither the Company nor
any of its subsidiaries is presently (a) in material violation of
its respective charter or bylaws, or (b) in material breach of any
applicable statute, rule or regulation known to such counsel or, to
such counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries, or over any of their properties or
operations; and
(xviii) To such counsel's knowledge, except as set forth in
the Registration Statement and Prospectus, no holders of Common
Stock or other securities of the Company have registration rights
with respect to securities of the Company and, except as set forth
in the Registration Statement and Prospectus, all holders of
securities of the Company having rights known to such counsel to
registration of such shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse
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<PAGE> 27
of time following notification of the Company's intent to file the
Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full
satisfaction of such rights;
(xix) Each Selling Stockholder which is not a natural person
has full right power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions
contemplated herein; the Power of Attorney and Custody Agreement of
each Selling Stockholder that is not a natural person has been duly
authorized by such Selling Stockholder; the Power of Attorney and
Custody Agreement of each Selling Stockholder has been duly executed
and delivered by or on behalf of such Selling Stockholder; and the
Power of Attorney and Custody Agreement of each Selling Stockholder
constitutes the valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles;
(xx) Each of the Selling Stockholders has full right, power
and authority to enter into and to perform its obligations under
this Agreement and to sell, transfer, assign and deliver the Option
Shares to be sold by such Selling Stockholder hereunder;
(xxi) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed
and delivered by or on behalf of each Selling Stockholder; and
(xxii) Upon the delivery of and payment for the Option Shares
as contemplated in this Agreement, each of the Underwriters will
receive valid marketable title to the Option Shares purchased by it
from such Selling Stockholder, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest. In
rendering such opinion, such counsel may assume that the
Underwriters are without notice of any defect in the title of the
Option Shares being purchased from the Selling Stockholders.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
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<PAGE> 28
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom, as
to which such counsel need express no comment) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or at the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Registration Statement, the Prospectus and any amendment
or supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Such counsel shall also state that the conditions for the
use of Form SB-2 have been satisfied.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the State of New Jersey, New
York and Delaware upon opinions of local counsel, and as to questions of fact
upon representations or certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Alston & Bird LLP, in form and substance satisfactory to you, with respect to
the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from BDO Seidman, LLP addressed to the Underwriters, dated the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that the
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<PAGE> 29
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from BDO Seidman, LLP
shall be addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of December 31, 1996 and
related consolidated statements of operations, stockholders' equity, and cash
flows for the twelve (12) months ended December 3l, 1996, (iii) state that BDO
Seidman, LLP has performed the procedures set out in Statement on Auditing
Standards No. 71 ("SAS71") for a review of interim financial information and
providing the report of BDO Seidman, LLP as described in SAS71 on the financial
statements for each of the quarters in the six month period ended June 30, 1996
(the "Quarterly Financial Statements"), (iv) state that in the course of such
review, nothing came to their attention that leads them to believe that any
material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in compliance with generally accepted
accounting principles consistently applied across the periods presented, and (v)
address other matters agreed upon by BDO Seidman, LLP and you. In addition, you
shall have received from BDO Seidman, LLP a letter addressed to the Company and
made available to you for the use of the Underwriters stating that their review
of the Company's system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their examination of the Company's
consolidated financial statements as of December 3l, 1996, did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or any later date on which Option Shares are to be purchased,
as the case
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<PAGE> 30
may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date or any later date on which
Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate,
the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to
be included therein by the Act and the Rules and Regulations and in
all material respects conformed to the requirements of the Act and
the Rules and Regulations, the Registration Statement, and any
amendment or supplement thereto, did not and does not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since
the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (A) any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one
enterprise, (B) any transaction that is material to the Company and
its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (C) any obligation,
direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company
or its subsidiaries, except obligations incurred in the ordinary
course of business, (D) any change in the capital stock or
outstanding indebtedness of the Company or any of its subsidiaries
that is material to the Company and its subsidiaries considered as
one enterprise, (E) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or any of
its subsidiaries, or (F) any loss or damage (whether or not insured)
to the property of the Company or any of its subsidiaries which has
been sustained or will have been sustained which has a material
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<PAGE> 31
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(h) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, from the Attorneys for each Selling
Stockholder to the effect that, as of the Closing Date, or any later date on
which Option Shares are to be purchased, as the case may be, they have not been
informed that:
(i) The representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect
on the Closing Date or on any later date on which Option Shares are
to be purchased, as the case may be; or
(ii) Such Selling Stockholder has not complied with any
obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Stockholder at or
prior to the Closing Date or any later date on which Option Shares
are to be purchased, as the case may be.
(i) The Company shall have obtained and delivered to you an
agreement from each officer and director of the Company, each Selling
Stockholder and each of [Austin W. Marxe and Janney, Montgomery Scott, Inc.] in
writing prior to the date hereof that such person will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to partners or shareholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, or (iii) with the prior written consent of Robertson,
Stephens & Company LLC. The foregoing restriction shall have been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would including, without limitations
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person will
have also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction.
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<PAGE> 32
(j) The Company and the Selling Stockholders shall have furnished to
you such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Stockholders or
officers of the Selling Stockholders (when the Selling Stockholder is not a
natural person) as to the accuracy of the representations and warranties of the
Company and the Selling Stockholders herein, as to the performance by the
Company and the Selling Stockholders of their respective obligations hereunder
and as to the other conditions concurrent and precedent to the obligations of
the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and the Selling Stockholders, severally but not jointly, hereby grant to
the several Underwriters, for the purpose of covering over-allotments in
connection with the distribution and sale of the Firm Shares only, a
nontransferable option to purchase up to the respective number of Option Shares
set forth opposite the names of the Company and the Selling Stockholders in
Schedule B hereto at the purchase price per share for the Firm Shares set forth
in Section 3 hereof. Such option may be exercised by the Representatives on
behalf of the several Underwriters on one (1) or more occasions in whole or in
part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional shares.
[Priority of purchases if less than all Option Shares are to be purchased?????]
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company with regard
to the Option Shares being purchased from the Company, and to the order of the
Custodian for the respective accounts of the Selling Stockholders with regard to
the Option Shares being purchased from such Selling Stockholders (and the
Company and such Selling Stockholders agree not to deposit and to
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<PAGE> 33
cause the Custodian not to deposit any such check in the bank on which it is
drawn, and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the Company or the Custodian, as the case may be, and in the event
of any breach of the foregoing, the Company or the Selling Stockholders, as the
case may be, shall reimburse the Underwriters for the interest lost and any
other expenses borne by them by reason of such breach). Such delivery and
payment shall take place at the offices of Lowenstein, Sandler, Kohl, Fisher &
Boylan, P.A., 65 Livingston Avenue, Roseland, New Jersey 07068, or at such other
place as may be agreed upon among the Representatives, the Company and the
Attorneys (i) on the Closing Date, if written notice of the exercise of such
option is received by the Company at least two (2) full business days prior to
the Closing Date, or (ii) on a date which shall not be later than the third
(3rd) full business day following the date the Company receives written notice
of the exercise of such option, if such notice is received by the Company less
than two (2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
The certificates in negotiable form for the Option Shares to be sold by
the Selling Stockholders have been placed in custody (for delivery under this
Agreement) under the Custody Agreements. Each Selling Stockholder agrees that
the certificates for the Option Shares of such Selling Stockholder so held in
custody are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Stockholder for such custody, including the
Power of Attorney, is to that extent irrevocable and that the obligations of
such Selling Stockholder hereunder shall not be terminated by the act of such
Selling Stockholder or by operation of law, whether by the death or incapacity
of such Selling Stockholder or the occurrence of any other event, except as
specifically provided herein or in the applicable Custody Agreement. If any
Selling Stockholder should die or be incapacitated, or if any other such event
should occur, before the delivery
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<PAGE> 34
of the certificates for the Option Shares to be sold by such Selling Stockholder
hereunder, the Option Shares to be sold by such Selling Stockholder shall,
except as specifically provided herein or in the applicable Custody Agreement,
be delivered by the Custodian in accordance with the terms and conditions of
this Agreement as if such death, incapacity or other event had not occurred,
regardless of whether the Custodian shall have received notice of such death or
other event.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company and the Selling Stockholders herein, to
the accuracy of the statements of the Company, the Selling Stockholders and
officers of the Company made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company and the Selling Stockholders or the
satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such
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<PAGE> 35
case to the extent that any such loss, claim, damage, liability or action arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, such
Preliminary Prospectus or the Prospectus, or any such amendment or supplement
thereto, in reliance upon, and in conformity with, written information relating
to any Underwriter furnished to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof and, provided
further, that the indemnity agreement provided in this Section 8(a) with respect
to any Preliminary Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any losses, claims, damages, liabilities or
actions based upon any untrue statement or alleged untrue statement of material
fact or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been sent
or given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject
(including, without limitation, in its capacity as an Underwriter or as a
"qualified independent underwriter" within the meaning of Schedule E or the
Bylaws of the NASD) under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Selling Stockholder
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in the case of subparagraphs (ii) and (iii) of this Section 8(b) to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or such Underwriter
by such Selling Stockholder, directly or through such Selling Stockholder's
representatives, specifically for use in the preparation thereof, and agrees to
reimburse each Underwriter for any legal or other
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<PAGE> 36
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement provided in this Section 8(b) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been sent
or given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which such
Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to indemnity
and hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Stockholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and each such Selling Stockholder for any legal or other expenses
reasonably incurred by the Company and each such Selling Stockholder in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, each Selling
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<PAGE> 37
Stockholder and each person, if any, who controls the Company or any Selling
Stockholder within the meaning of the Act or the Exchange Act. This indemnity
agreement shall be in addition to any liabilities which each Underwriter may
otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a), 8(b) or 8(c) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying parry. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement
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<PAGE> 38
includes an unconditional release of such indemnified party from all liability
on all claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Stockholders are responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
amount in excess of the amount by which the underwriting discount applicable to
the Shares purchased by such Underwriter exceeds the amount of damages which
such Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(e)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration Statement and each
director of the Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Stockholder. The Company and such Selling Stockholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
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<PAGE> 39
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters shall
fail to take up and pay for the number of Firm Shares agreed by such Underwriter
or Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
losing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement,
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<PAGE> 40
supplements to the Prospectus or other such documents which may thereby be made
necessary, and (ii) the respective number of Firm Shares to be purchased by the
remaining Underwriters and substituted underwriter or underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to be
purchased by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or shall
not elect to seek another underwriter or underwriters for such Firm Shares as
aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter, except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the effective
date of the Registration Statement, or (ii) the time of the initial public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set forth
in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
or any Selling Stockholder shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition
- 40 -
<PAGE> 41
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to Barringer Technologies Inc., 219 South
Street, Murray Hill, New Jersey 07974, telecopier number (908) 665-8298,
Attention: Stanley S. Binder, President and Chief Executive Officer; if sent to
one or more of the Selling Stockholders, such notice shall be sent mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to
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<PAGE> 42
______________, as Attorney-in-Fact for the Selling Stockholders, at Barringer
Technologies Inc., 219 South Street, Murray Hill, New Jersey 07974, telecopier
number (908) 665-8298.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Stockholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
Robertson, Stephens & Company LLC on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of New York.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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<PAGE> 43
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
BARRINGER TECHNOLOGIES INC.
By:
-------------------------------------------
Name:
Title:
SELLING STOCKHOLDERS
By:
-------------------------------------------
, Attorney-in-Fact
----------------
for the Selling Stockholders named in
Schedule B hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
PACIFIC GROWTH EQUITIES INC.
On their behalf and on behalf of each of the several Underwriters named in
Schedule A hereto.
By ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By:
--------------------------------------
Authorized Signatory
- 43 -
<PAGE> 44
SCHEDULE A
Number of Firm
Shares To Be
Underwriters Purchased
- ------------ ---------
Robertson, Stephens & Company LLC...............................
Pacific Growth Equities, Inc....................................
----------
Total...................................................... 2,000,000
==========
<PAGE> 45
SCHEDULE B
Number of
Option Shares
Name To Be Sold
- ---- ----------
Barringer Technologies Inc......................................
-----------
Total...................................................... 300,000
===========
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Barringer Technologies Inc.
Murray Hill, New Jersey
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 12, 1997, relating to the
consolidated financial statements and schedule of Barringer Technologies Inc.
which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Woodbridge, New Jersey
August 14, 1997
