<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1998
REGISTRATION NO. 333-33129
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
AMENDMENT NO. 2
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.)
</TABLE>
----------------------
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 PC NILS H. OKESON, ESQ.
65 LIVINGSTON AVENUE ALSTON & BIRD LLP
ROSELAND, NEW JERSEY 07068 1201 WEST PEACHTREE STREET
(973) 597-2500 ATLANTA, GEORGIA 30309
(404) 881-7000
</TABLE>
----------------------
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 MARCH 3, 1998
[BARRINGER TECH LOGO]
2,000,000 SHARES
COMMON STOCK
Of the 2,000,000 shares of Common Stock offered hereby, 1,970,000 are being
offered by Barringer Technologies Inc. ("Barringer" or the "Company") and 30,000
are being offered by a stockholder of the Company (the "Selling Stockholder").
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholder.
On March 2, 1998, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $14 1/8 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 PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY (2) STOCKHOLDER
- -----------------------------------------------------------------------------------------------------------------
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Per Share.................... $ $ $ $
- -----------------------------------------------------------------------------------------------------------------
Total(3)..................... $ $ $ $
=================================================================================================================
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(1) The Company and the Selling Stockholder 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 $500,000, payable by the
Company.
(3) The Company has 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 Stockholder 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 BancAmerica Robertson Stephens, San Francisco,
California, on or about March , 1998.
BANCAMERICA ROBERTSON STEPHENS PACIFIC GROWTH EQUITIES, INC.
The date of this Prospectus is March , 1998
<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 an operator in training utilizing the Company's
CD-ROM training software. The caption reads as follows: "To enhance the
efficiency of IONSCAN(R) use, Barringer has developed a computer-based
multimedia training package for operators. This CD-ROM software
provides training for operators in the key elements of trace detection
methods and IONSCAN(R) functions.
Photo 3 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."
<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 (THE "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, THE 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.................................................... 23
Management.................................................. 33
Certain Transactions........................................ 41
Principal and Selling Stockholders.......................... 42
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
</TABLE>
----------------------
"IONSCAN(R)" is a registered trademark and "GAMMATRACE(TM)" is a 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 OR
THE PRICE OF THE COMPANY'S COMMON STOCK PURCHASE WARRANTS ("WARRANTS"),
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 OR THE WARRANTS 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 objective is to leverage 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.
The Company's current principal product, the IONSCAN(R), is a portable
desktop system used in explosives detection and drug interdiction applications.
As of December 31, 1997, the Company had sold over 700 units (including 335
during 1997) in 39 countries. The Company's revenues have grown from $2.8
million for the year ended December 31, 1992 to $22.7 million for the year ended
December 31, 1997, representing a compounded annual growth rate of 51.8% over
the last five years.
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. Air Force, 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,
Australia 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 in
countries throughout the world, including Gatwick Airport and Heathrow Airport
in the United Kingdom, John F. Kennedy International Airport and Chicago O'Hare
International Airport in the United States and Kuala Lumpur Airport in Malaysia,
as well as 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, principally in reaction to heightened safety concerns caused
by the threat of terrorism and growing public awareness of drug-related criminal
activity. The Company believes that the deployment of advanced detection
equipment, such as the IONSCAN(R), will continue to increase as the acceptance
of using such equipment to combat these concerns increases. In January 1998, the
Company received a $5.4 million order from the FAA as part of the FAA's publicly
announced intention to further deploy advanced detection technology at the
nation's larger airports. In addition, during 1997, the Company sold a number of
IONSCAN(R)s to the U.S. Air Force for use in securing certain U.S. Air Force
bases in the U.S. and abroad. Also in 1997, the Company sold $2.5 million of
IONSCAN(R)s to a correctional agency to assist in stemming the flow of illegal
drugs to inmates.
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, Paris and Kuala Lumpur. In addition, the Company
utilizes a network of 45 independent sales and service representatives located
in Europe, the Middle East, Africa, Asia, South America and Australia.
4
<PAGE> 6
THE OFFERING
Common Stock Offered by the Company...... 1,970,000 shares
Common Stock Offered by the Selling
Stockholder.............................. 30,000 shares
Common Stock to be Outstanding after the
Offering................................. 7,479,854 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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YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1):
Revenues........................................ $7,770 $ 5,514 $ 6,374 $10,923 $22,689
Gross profit.................................... 3,840 1,414 2,773 5,560 13,681
Operating income (loss)......................... 541 (2,469) (886) 1,596 4,995
Income tax (provision) benefit.................. 153 (75) -- 391 371
Income (loss) from continuing operations........ 593 (2,633) (1,178) 2,059 5,754
Net income (loss)............................... 595 (2,565) (827) 2,059 5,754
Preferred stock dividends....................... (114) (108) (82) (39) (12)
Net income (loss) attributable to common
stockholders................................. 481 (2,673) (909) 2,020 5,742
Income (loss) per common share from continuing
operations (diluted)......................... $ 0.20 $ (0.97) $ (0.39) $ 0.46 $ 0.92
Net income (loss) per common share (diluted).... $ 0.20 $ (0.95) $ (0.28) $ 0.46 $ 0.92
Weighted average common shares outstanding
(diluted).................................... 2,570 2,827 3,283 4,440 6,257
</TABLE>
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DECEMBER 31, 1997
---------------------------
ACTUAL AS ADJUSTED(2)
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(Unaudited)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital............................... $19,664 $45,089
Current assets................................ 24,037 49,462
Total assets.................................. 25,608 51,033
Current liabilities........................... 4,373 4,373
Long-term liabilities......................... 121 121
Stockholders' equity.......................... 21,114 46,539
</TABLE>
- ----------------------
(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 1,970,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom, at an assumed public offering price of $14.00 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 outstanding
options, warrants and convertible securities which, as of February 1, 1998, were
exercisable for or convertible into an aggregate of 1,594,936 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 and marketability of new products, the probability of the
Company's success in the sale of its products 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, the financial impact of possible acquisitions 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 Government 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" and "Risks
Associated with Acquisition Strategy."
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 GOVERNMENT 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. The Company expects
that a substantial portion of current and anticipated purchases of advanced
detection equipment will continue to be made by government agencies with
appropriated funds. For instance, sales to the FAA constituted approximately
14.8% of the Company's revenues for the fiscal year ended December 31, 1997.
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 any government
agencies. See "Business--Government Regulation."
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 large orders
for multiple IONSCAN(R)s from a limited number of
6
<PAGE> 8
customers. 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
year ended December 31, 1997, approximately $6.3 million, or 27.8%, of the
Company's revenues were generated from sales to the Company's two largest
customers. During the 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. A significant portion of the Company's anticipated future
revenues are expected to 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. There can be no assurance that markets for the IONSCAN(R) or the
Company's other current or future products 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 or acquire new products and technologies 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
"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 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."
7
<PAGE> 9
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, and may incur significant charges or expenses in connection with
acquisitions and strategic relationships, 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 substantially derived from
sales of IONSCAN(R)s to a limited number of customers and such revenues are
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 Intelligent Detection
Systems Inc., Ion Track Instruments Inc. and Thermedics Detection 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, such as InVision Technologies, Inc. and Vivid Technologies, Inc.,
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 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 Government Procurement
Policies" and "Business--Competition" and "--Product Development."
8
<PAGE> 10
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 placement of an order. See "--Fluctuations in Operating Results,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "--Quarterly Results of Operations" and
"Business--Sales and Marketing."
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, or to what extent,
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, are manufactured pursuant to the Company's 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. Further, there can be no assurance that the Company can
sustain its recent rapid growth.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
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, amortization expenses relating to goodwill and other intangible
assets, and the incurrence of significant charges or expenses relating to any
acquired business, 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"Business -- Other Products."
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.
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 and product offerings increase. Increased warranty claims could
have a material adverse effect on the Company's business, financial condition
and results of operations.
10
<PAGE> 12
POTENTIAL PRODUCT LIABILITY INSURANCE LIMITS
The Company currently maintains product liability insurance in the amount
of $10.0 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, 7,479,854 shares of Common Stock will be
outstanding (7,779,854 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 5,509,854 shares
that will be outstanding upon completion of this Offering are freely tradable,
subject to the lock-up described below. An additional 1,594,936 shares of Common
Stock are issuable upon the exercise or conversion of outstanding stock options,
warrants and convertible securities outstanding as of February 1, 1998,
1,438,686 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 743,257 shares of Common Stock (including 534,550 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 for
a period of 90 days after the date of this Prospectus, subject to certain
exceptions, without the prior written consent of BancAmerica Robertson Stephens.
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."
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
11
<PAGE> 13
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 restricts 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 1,970,000 shares of
Common Stock offered by the Company hereby (2,270,000 if the Underwriters'
over-allotment option is exercised in full), at an assumed public offering price
of $14.00 per share and after deducting underwriting discounts and commissions
and estimated Offering expenses payable by the Company, are estimated to be
$25.4 million ($29.4 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 Acquisition Strategy",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Business--Other Products."
Pending the foregoing uses, the Company intends to invest the net proceeds
to the Company 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. 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 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.......................................... 16 10 3/8
Fourth quarter......................................... 14 3/8 8 3/4
Fiscal 1998
First quarter (through March 2, 1998).................. $15 1/4 $11 5/8
</TABLE>
On March 2, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $14 1/8 per share. As of February 1, 1998, 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 December 31, 1997, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to give effect to the sale of the 1,970,000 shares of Common Stock offered by
the Company hereby, at an assumed public offering price of $14.00 per share, and
the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 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; 45,146 shares outstanding
less discount of $35,000................................ $ 55,000 $ 55,000
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; 5,495,354 shares issued and outstanding,
actual; 7,465,354 shares issued and outstanding, as
adjusted(1)............................................. 55,000 75,000
Additional paid-in-capital................................ 30,209,000 55,614,000
Accumulated deficit....................................... (8,780,000) (8,780,000)
Foreign currency translation.............................. (457,000) (457,000)
Less: Common Stock in treasury at cost, 31,000 shares..... (13,000) (13,000)
------------ ------------
Total stockholders' equity.............................. $ 21,114,000 $ 46,539,000
------------ ------------
Total capitalization.................................. $ 21,114,000 $ 46,539,000
============ ============
</TABLE>
- ----------------------
(1) Excludes 1,609,436 shares of Common Stock issuable upon exercise or
conversion of options, warrants and convertible securities outstanding as of
December 31, 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, 1995,
1996 and 1997 and the balance sheet data at December 31, 1996 and 1997 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, 1993 and 1994 and the balance sheet data at December
31, 1993, 1994 and 1995 are derived from audited consolidated financial
statements of the Company not otherwise contained herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1):
Revenues.......................................... $7,770 $ 5,514 $ 6,374 $10,923 $22,689
Cost of revenues.................................. 3,930 4,100 3,601 5,363 9,008
------ ------- ------- ------- -------
Gross profit.................................... 3,840 1,414 2,773 5,560 13,681
------ ------- ------- ------- -------
Operating expenses:
Selling, general and administrative............. 3,117 3,352 3,305 3,734 7,971
Product development............................. 182 531 354 230 715
------ ------- ------- ------- -------
Total operating expenses...................... 3,299 3,883 3,659 3,964 8,686
------ ------- ------- ------- -------
Operating income (loss)........................... 541 (2,469) (886) 1,596 4,995
Other (expense) income, net....................... (101) (89) (292) 72 388
Income tax (provision) benefit.................... 153 (75) -- 391 371
------ ------- ------- ------- -------
Income (loss) from continuing operations.......... 593 (2,633) (1,178) 2,059 5,754
Income from operation held for sale............... 2 68 351 -- --
------ ------- ------- ------- -------
Net income (loss)................................. 595 (2,565) (827) 2,059 5,754
Preferred stock dividends......................... (114) (108) (82) (39) (12)
------ ------- ------- ------- -------
Net income (loss) attributable to common
stockholders.................................... $ 481 $(2,673) $ (909) $ 2,020 $ 5,742
====== ======= ======= ======= =======
Income (loss) per common share from continuing
operations (diluted).............................. $ 0.20 $ (0.97) $ (0.39) $ 0.46 $ 0.92
====== ======= ======= ======= =======
Net income (loss) per common share:
Basic........................................... $ 0.20 $ (0.95) $ (0.28) $ 0.55 $ 1.05
====== ======= ======= ======= =======
Diluted......................................... $ 0.20 $ (0.95) $ (0.28) $ 0.46 $ 0.92
====== ======= ======= ======= =======
Weighted average common shares outstanding:
Basic........................................... 2,570 2,827 3,283 3,695 5,456
Diluted......................................... 2,570 2,827 3,283 4,440 6,257
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(1):
Working capital..................................... $2,912 $ 652 $ 370 $14,271 $19,664
Current assets...................................... 7,000 5,067 3,672 16,624 24,037
Total assets........................................ 8,939 6,792 4,735 17,323 25,608
Current liabilities................................. 4,088 4,415 3,302 2,353 4,373
Long-term liabilities............................... 581 451 108 117 121
Stockholders' equity................................ 3,646 1,186 1,325 14,853 21,114
</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 December
31, 1997, had sold over 700 units (including 335 during 1997). 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 year ended December 31, 1997,
approximately 55.0% of the Company's unit sales were for explosives detection
applications primarily in the aviation security market. Approximately 14.8% of
the Company's 1997 revenues represented sales to the FAA. 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 years ended December 31, 1997 and 1996, approximately 96.0% and 86.1%,
respectively, of the Company's consolidated revenues were derived from the sale
of IONSCAN(R)s and related revenues. Selling prices for the IONSCAN(R) typically
range from $50,000 to $80,000 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, France and Malaysia 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. In addition, approximately 34.3% and 68.6% of the
Company's total revenues for the years ended December 31, 1997 and 1996,
respectively, were derived from non-U.S. sources. 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
maintained a backlog of orders. However, depending on the size and timing of
customer orders, the Company may, from time to time, have 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. See "Business--Backlog."
In December 1997, the Company entered into a letter of intent pursuant to
which it intends to acquire all of the outstanding capital stock of DigiVision,
Inc. ("DigiVision"), a San Diego-based developer of video enhancement products,
for an aggregate cash purchase price of approximately
16
<PAGE> 18
$750,000. See "Business--Other Products." The acquisition of DigiVision will not
be material to the Company. Accordingly, no separate financial statements of
DigiVision and no pro forma financial information relating to the proposed
acquisition have been included in this Prospectus. However, upon consummation of
the acquisition, the Company may record a one-time charge to write-off certain
technology and in-process research and development to be acquired from
DigiVision. Although management of the Company cannot currently estimate the
amount of the charge, it is expected that such charge could represent a
substantial portion of the purchase price, including costs related to the
acquisition. The final allocation of the purchase price will be subject to the
completion of due diligence procedures, including appraisals and valuation
analyses, as necessary. The Company's proposed acquisition of DigiVision is
subject to a number of significant conditions precedent, including the execution
of a definitive acquisition agreement and approval of the proposed transaction
by DigiVision's shareholders. The Company expects to consummate the acquisition
in the first half of 1998. However, no assurance can be given that the
acquisition will occur or as to the timing thereof.
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>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.................................................. 100.0% 100.0% 100.0%
Cost of revenues.......................................... 56.5 49.1 39.7
----- ----- -----
Gross profit........................................... 43.5 50.9 60.3
----- ----- -----
Operating expenses:
Selling, general and administrative.................... 51.9 34.2 35.1
Product development.................................... 5.5 2.1 3.2
----- ----- -----
Total operating expenses............................. 57.4 36.3 38.3
----- ----- -----
Operating income (loss)................................... (13.9) 14.6 22.0
Other (expense) income, net............................... (4.6) 0.7 1.7
Income tax benefit........................................ -- 3.6 1.7
----- ----- -----
Income (loss) from continuing operations.................. (18.5) 18.9 25.4
Income from operation held for sale....................... 5.5 -- --
----- ----- -----
Net income (loss)......................................... (13.0) 18.9 25.4
Preferred stock dividends................................. (1.3) (0.4) --*
----- ----- -----
Net income (loss) attributable to common stockholders..... (14.3)% 18.5% 25.4%
===== ===== =====
</TABLE>
- ---------------
* Less than 0.1%.
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1997 TO THE FISCAL YEAR ENDED
DECEMBER 31, 1996
Revenues. For the fiscal year ended December 31, 1997, revenues increased
by $11.8 million, or 108%, to $22.7 million from $10.9 million for the fiscal
year ended December 31, 1996. Sales of IONSCAN(R)s and related products
increased by $12.3 million, or 131%, due to an increase of 156% 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 drug detection
markets, primarily to law enforcement agencies, and to a lesser extent,
increased sales to the aviation security market, primarily to the FAA. 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 $697,000, or 85.2%, in 1997 as compared to 1996,
principally due to the completion in 1996 of a heavy water analyzer contract. As
sales of its IONSCAN(R)s have increased, the Company has placed less emphasis on
marketing its
17
<PAGE> 19
specialty instruments and anticipates that revenues from sales of such
instruments will continue to be insignificant to the Company's overall results.
Revenues derived from funded research and development increased by approximately
$146,000, or 20.8%, in 1997 as compared to 1996. Funded research and development
revenues increased as a result of the award by the FAA in March 1997 of a
$700,000 contract to design an automated luggage explosives detection system
utilizing the Company's trace detection technology. The first phase of this
project, which involves a proof of concept, is expected to be completed during
1998. Because of the increasing sales of IONSCAN(R)s, the Company believes that
revenues from funded research and development activities will continue to be
insignificant to the Company's overall results of operations.
Gross Profit. For the fiscal year ended December 31, 1997, gross profit
increased by $8.1 million, or 146%, to $13.7 million from $5.6 million in 1996.
As a percentage of revenues, gross profit increased to 60.3% in the fiscal
period ended December 31, 1997 from 50.9% in 1996. The improvement was primarily
attributable to larger, more efficient production runs of the IONSCAN(R) and a
related reduction in cost of materials due to higher volume purchases, coupled
with higher margins on international sales, 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 fiscal year ended December
31, 1997, selling, general and administrative expenses increased by
approximately $4.2 million, or 114%, to $7.9 million from $3.7 million in 1996.
As a percentage of revenues, selling, general and administrative expenses
increased to 35.1% in 1997 from 34.2% in 1996. Selling and marketing expenses
increased by approximately $2.5 million, of which $1.6 million was due to
increased sales commissions attributable to a larger percentage of sales
originating through independent sales agents and distributors. 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 $1.7 million primarily as a result of increased payroll
and related costs and increased professional and consulting costs.
Product Development. For the fiscal year ended December 31, 1997, product
development expenses increased by $485,000, or 211%, to $715,000 from $230,000
in 1996. As a percentage of revenues, product development expenses increased to
3.2% (6.9% when combined with funded research and development) for the fiscal
year ended December 31, 1997 from 2.1% (8.5% when combined with funded research
and development) in 1996 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.
Operating Income. For the fiscal year ended December 31, 1997, operating
income increased by $3.4 million, or 213%, to $5.0 million from $1.6 million in
1996. As a percentage of revenues, operating income increased to 22.0% from
14.6% in 1996. The increase is due to the greater operating leverage on higher
levels of revenue.
Other Income and Expense. For the fiscal year ended December 31, 1997,
interest expense decreased by $219,000, or 96.1%, to $9,000 from $228,000 in
1996 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 fiscal year
ended December 31, 1997 was $450,000 as compared to $72,000 in 1996, primarily
as a result of the investment of a portion of the net proceeds from the
Company's November 1996 public offering.
Income Taxes. For the fiscal year ended December 31, 1997, the Company had
a net tax benefit of $371,000, composed of foreign taxes of $404,000, offset by
a $775,000 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 U.S. tax loss carryforwards caused
primarily by improved operating results. Management anticipates that further
deferred tax benefits will be recognized in 1998.
18
<PAGE> 20
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 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.
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
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<PAGE> 21
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.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
operations data for the four fiscal quarters of 1996 and the four 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. See Note 12 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............................. $2,354 $2,658 $2,340 $3,571 $3,622 $5,816 $5,905 $7,346
Cost of revenues...................... 1,236 1,411 1,002 1,715 1,461 2,494 2,729 2,324
------ ------ ------ ------ ------ ------ ------ ------
Gross profit........................ 1,118 1,247 1,338 1,856 2,161 3,322 3,176 5,022
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Selling, general and
administrative.................... 809 832 919 1,174 1,295 1,905 1,668 3,103
Product development................. 17 40 34 139 175 163 164 213
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses.......... 826 872 953 1,313 1,470 2,068 1,832 3,316
------ ------ ------ ------ ------ ------ ------ ------
Operating income...................... 292 375 385 543 691 1,254 1,344 1,706
Other (expense) income, net........... (103) 0 33 142 79 105 88 116
Income tax benefit.................... -- -- 125 266 75 56 125 115
------ ------ ------ ------ ------ ------ ------ ------
Net income............................ $ 189 $ 375 $ 543 $ 951 $ 845 $1,415 $1,557 $1,937
====== ====== ====== ====== ====== ====== ====== ======
Net income per common share*:
Basic............................... $ 0.05 $ 0.10 $ 0.15 $ 0.22 $ 0.16 $ 0.26 $ 0.28 $ 0.35
====== ====== ====== ====== ====== ====== ====== ======
Diluted............................. $ 0.05 $ 0.10 $ 0.12 $ 0.18 $ 0.14 $ 0.22 $ 0.24 $ 0.31
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
* The total of each year's quarterly results may not equal the reported results
for the respective years.
The following table sets forth, as a percentage of revenues, certain
consolidated statements of operations data for the four fiscal quarters of 1996
and the four fiscal quarters of 1997.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31,
1996 1996 1996 1996 1997 1997 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.............. 52.5 53.1 42.8 48.0 40.3 42.9 46.2 31.6
----- ----- ----- ----- ----- ----- ----- -----
Gross profit................ 47.5 46.9 57.2 52.0 59.7 57.1 53.8 68.4
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Selling, general and
administrative............ 34.4 31.3 39.3 32.9 35.8 32.8 28.2 42.3
Product development......... 0.7 1.5 1.5 3.9 4.8 2.8 2.8 2.9
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses................ 35.1 32.8 40.8 36.8 40.6 35.6 31.0 45.2
----- ----- ----- ----- ----- ----- ----- -----
Operating income.............. 12.4 14.1 16.4 15.2 19.1 21.5 22.8 23.2
Other (expense) income, net... (4.4) 0.0 1.4 4.0 2.1 1.8 1.5 1.6
Income tax benefit............ -- -- 5.3 7.4 2.1 1.0 2.1 1.6
----- ----- ----- ----- ----- ----- ----- -----
Net income.................... 8.0% 14.1% 23.1% 26.6% 23.3% 24.3% 26.4% 26.4%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
20
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $2.0 million in 1997, and cash used in
operations was $1.4 million in 1996 and $711,000 in 1995. Cash provided by
operations in 1997 resulted primarily from net income of $5.8 million, partially
offset by increases in accounts receivable and inventories. Accounts receivable
increased as a result of higher sales, particularly during the month of
December. Inventories also increased as the Company acquired the materials
necessary to support increased IONSCAN(R) production. 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 provided by investing activities was $639,000 in 1997, and net
cash used in investing activities was $3.9 million in 1996 and $58,000 in 1995.
Cash provided by investing activities in 1997 resulted primarily from the sale
of investments, partially offset by capital expenditures. 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 sale of Labco.
Cash provided by financing activities was $315,000 in 1997, $10.6 million
in 1996 and $584,000 in 1995. Cash provided by financing activities during 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 proceeds from the sale 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 in 1997 aggregated approximately $1.2
million. 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 believes that it will require approximately $1.0 million in additional
investment in tooling, equipment, and facility improvements to meet its
anticipated production levels for 1998.
In January 1998, the Company received a commitment from Fleet Bank, N.A.
(the "Bank") pursuant to which the Bank has agreed to make available to the
Company a $5.0 million unsecured revolving credit facility to be used for
general working capital purposes, including the issuance of standby letters of
credit (the "Facility"). Drawings under the Facility may not be used to fund
acquisitions unless approved in advance by the Bank. Amounts drawn under the
Facility will bear interest at a variable rate per annum selected by the Company
and equal to either the Bank's prime rate less 0.75% or LIBOR (determined on the
basis of a 30-, 60- or 90-day interest period, as applicable) plus 2.0%. The
Facility will expire on June 30, 1999, subject to renewal. The Facility will be
guaranteed by the Company's primary U.S. subsidiary, Barringer Instruments Inc.
("BII"). Pursuant to the Facility, the Company and BII will be required to
comply with certain customary covenants, including certain financial tests. In
addition, BII and the Company's Canadian subsidiary, Barringer Research Limited
("BRL"), must agree not to pledge their assets to any other creditor without the
Bank's prior written consent.
The Company has substantial tax loss carryforwards to offset future tax
liabilities in the U.S.
As of December 31, 1997, the Company had cash and cash equivalents of
$8.2 million and marketable securities of $2.5 million. The Company believes
that its existing cash balances, marketable
21
<PAGE> 23
securities, income from operations in future periods and the net proceeds from
this Offering will be sufficient to fund its working capital requirements for at
least the next twelve months.
INFLATION
Inflation was not a material factor in either the sales or the operating
expenses of the Company during the periods presented herein.
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain computer
programs may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activity.
Based on a recent internal assessment, the Company has determined that the
cost to modify its existing software and/or to convert to new software will not
be significant. However, if customers, suppliers or others with whom the Company
does business experience problems relating to the year 2000 issue, the Company's
business, financial condition or results of operations could be materially
adversely affected.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements and will be effective for fiscal years beginning after
December 15, 1997. The Company will be reviewing this document to determine its
applicability to the Company, if any and has elected not to adopt early
application.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which supercedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards
for the way that public companies report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. SFAS 131 is effective
for financial statements for periods beginning after December 15, 1997 and
requires comparative information for earlier years to be restated. Because of
the relatively recent issuance of this standard, management has been unable to
fully evaluate the impact, if any, it may have on future financial statement
disclosures. Results of operations and financial position, however, will be
unaffected by implementation of this standard.
22
<PAGE> 24
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 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 used in explosives detection and drug interdiction
applications. As of December 31, 1997, the Company had sold over 700 units
(including 335 during 1997) in 39 countries. The Company's revenues have grown
from $2.8 million for the year ended December 31, 1992 to $22.7 million for the
year ended December 31, 1997, representing a compounded annual growth rate of
51.8% over the last five years.
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. Air Force, the U.S. Coast Guard, the DEA and the FBI, as well as
customs agencies in France, Canada, Australia 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 in countries throughout the world,
including Gatwick Airport and Heathrow Airport in the United Kingdom, John F.
Kennedy International Airport and Chicago O'Hare International Airport in the
United States and Kuala Lumpur Airport in Malaysia, as well as 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
23
<PAGE> 25
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.
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. Government agencies, military forces and private
businesses have deployed trace detection equipment at facilities, such as the
World Trade Center, military bases, 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 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 $1.3 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.
24
<PAGE> 26
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 IONSCAN(R)s installed in U.S.
airports as of December 31, 1997, those IONSCAN(R)s have experienced a mean time
between failures in excess of 9,000 hours (based upon aggregate hours in
operation as of January 18, 1998). The Company believes the reliability of the
IONSCAN(R) provides the Company with a significant competitive advantage.
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 700
IONSCAN(R)s as of December 31, 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 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 adapted 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, such as the Company's recently announced OEM
arrangement with Exploranium G.S. Limited ("Exploranium") for the marketing and
sale of Exploranium's GAMMATRACE(TM) product line. See "--Other Products." 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. The Company recently
opened an office in Malaysia and is currently hiring sales and customer service
personnel to staff that office. Expanding its international
25
<PAGE> 27
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 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.
26
<PAGE> 28
CUSTOMERS
As of December 31, 1997, the Company had sold over 700 IONSCAN(R)s to
customers in 39 countries. The IONSCAN(R)s sold to date have been deployed for a
variety of purposes, including: aviation security, other transport security,
facilities protection, forensics, military, corrections, customs and law
enforcement. 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 year ended December 31, 1997, approximately 55.0% of
the Company's unit sales were for explosives detection applications primarily in
the aviation security market. For the year ended December 31, 1997,
approximately $6.3 million or 27.8%, of the Company's revenues were generated
from sales to the Company's two largest customers, of which approximately 14.8%
represented sales to the FAA. As of December 31, 1997, the IONSCAN(R) was
deployed in 21 airports in the United States.
The following is a list of representative IONSCAN(R) installations as of
December 31, 1997.
EXPLOSIVES DETECTION
<TABLE>
<CAPTION>
MARKET INSTALLATION
------ ------------
<S> <C>
Aviation Security Aeroporti di Roma, Italy
Charles DeGaulle, France
Chek Lap Kok Airport, Hong Kong
Chicago O'Hare International Airport
Dallas-Fort Worth International Airport
Gatwick Airport Ltd., UK
Heathrow Airport Ltd., UK
Juarez International Airport, Mexico
John F. Kennedy International Airport (New York)
Kuala Lumpur International Airport, Malaysia
Le Bouget International Airport, France
Manchester Airport plc, UK
Newark International Airport
Orly International Airport, France
Other Transport
Security Airmax, Inc. (Chicago)
Eurostar, UK
Societe Nationale Companie Maritime, France
Societe Nationale des Chemins de Fer Francais (Le Shuttle)
The Channel Tunnel Group Ltd. (Eurotunnel)
Facilities Protection Electricity de France
Gaz de France
New York World Trade Center
Ronald Reagan Federal Office Building
Forensics Department of Justice, Belgium
Federal Bureau of Investigation
Ministry of Defense, Italy
Ministry of Justice, Taiwan
Stadt Polizei Zurich, Switzerland
Military Aeronautica Militare, Italy
Comando Generale Arma Dei Carabinieri, Italy
Gendarmerie Nationale, France
Ministry of Defense, UK
U.S. Air Force
U.S. Army
U.S. Navy
</TABLE>
27
<PAGE> 29
DRUG INTERDICTION
<TABLE>
<CAPTION>
MARKET INSTALLATION
------ ------------
<S> <C>
Corrections California Department of Corrections
Correctional Service Canada
Departamento del Distrito Federal (Reclusiorios Prisiones
Federales), Mexico
Lafayette Parish Correctional Center (Louisiana)
Pendleton Correctional Facility (Indiana)
Pennsylvania Department of Corrections
Customs Australia Customs Service
Customs Bureau, Ministry of Finance, Japan
French Customs (Douanes)
HM Customs and Excise, UK
Korea Customs Service
Revenue Canada, Customs and Excise
U.S. Customs Service
Vietnam General Department of Customs
Law Enforcement Florida Public Housing Authorities
Harris County Parole Program (Texas)
Home Office, UK
Hong Kong Police
Japan Coast Guard
Ministero dell' Interno, Italy
New York Police Department
Police Nationale, France
Port Authority of New York and New Jersey
U.S. Coast Guard
U.S. Drug Enforcement Agency
U.S. National Guard
</TABLE>
OTHER PRODUCTS
In January 1998, the Company entered into an OEM arrangement with
Exploranium, a Canadian corporation engaged in the development and sale of
products which utilize gamma ray spectrometry to detect and identify radioactive
materials present in nuclear contraband. Pursuant to such arrangement, the
Company has the exclusive right to market and sell such products in the law
enforcement and security fields worldwide (subject to certain exceptions
relating to military applications). The products, which are marketed under the
GAMMATRACE(TM) name, range in size from a small, hand-held unit, which sells for
approximately $10,000, to large vehicle drive-through systems, which sell for
approximately $70,000. The products are manufactured for the Company by
Exploranium. The Company is marketing the GAMMATRACE(TM) product line through
its existing direct sales organization and its network of independent
representatives. See "Risk Factors -- Dependence on New Product Development;
Technological Advancement."
As discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview," the Company has entered into a
letter of intent pursuant to which it intends to acquire all of the outstanding
capital stock of DigiVision. DigiVision, based in San Diego, California, offers
a range of real-time video enhancement technologies for use in various medical,
military, law enforcement and other applications.
28
<PAGE> 30
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, Paris and Kuala Lumpur. In addition, the Company
utilizes a network of 45 independent sales and service representatives located
in Europe, the Middle East, Africa, Asia, South America and Australia. 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) typically range from $50,000 to $80,000
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 specialty instruments or its
contract research and development services. However, from time to time, the
Company responds to appropriate requests for proposals for such instruments and
services. Although sales of such instruments and 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) and other products, management anticipates
that revenues from those activities will become increasingly less important to
the Company's overall results of operations.
For the year ended December 31, 1997, two of the Company's largest
customers accounted for more than 10.0% of the consolidated revenues of the
Company. Together these two customers accounted for an aggregate of 27.8% of the
Company's revenues for that period. For the year ended December 31, 1996, one
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. The Company follows the practice of
manufacturing to a sales forecast in order to have inventory available to meet
anticipated demand promptly. As a result, the Company has not historically
maintained 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, depending on the size and
timing of customer orders, the Company may, from time to time, have a backlog of
orders.
MANUFACTURING AND ASSEMBLY
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 that it is functioning properly. 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
29
<PAGE> 31
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
material 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 Intelligent Detection
Systems, Inc., Ion Track Instruments Inc. and Thermedics Detection 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, such as InVision Technologies, Inc. and Vivid Technologies, Inc.,
utilizing other types of detection 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 Government Procurement
Policies" and "--Competition."
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.
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 Government Procurement Policies."
PRODUCT DEVELOPMENT
The Company spent $1.6 million and $933,000 on research and development
activities for the years ended December 31, 1997 and 1996, respectively, of
which $849,000 and $703,000, 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.
30
<PAGE> 32
The Company is currently working on a number of enhancements to its
existing IONSCAN(R) products that would enhance ergonomics, increase ease of
use, decrease size and weight, lower manufacturing costs and thereby provide
greater value to customers. For example, the Company is currently attempting to
develop a hand-held version of the IONSCAN(R).
Certain of the Company's new product development activities are described
below.
Document Scanner
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. The
Company expects to deliver additional document scanners to the FAA for beta
testing during 1998.
Automated Luggage System
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 at this time and no such prototype exists or is being built. However,
under the contract, the Company is required to develop a working design to
demonstrate proof of concept for delivery to the FAA during 1998.
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 IMS 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 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. In addition, the Company is seeking to register its GAMMATRACE(TM)
trademark.
31
<PAGE> 33
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, 6,780 $125,000 September 1998
Murray Hill, New Jersey research, sales, customer
07974 support 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 June 1998
Crawley, West Sussex support
England RH10 2QU
No. 21-1 Jalan 3176 D.... Sales and customer 1,000 $ 12,000 **
Desa Pandah support
55100 Kuala Lumpur
Malaysia
</TABLE>
- ----------------------
* Increases to $115,000 on September 1, 2000.
** Oral agreement terminable by either party upon thirty (30) days prior notice.
The Company is currently seeking to relocate its New Jersey operations to,
among other things, further its manufacturing and assembly capabilities. The
Company anticipates that it will seek to lease approximately 15,000 square feet
of space for those operations. Although the Company has no current agreements or
understandings with respect to the leasing of a particular location, the Company
believes that ample suitable space is available in the vicinity of its existing
operations at rental rates that are consistent with prevailing market rates.
EMPLOYEES
As of December 31, 1997, the Company had 119 full-time employees, of whom
58 were engaged in manufacturing, 28 were engaged in product development
activities and 33 were engaged in sales, service and general administration.
Eighteen of such persons have advanced degrees (including nine 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> 34
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the Company's
executive officers and directors as of February 1, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stanley S. Binder(1)........... 56 Chairman of the Board, Chief Executive Officer
and President
John H. Davies(1).............. 61 Executive Vice President and Director,
President and Chief Executive Officer of BRL
Richard S. Rosenfeld........... 51 Vice President-Finance, Chief Financial
Officer, Treasurer and Assistant Secretary
Kenneth S. Wood................ 45 Vice President and Secretary, President of BII
John D. Abernathy(1)(2)(3)..... 60 Director
Richard D. Condon(2)........... 62 Director
John J. Harte(1)(3)............ 56 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. Davies
has served as a director of the Company since February 1991.
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.,
33
<PAGE> 35
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 Vice
President of Mid-Lakes Distributing Inc., a manufacturer and distributor of
heating and air conditioning parts and equipment located in Chicago, Illinois.
Mr. Harte also serves as a director of IBNET Inc., a global internet company.
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 $3,000 per quarter
(plus a $500 quarterly fee for each committee chairperson) and a fee of $1,000
for each meeting attended and $500 for each committee meeting attended
(regardless of whether or not the committee meeting is held on the same day as a
meeting of the Board of Directors). Pursuant to a consulting agreement with the
Company which terminated as of December 31, 1997, in lieu of his annual
retainer, Mr. Harte had received a fee of $2,000 per month for services rendered
to the Company, and a fee of $1,000 for each meeting he attended 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.
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
35
<PAGE> 36
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."
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, 1997
exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -----------------------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS(1) OTHER ANNUAL STOCK UNDERLYING LTIP COMPENSATION
POSITION YEAR ($) ($) COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS ($)(2)
------------------ ------ -------- -------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley S. Binder....... 1997 $200,000 $350,000 -- -- 87,500 -- $9,500
President and Chief 1996 171,491 63,000 -- -- 55,000 -- 2,925
Executive Officer 1995 171,491 -- -- -- 45,000 -- 5,940
John H. Davies*......... 1997 $136,440 $180,000 -- -- 34,000 -- $6,811
Executive Vice
President 1996 125,275 43,200 -- -- 38,250 -- 6,317
of the Company 1995 125,775 -- $12,149(3) -- 31,250 -- 6,317
Kenneth S. Wood......... 1997 $130,000 $170,000 -- -- 31,500 -- $8,480
President of Barringer 1996 111,815 39,600 -- -- 33,750 -- 2,199
Instruments, Inc. 1995 111,815 -- -- -- 26,250 -- 2,283
Richard S. Rosenfeld.... 1997 $107,500 $115,000 -- -- 27,300 -- $7,085
Vice
President-Finance, 1996 96,000 34,200 -- -- 27,500 -- 1,872
Chief Financial
Officer 1995 96,000 -- -- -- 22,500 -- 4,410
</TABLE>
- ----------------------
* Amounts converted to U.S. dollars at the average exchange rate for such
year.
(1) Represents amounts accrued pursuant to the Company's annual incentive
compensation plan.
(2) Represents amounts contributed by the Company pursuant to the Company's
tax-qualified 401(k) deferred compensation plan ("401(k) Plan"). In 1997,
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 5.0% of a
participant's salary contributed. In 1996 and 1995, 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. Company contributions to the 401(k) Plan vest proportionately
over a five-year period, commencing at the end of the participant's first
year with the Company.
(3) The other annual compensation for Mr. John Davies represented the payment of
previously accrued and unpaid vacation pay.
Effective January 1, 1998, the Company adopted the Barringer Technologies
Inc. Supplemental Executive Retirement Plan (the "SERP Plan"). The SERP Plan
provides eligible participants with certain retirement benefits supplemental to
the Company's 401(k) Plan. Pursuant to the SERP Plan, the Company will make
annual contributions to the account of each participant equal to a variable
percentage of the participant's base salary and annual cash bonus depending on
the Company's achievement of certain performance targets. The actual percentage
contribution will be determined by the Executive Compensation Committee, subject
to certain parameters. A participant will become vested under the SERP Plan
after five years of participation therein. A participant may elect to receive
benefits under the SERP Plan commencing at age 60 and is entitled to receive
either a lump-sum payment of his or her account balances upon retirement or to
use the account balance to purchase an annuity. In the event of (i) the death or
permanent disability of a participant, (ii) the termination of a participant's
employment by the Company "Without Cause", (iii) the termination of a
participant's employment by a participant for "Good Reason", or (iv) the
termination of a participant's employment following the occurrence of a "Change
in Control Event" (as such terms are defined in the SERP Plan), the participant
will be entitled to receive his or her account balance whether or not the
participant has become vested under the SERP Plan. Currently, each of the Named
Executive Officers participates in the SERP Plan.
35
<PAGE> 37
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.............................. 50,000 32.5% $9.375
37,500 11.780
John H. Davies................................. 25,000 12.6 9.375
9,000 11.780
Kenneth S. Wood................................ 22,500 11.7 9.375
9,000 11.780
Richard S. Rosenfeld........................... 19,500 10.1 9.375
7,800 11.780
</TABLE>
- ----------------------
(1) The Company did not grant stock appreciation rights in 1997.
(2) Stock option grants were made in February and December 1997. Stock options
granted in the first tranche expire on February 28, 2007 and options granted
in the second tranche expire on December 22, 2007. Twenty-five percent of
each option grant is exercisable after the first anniversary of the date of
grant, 50.0% is exercisable after the second anniversary, 75% is exercisable
after the third anniversary and 100% is exercisable after the fourth
anniversary.
(3) Options covering a total of 268,900 shares of Common Stock were granted to
employees in 1997.
37
<PAGE> 38
OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of stock options during 1997 and
unexercised options held by such Named Executive Officers as of December 31,
1997.
AGGREGATED OPTION EXERCISES IN 1997 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS
SHARES AT YEAR-END(#) AT YEAR-END($)(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley S. Binder..... -- -- 54,500 133,000 $701,938 $907,813
John H. Davies........ -- -- 37,875 25,625 487,828 558,839
Kenneth S. Wood....... -- -- 32,625 58,875 420,609 491,496
Richard S.
Rosenfeld........... -- -- 27,250 50,050 350,969 413,022
</TABLE>
- ----------------------
(1) Based on a closing bid price of $14.375 per share for the Common Stock as of
December 31, 1997.
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
38
<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 268,900 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 a weighted average exercise
price of $10.57 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 have been granted to the Company's
independent directors to date. 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.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
The Company has entered into a five-year employment agreement with Mr.
Binder, the President and Chief Executive Officer of the Company (the
"Employment Agreement"), effective January 1, 1998, pursuant to which Mr. Binder
receives a base salary of $250,000 per annum, subject to certain adjustments and
to periodic increases as determined by the board of directors. In addition, Mr.
Binder is entitled to receive up to a total of three special bonuses during the
term of the Employment Agreement, in the amount of $65,000, $65,000 and $70,000,
respectively, in the event that the Company's EBITDA (as defined in the
Employment Agreement), exceeds certain targeted amounts for any fiscal year
during the term of the Employment Agreement. Pursuant to the Employment
Agreement, Mr. Binder is also entitled to participate in the Company's cash
bonus plan and to participate in the SERP Plan adopted by the Company for
certain senior executives. Also, under the terms of the Employment Agreement,
Mr. Binder received stock options covering 50,000 shares of Common Stock having
an exercise price of $11.78 per share (equal to the fair market value on the
date of grant). In the Employment Agreement, the Company has agreed to maintain
a $1.0 million term life insurance policy for Mr. Binder's benefit. Mr. Binder
is entitled to several perquisites, including a car allowance and reimbursement
for the cost of certain financial planning services.
In the event that Mr. Binder's employment is terminated pursuant to a
Without Cause Termination, or Mr. Binder terminates his employment for Good
Reason (as such terms are defined in the Employment Agreement), Mr. Binder will
be entitled to a severance payment equal to 2.99 times his then-current base
salary and to certain other severance benefits. In addition, upon the occurrence
of a Change in Control Event (as such term is defined in the Employment
Agreement), Mr. Binder has the right to terminate his employment within 180
days, in which event the termination will be treated as a termination for Good
Reason with the effects specified above. In addition, the Company has agreed to
pay Mr. Binder additional amounts, if necessary, to pay any excise tax Mr.
Binder may become subject to in the event that any payment made to him under the
Employment Agreement constitutes an "excess parachute payment" within the
meaning of Section 209G of the Internal Revenue Code of 1986, as amended.
Pursuant to the Employment Agreement, Mr. Binder has agreed to certain
confidentiality, work-for-hire and non-competition covenants.
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 received
annual base salaries of $130,000 and $107,500, respectively, for 1997 and will
receive annual base salaries of $150,000 and 125,000, respectively, for 1998,
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.
39
<PAGE> 41
Since 1991, the Company had been party to a Consulting Agreement with Mr.
Harte (the "Consulting Agreement") pursuant to which Mr. Harte received $2,000
per month as compensation. The Consulting Agreement was terminated as of
December 31, 1997.
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
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 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"), $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 1997, the Company retained Patton Boggs, LLP
to represent the Company in various matters and has retained such firm in 1998.
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 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> 43
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of February 1, 1998, 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 February 1, 1998, there
were 5,509,854 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)....... -- -- -- -- 139,011 2.7% 30,000 109,015 1.4%
John H. Davies(5).......... -- -- -- -- 121,667 2.2 -- 121,667 1.6
John J. Harte(6)........... -- -- -- -- 51,100 * -- 51,100 *
Richard D. Condon(7)....... -- -- -- -- 32,250 * -- 32,250 *
John D. Abernathy(8)....... -- -- -- -- 29,204 * -- 29,204 *
James C. McGrath(9)........ -- -- -- -- 22,250 * -- 22,250 *
Kenneth S. Wood(10)........ -- -- -- -- 57,136 1.0 -- 57,136 *
Richard S.
Rosenfeld(13)(11)........ -- -- -- -- 50,661 * -- 50,661 *
All directors and executive
officers as a group
consisting of eight (8)
persons.................. -- -- -- -- 503,219 8.7 473,219 6.1
Austin W. Marxe(12)........ -- -- -- -- 1,026,822 18.0 -- 1,026,822 13.1
153 E. 53rd St.
NY, NY 10022
Perkins Capital Management,
Inc.(13) ................ -- -- -- -- 554,559 10.1 -- 554,559 7.4
708 East Lake Street
Wayzata, MN 55391
Corbyn Investment
Management, Inc.(14)..... -- -- -- -- 400,100 7.3 -- 400,100 5.3
2330 W. Joppa Road
Suite 108
Lutherville, MD 21093
Westcliff Capital
Management, LLC(15)...... -- -- -- -- 439,225 6.9 -- 439,225 5.9
200 Seventh Avenue,
Suite 105
Santa Cruz, CA 95062
Richard S. Spencer
III(15).................. -- -- -- -- 439,225 6.9 -- 439,225 5.9
200 Seventh Avenue,
Suite 105
Santa Cruz, CA 95062
David R. Korus(15)......... -- -- -- -- 439,225 6.9 -- 439,225 5.9
152 W. 57(th)Street
New York, NY 10019
</TABLE>
42
<PAGE> 44
<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>
Ronald and Kathleen
Hanna.................... 21,549 47.7% -- -- 7,795 * -- 7,795 *
135 South Horizon Circle
Prescott, AZ 86303
Max Gerber(16)............. -- -- 12,500 55.6% 4,536 * -- 4,536 *
26 Broadway
New York, NY 10004-1776
Paul Spitzberg(17)......... -- -- 10,000 44.4 3,639 * -- 3,639 *
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 February 1, 1998 for each
person or entity.
(2) Certain amounts shown are subject to adjustment in certain circumstances.
(3) Assumes the exercise of the Underwriters' over-allotment option in full.
(4) Includes 72,875 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998 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 50,372 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998 and 12,500 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Davies.
(6) Includes 13,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998.
(7) Includes 13,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998 and 5,000 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Condon.
(8) Includes 13,500 shares of Common Stock issuable upon the exercise of
options exercisable with 60 days of February 1, 1998 and 6,250 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Abernathy.
(9) Includes 13,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998 and 3,750 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. McGrath.
(10) Includes 43,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998.
(11) Includes 36,625 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998 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's child.
(12) 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
43
<PAGE> 45
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.
(13) Consists of 319,150 shares of Common Stock owned by clients of Perkins
Capital Management, Inc. ("Perkins Capital") and 235,409 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.
(14) Consists of 76,100 shares of Common Stock owned by Corbyn Investment
Management, Inc. and 324,000 shares of Common Stock owned by Greenspring
Fund, Inc.
(15) Includes 135,425 shares of Common Stock owned by Westcliff, LLC ("WL"),
47,175 shares of Common Stock owned by Westcliff Partners, L.P. ("WP") and
88,250 shares of Common Stock owned by Westcliff Long/Short, L.P. ("WLS").
Westcliff Capital Management, LLC ("WCM") is the investment adviser to and
a general partner of WP and WLS and WL is a general partner of WP and WLS.
Messrs. Spencer and Korus are the sole managers of WCM and WL.
(16) Includes 4,447 shares of Common Stock issuable upon conversion of the Class
B Convertible Preferred Stock.
(17) Includes 3,558 shares of Common Stock issuable upon conversion of the Class
B Convertible Preferred Stock.
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 February 1, 1998, the Company had outstanding
5,509,854 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 7,479,854 shares
of Common Stock (7,779,854 shares if the Underwriters' over-allotment option is
exercised in full). In addition, the Company will have 1,594,936 shares of
Common Stock reserved for issuance pursuant to options, warrants and convertible
securities outstanding as of February 1, 1998. See "Shares Eligible For Future
Sale." As of February 1, 1998, 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,
46
<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 April 29, 1998.
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.
47
<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.
48
<PAGE> 49
COMMON STOCK PURCHASE WARRANTS
In connection with its November 1996 public offering, the Company issued an
aggregate of 1,437,500 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
the managing underwriter 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
February 1, 1998, the Company will have outstanding approximately 7,479,854
shares of Common Stock assuming no exercise or conversion of options, warrants
and convertible securities after February 1, 1998. All of the outstanding
shares, including the 1,970,000 shares offered by the Company hereby (2,270,000
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 1,594,936 shares of Common
Stock are issuable upon the conversion or exercise of stock options, warrants
and convertible securities outstanding as of February 1, 1998, 1,438,686 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 744,257 shares of Common Stock (including
534,550 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, for a period of 90 days after the date of this
Prospectus, subject to certain exceptions, without the prior written consent of
BancAmerica Robertson Stephens. 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,
BancAmerica Robertson Stephens 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 and
the Selling Stockholder 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>
BancAmerica Robertson Stephens..............................
Pacific Growth Equities, Inc. ..............................
---------
Total................................................... 2,000,000
=========
</TABLE>
The Company and the Selling Stockholder have 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 or the Selling
Stockholder as set forth on the cover page of this Prospectus.
The Company has 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 paid 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 Stockholder against certain civil
liabilities, including liabilities under the Securities Act.
The directors and certain officers of the Company, who hold an aggregate of
744,257 shares of Common Stock (including 534,550 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"), 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 BancAmerica Robertson Stephens, 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 BancAmerica Robertson Stephens, 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 (subject to
certain exceptions). The offering price of the Common Stock was determined by
negotiations among the Company, the Selling Stockholder and the Representatives
of the Underwriters, based in part upon the market price for the Common Stock as
reported on the Nasdaq National Market.
50
<PAGE> 52
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 and the
Warrants 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. 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 and the Warrants 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 or the Warrants. 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 PC, 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, 1996 and 1997
and each of the years in the three year period ended December 31, 1997, 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.
53
<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, 1996 and
1997...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997.......................... 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, 1996 and 1997 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. 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, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Woodbridge, New Jersey
February 19, 1998
F-2
<PAGE> 56
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,276 $ 8,188
Marketable securities..................................... 4,328 2,499
Trade receivables, less allowances of $41 and $109........ 3,521 7,908
Inventories (note 2)...................................... 2,270 3,049
Prepaid expenses and other................................ 498 887
Deferred tax asset (note 6)............................... 731 1,506
-------- --------
Total current assets................................... 16,624 24,037
Machinery and equipment, net (note 3)....................... 595 1,505
Other....................................................... 104 66
-------- --------
$ 17,323 $ 25,608
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable (note 4)..................................... $ 174 $ --
Accounts payable.......................................... 1,009 1,324
Accrued liabilities....................................... 421 473
Accrued payroll and related taxes......................... 522 1,520
Accrued commission........................................ 112 801
Foreign income taxes payable (note 6)..................... 115 255
-------- --------
Total current liabilities.............................. 2,353 4,373
Non-current liabilities..................................... 117 121
Commitments (note 7)
Stockholders' equity (note 5):
Preferred stock, $2.00 par value, 4,000 shares authorized.
270 shares designated class A convertible preferred
stock, 60 and 45 shares outstanding, less discount of
$47 and $35, respectively.............................. 74 55
730 shares designated class B convertible preferred
stock, 123 and 23 shares outstanding, respectively..... 245 45
Common stock, $0.01 par value, 7,000 and 20,000 shares
authorized, respectively and 5,357 and 5,495 shares
outstanding, respectively.............................. 54 55
Additional paid-in capital................................ 29,430 30,209
Accumulated deficit....................................... (14,522) (8,780)
Cumulative foreign currency translation adjustment........ (415) (457)
-------- --------
14,866 21,127
Less: common stock in treasury, at cost, 31 shares........ (13) (13)
-------- --------
Total stockholders' equity............................. 14,853 21,114
-------- --------
$ 17,323 $ 25,608
======== ========
</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
DECEMBER 31,
--------------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Revenues.................................................... $6,374 $10,923 $22,689
Cost of revenues............................................ 3,601 5,363 9,008
------ ------- -------
Gross profit.............................................. 2,773 5,560 13,681
Operating expenses:
Selling, general and administrative....................... 3,305 3,734 7,971
Product development....................................... 354 230 715
------ ------- -------
Total operating expenses........................... 3,659 3,964 8,686
------ ------- -------
Operating income (loss)................................. (886) 1,596 4,995
Other income, (expense):
Interest expense.......................................... (240) (228) (9)
Equity in earnings of unconsolidated subsidiary........... -- 117 --
Gain on sale of investment in unconsolidated subsidiary... -- 123 --
Investment income......................................... -- 72 450
Other, net................................................ (52) (12) (53)
------ ------- -------
(292) 72 388
Income (loss) before income tax benefit................. (1,178) 1,668 5,383
Income tax benefit (note 6)................................. -- 391 371
------ ------- -------
Income (loss) from continuing operations................ (1,178) 2,059 5,754
Operation held for sale (note 13):
Income from operations.................................... 258 -- --
Gain on sale of portion of investment..................... 93 -- --
------ ------- -------
351 0 0
------ ------- -------
Net income (loss).................................. (827) 2,059 5,754
Preferred stock dividends................................... (82) (39) (12)
------ ------- -------
Net income (loss) attributable to common stockholders....... $ (909) $ 2,020 $ 5,742
====== ======= =======
Basic per share data (notes 1 and 14):
Income (loss) from continuing operations.................. $(0.39) $ 0.55 $ 1.05
Income from operation held for sale....................... 0.08 -- --
Gain on sale of operation held for sale................... 0.03 -- --
------ ------- -------
Net income (loss).................................. $(0.28) $ 0.55 $ 1.05
====== ======= =======
Diluted per share data (notes 1 and 14):
Income (loss) from continuing operations.................. $(0.39) $ 0.46 $ 0.92
Income from operation held for sale....................... 0.08 -- --
Gain on sale of operation held for sale................... 0.03 -- --
------ ------- -------
Net income (loss).................................. $(0.28) $ 0.46 $ 0.92
====== ======= =======
Weighted average common and common
equivalent shares outstanding:
Basic..................................................... 3,283 3,695 5,456
====== ======= =======
Diluted................................................... 3,283 4,440 6,257
====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 58
BARRINGER TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
COMMON PREFERRED CLASS A CLASS B
STOCK STOCK PFD. STK. PFD. STK.
TOTAL ------------ ----------- ----------- ------------- PAID IN ACCUM.
EQUITY SHRS AM'T SHRS AM'T SHRS AM'T SHRS AM'T CAPITAL DEFICIT
------- ----- ---- ---- ---- ---- ---- ---- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--January 1, 1995........... 1,186 2,872 29 445 555 83 101 318 635 16,036 (15,633)
Sale of units in private
placement, net................. 888 383 4 884
Conversion of preferred stock.... 0 159 2 (445) (555) (60) (120) 673
Change in warrant exercise price
in payment of debt............. 10 10
1995 dividend on preferred
stock.......................... 0 65 82 (82)
Net loss......................... (827) (827)
Translation adjustment........... 68
------- ----- --- ---- ---- --- ---- ---- ----- ------- --------
Balance--December 31, 1995......... 1,325 3,479 35 0 0 83 101 258 515 17,685 (16,542)
Sale of securities, net of
expense ($741)................. 10,401 1,437 14 10,387
Conversion of preferred stock.... 0 55 1 (23) (27) (135) (270) 296
Issuance and exercise of stock
options and warrants........... 42 15 42
Conversion of debentures......... 1,000 364 4 996
Preferred stock dividends........ (15) 7 24 (39)
Net income....................... 2,059 2,059
Translation adjustment........... 41
------- ----- --- ---- ---- --- ---- ---- ----- ------- --------
Balance--December 31, 1996......... 14,853 5,357.. 54 0 0 60 74 123 245 29,430* (14,522)
Conversion of preferred stock.... 0 41 (15) (19) (100) (200) 219
Issuance and exercise of stock
options and warrants........... 490 97 1 489
Repayment of stockholder loan.... 71 71
Net income for the period........ 5,754 5,754
Translation adjustment........... (42)
Preferred stock dividends........ (12) (12)
------- ----- --- ---- ---- --- ---- ---- ----- ------- --------
Balance--December 31, 1997......... $21,114 5,495.. $55 0 $ 0 45 $55 23 $ 45 $30,209* $ (8,780)
======= ===== === ==== ==== === ==== ==== ===== ======= ========
<CAPTION>
FOREIGN TREAS.
TRANSL STOCK
------- ------
<S> <C> <C>
Balance--January 1, 1995........... (524) (13)
Sale of units in private
placement, net.................
Conversion of preferred stock....
Change in warrant exercise price
in payment of debt.............
1995 dividend on preferred
stock..........................
Net loss.........................
Translation adjustment........... 68
------ ----
Balance--December 31, 1995......... (456) (13)
Sale of securities, net of
expense ($741).................
Conversion of preferred stock....
Issuance and exercise of stock
options and warrants...........
Conversion of debentures.........
Preferred stock dividends........
Net income.......................
Translation adjustment........... 41
------ ----
Balance--December 31, 1996......... (415) (13)
Conversion of preferred stock....
Issuance and exercise of stock
options and warrants...........
Repayment of stockholder loan....
Net income for the period........
Translation adjustment........... (42)
Preferred stock dividends........
------ ----
Balance--December 31, 1997......... $ (457) $(13)
====== ====
</TABLE>
- ------------
* At December 31, 1997 and 1996 net of note receivable of $203 and $274,
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
DECEMBER 31,
--------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Net income (loss)........................................... $ (827) $ 2,059 $ 5,754
Items not affecting cash:
Depreciation and amortization............................. 362 115 272
Inventory write-down and receivable reserves.............. 656 22 332
Income from and gain on sale of investment in Labco....... (351) (240) --
Pension recovery.......................................... (147) -- --
Deferred tax benefit...................................... -- (506) (775)
Prepaid pension cost...................................... (78) -- --
Other..................................................... 71 50 30
Increase in non-cash working capital balances............... (397) (2,947) (3,655)
------ ------- -------
Cash provided by, (used in) operating activities........ (711) (1,447) 1,958
------ ------- -------
Investing activities:
Purchase of machinery and equipment....................... (358) (124) (1,190)
Sale of (investment in) marketable securities............. -- (4,328) 1,829
Proceeds on sale of investment in Labco................... 300 574 --
------ ------- -------
Cash provided by, (used in) investing activities........ (58) (3,878) 639
------ ------- -------
Financing activities:
Proceeds on issuance of Convertible Subordinated
Debentures ............................................. -- 1,000 --
Reduction in long-term debt............................... -- (300) --
Decrease in bank debt and other........................... (412) (570) (174)
Proceeds on issuance of equity securities................. 888 10,443 430
Repayment of stockholder loan............................. -- -- 71
Rent inducement........................................... 108 -- --
Payment of dividends on preferred stock................... -- (15) (12)
------ ------- -------
Cash provided by financing activities................... 584 10,558 315
------ ------- -------
Increase (decrease) in cash and cash equivalents............ (185) 5,233 2,912
Cash and cash equivalents--beginning of year................ 267 43 5,276
Less cash held for sale..................................... (39) -- --
------ ------- -------
Cash and cash equivalents--end of year...................... $ 43 $ 5,276 $ 8,188
====== ======= =======
Changes in components of non-cash working capital balances
related to operations:
Trade receivables......................................... $ 38 $(2,010) $(4,433)
Inventories............................................... (281) (649) (1,065)
Other current assets...................................... 60 (248) (389)
Other assets.............................................. (12) 39 38
Accounts payable and accrued liabilities.................. (202) (79) 2,194
------ ------- -------
Increase in non-cash working capital balances............... $ (397) $(2,947) $(3,655)
====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 60
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
In December, 1997, as required, the Company adopted 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 assuming the conversion of convertible preferred stock and the exercise
or conversion of common equivalent shares, if dilutive, consisting of unissued
shares under options and warrants. In accordance with SFAS 128 all prior periods
presented have been restated to conform to the new presentation.
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, 1995 and 1996, the Company had recognized
revenues of $264,000 and $49,000 respectively, on jobs in process and had
incurred related costs of $183,000 and $25,000 respectively, of which $210,000
and $0, respectively, were billed to customers. For the year ended December 31,
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 machinery 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 December 31, 1997.
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 "Accounting for Stock Issued to Employees", in accounting
and measuring compensation expense related to stock option plans. There was no
compensation expense related to the issuance of stock options to employees for
the years ended December 31, 1995, 1996 and 1997. In 1996, the Company recorded
compensation expense in the amount of $60,000 relating to stock options awarded
to the Company's independent directors (see note 5 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)
2. INVENTORIES
At December 31, 1996 and 1997, the Company had parts, subassemblies and
work in process of $1,483,000, and $2,748,000 and finished goods of $787,000,
and $301,000, respectively.
3. MACHINERY AND EQUIPMENT
The major categories of machinery and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Office equipment........................................ $ 395,000 $ 969,000
Machinery and equipment................................. 1,857,000 1,986,000
Leasehold improvements.................................. 64,000 70,000
----------- -----------
2,316,000 3,025,000
Accumulated depreciation................................ (1,721,000) (1,520,000)
----------- -----------
Totals.................................................... $ 595,000 $ 1,505,000
=========== ===========
</TABLE>
4. NOTE 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. 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.
5. 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 128 Units, including 22 Units to seven members of
senior management and the Company's Board
F-9
<PAGE> 63
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 were 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 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 December 31, 1997, and 1996, $203,000
and $274,000, respectively, was 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, 1997 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
EXERCISE, OUTSTANDING OR
CONVERSION OR RESERVED FOR
OPTION PRICE ISSUANCE
--------------- --------------
<S> <C> <C>
Common stock................................. 5,495,354
Class A convertible preferred stock.......... 0.361745 16,331
Class B convertible preferred stock.......... 0.355839 8,006
Stock options (i)............................ $1.00 to $14.00 691,025
Private placement warrants (ii).............. $1.96 387,499
Public warrants (iii)........................ $9.847 342,825
Underwriter's warrants (iii)................. $10.276 125,000
Underlying warrants (iii).................... $9.847 31,250
Directors' warrants (iv)..................... $7.11 to $8.01 7,500
---------
Total........................................ 7,104,790
=========
</TABLE>
All outstanding warrants expire between May 9, 1998 and December 22, 2007.
F-10
<PAGE> 64
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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 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, 1996 and 1997; no dividend yield;
expected volatility of 46.5% in 1997 and 30% in 1996 and 1995; risk-free
weighted average interest rates of 6.03% in 1997 and 7.11% in 1996 and 1995; and
expected lives of 5 years for the options.
Under the accounting provisions of SFAS 123, the Company's net income
(loss), basic earnings (loss) per share and diluted earnings (loss) per share on
a pro-forma basis are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss):
As reported...................................... $(827,000) $2,059,000 $5,754,000
Pro-forma........................................ $(884,000) $1,986,000 $5,567,000
Basic earnings (loss) per share from continuing
operations:
As reported...................................... $ (0.39) $ 0.55 $ 1.05
Pro-forma........................................ $ (0.40) $ 0.53 $ 1.02
Diluted earnings (loss) per share from continuing
operations:
As reported...................................... $ (0.39) $ 0.46 $ 0.92
Pro-forma........................................ $ (0.40) $ 0.44 $ 0.89
</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-11
<PAGE> 65
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's outstanding options is presented
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 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 year.................. 58,750 $12.38 240,125 $ 4.54 461,000 $ 2.19
Granted.......................... 181,375 2.00 253,000 1.00 280,900 10.70
Exercised........................ 0 (1,250) 2.00 (19,937) 1.32
Forfeited........................ 0 (30,875) 10.66 (30,938) 10.32
-------- -------- -------
Outstanding--end of year........... 240,125 4.54 461,000 2.19 691,025 5.31
======== ======== =======
Options exercisable--end of year... 126,800 $ 6.38 164,200 $ 3.49 227,663 $ 1.94
Fair value of options granted
during the year.................. $ 0.70 $ 0.40 $ 6.72
======== ======== =======
</TABLE>
On February 28, 1997 and December 22, 1997, options to acquire 135,500
shares and 128,400 shares of the Company's common stock at $9.375 per share and
$11.78 per share, respectively, which was the market value at dates of grant,
were issued to officers and key employees of the Company, pursuant to the
Employee Plan. These options expire ten years from the dates of grant 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. In accordance with SFAS 123, the Company recorded compensation expense in
1997 of $60,000 in connection with the issuance of these options. 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 December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------
NUMBER NUMBER
OUTSTANDING AT WEIGHTED-AVERAGE EXERCISABLE AT
EXERCISE DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
PRICE 1997 CONTRACTUAL LIFE PRICE 1997 PRICE
-------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.00 237,125 3.3 years $ 1.00 118,563 $ 1.00
2.00 167,250 2.2 years 2.00 100,350 2.00
9.38 132,500 9.3 years 9.38 0 9.38
11.25 to 11.78 133,400 9.9 years 11.25 to 11.78 0 11.25 to 11.78
13.88 12,000 9.5 years 13.88 0 13.88
14.00 8,750 0.2 years 14.00 8,750 14.00
------- -------
1.00 to 14.00 691,025 5.5 years $ 5.31 227,663 $ 1.94
======= =======
</TABLE>
F-12
<PAGE> 66
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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. During 1997, 32,500
of these warrants were exercised. 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 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. During 1997, 66,200 of these warrants were
exercised.
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. None of
these warrants was exercised in 1997.
(iv) Directors' warrants
On December 31, 1991, the Board of Directors adopted the 1991 Directors
Warrant Plan ("Plan"). Pursuant to the Plan, each non-employee director was sold
a five-year warrant to purchase 3,750 shares of Common Stock at an exercise
price equal to the current market price for such shares at the time of issuance
of the warrant. During 1997, 3,750 warrants were exercised. During 1996, 3,750
warrants expired. During 1995, no warrants were issued under the Plan. The Board
of Directors terminated the Plan effective May 1997.
Increase in Authorized Shares
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.
F-13
<PAGE> 67
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The provision (benefit) for income taxes related to continuing operations
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current tax expense:
Federal......................................... $ -- $ 143,000 $ 983,000
State........................................... -- 27,000 285,000
Recognition of net operating losses -- U.S...... -- (170,000) (1,268,000)
---- --------- -----------
Foreign (primarily Canada)...................... -- 297,000 952,000
Recognition of net operating losses -- Canada... -- (182,000) (548,000)
Total Current................................ 0 115,000 404,000
---- --------- -----------
Deferred tax expense:
Federal......................................... -- (130,000) (728,000)
State........................................... -- (22,000) (128,000)
Foreign (primarily Canada)...................... -- (354,000) 81,000
---- --------- -----------
Total deferred............................... 0 (506,000) (775,000)
---- --------- -----------
Total income tax benefit.......................... $ 0 $(391,000) $ (371,000)
==== ========= ===========
</TABLE>
Deferred tax assets are comprised of the following temporary differences
and carryforwards at December 31:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Nondeductible allowances against trade
receivables............................. $ 24,000 $ 20,000
Nondeductible reserves and accruals....... 178,000 104,000
Machinery and equipment................... 787,000 497,000
Tax benefit of Canadian operating loss and
investment credit carry forwards........ 217,000 --
Tax benefit of U.S. operating loss carry
forwards................................ 5,672,000 4,404,000
Other..................................... 35,000 53,000
----------- -----------
Gross deferred tax assets............... 6,913,000 5,078,000
Deferred tax assets valuation allowance... (6,182,000) (3,572,000)
----------- -----------
Net deferred tax assets......... $ 731,000 $ 1,506,000
=========== ===========
</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, 1997, the net deferred tax asset of
$1,506,000, included approximately $405,000 and $1,101,000 related to the
Company's Canadian and U.S. operations, respectively. 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. Based on
historical results and estimated 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-14
<PAGE> 68
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>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
Income taxes (benefit) computed at the U.S. statutory
rate................................................... $(400) $ 567 $ 1,830
Income not subject to U.S. tax, net...................... (126) (112) (329)
U.S. losses and expenses for which no tax benefit has
been recognized........................................ 518 25 7
Utilization of U.S. net operating losses................. -- (143) (854)
Decrease in beginning of the year deferred tax asset
valuation allowance.................................... -- (703) (1,050)
Other.................................................... 8 (25) 25
----- ----- -------
Provision (benefit) for income taxes..................... $ 0 $(391) $ (371)
===== ===== =======
</TABLE>
At December 31, 1997, the Company has net operating loss carry forwards in
the U.S. of approximately $11,000,000 and $7,084,000 for federal and state
income tax purposes, respectively, which expire in varying amounts through 2011.
7. COMMITMENTS
The Company rents facilities, automobiles and equipment under various
operating leases. Rental expenses under such leases amounted to $280,000,
$325,000 and $324,000 for 1995, 1996 and 1997, respectively.
At December 31, 1997, the aggregate minimum commitments pursuant to
operating leases, including a lease renewal are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1998............................................... $277,000
1999............................................... 165,000
2000............................................... 114,000
2001............................................... 123,000
2002 and thereafter................................ 421,000
</TABLE>
8. EMPLOYEE BENEFIT PLANS
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 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.
F-15
<PAGE> 69
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 both plans for 1995, 1996, and 1997 was $82,000,
$87,000 and $103,000, respectively.
Effective January 1, 1998, the Company adopted the Barringer Technologies
Inc. Supplemental Executive Retirement Plan (the "SERP Plan"). The SERP Plan
provides eligible participants with certain retirement benefits supplemental to
the Company's 401(k) Plan. Pursuant to the SERP Plan, the Company will make
annual contributions to the account of each participant equal to a variable
percentage of the participant's base salary and annual cash bonus depending on
the Company's achievement of certain performance targets. The actual percentage
contribution will be determined by the Executive Compensation Committee, subject
to certain parameters. A participant will become vested under the SERP Plan
after five years of participation therein. Since the SERP Plan was effective as
of January 1, 1998, no contributions were made for 1997.
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company made cash payments for interest of $189,000, $246,000 and
$17,000, for the years ended December 31, 1995, 1996 and 1997, respectively.
Additionally, income taxes of $0, $3,500 and $209,000, were paid for the years
ended December 31, 1995, 1996 and 1997, respectively.
In the years ended December 31, 1995 and 1996, the Company issued Preferred
Stock dividends in the amount $82,000 and $24,000 in the form of 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 5).
F-16
<PAGE> 70
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. 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, 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Revenues:
United States........................................... $ 1,867 $ 4,122 $15,378
Canada.................................................. 5,110 7,887 14,693
Europe.................................................. 1,599 2,577 3,544
Eliminations............................................ (2,202) (3,663) (10,926)
------- ------- -------
Totals.......................................... $ 6,374 $10,923 $22,689
======= ======= =======
Income (loss) from continuing operations:
United States........................................... $(1,548) $ 1,152 $ 4,075
Canada.................................................. 270 869 1,447
Europe.................................................. 100 38 232
------- ------- -------
$(1,178) $ 2,059 $ 5,754
======= ======= =======
Identifiable assets:
United States........................................... $ 4,253 $16,650 $20,913
Canada.................................................. 6,248 7,750 8,312
Europe.................................................. 696 1,256 1,382
Eliminations............................................ (6,462) (8,333) (4,999)
------- ------- -------
Totals.......................................... $ 4,735 $17,323 $25,608
======= ======= =======
</TABLE>
For the year ended December 31, 1997, export sales, including sales from
Canada to other countries, comprised 38.8% 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 year ended December 31, 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>
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>
F-17
<PAGE> 71
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SALES TO MAJOR CUSTOMERS
During 1997, two customers accounted for approximately 27.8% (14.8% and
13%) of consolidated revenues of the Company. 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.
12. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1997, the Company had no material 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.
13. SALE OF 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").
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. 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.
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.
14. EARNINGS (LOSS) PER SHARE
Basic and Diluted earnings (loss) per share for the years ended December
31, 1997, 1996 and 1995 have been computed as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net income............................................ $5,754,000
Less: Preferred dividends............................. (12,000)
----------
Basic Earnings Per Share
Income attributable to common stockholders.......... 5,742,000 5,456,000 $1.05
=====
Effect of dilutive securities
Warrants and options................................ 777,000
Convertible preferred dividends..................... 12,000 24,000
---------- ----------
Diluted Earnings Per Share
Income attributable to common stockholders and
assumed conversions.............................. $5,754,000 6,257,000 $0.92
========== ========== =====
</TABLE>
Options to purchase 24,268 shares of common stock, exercisable at between
$11.78 and $14.00 per share, were outstanding at December 31, 1997 but were not
included in the computation of diluted
F-18
<PAGE> 72
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
earnings per share because the options' exercise price was greater than the
average market price of the common stock underlying the options.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net income............................................ $2,059,000
Less: Preferred dividends............................. (39,000)
----------
Basic Earnings Per Share
Income available to common stockholders............. 2,020,000 3,695,000 $0.55
=====
Effect of dilutive securities
Warrants and options................................ 27,000 228,000
Convertible preferred dividends and debentures...... 39,000 517,000
---------- ----------
Diluted Earnings Per Share
Income available to common stockholders and assumed
conversions...................................... $2,086,000 4,440,000 $0.46
========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
-----------------------------------------
LOSS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net loss from continuing operations.................. $(1,178,000)
Add: Preferred dividends............................. (82,000)
-----------
Basic Loss Per Share
Loss attributable to common stockholders........... (1,260,000) 3,283,000 $(0.39)
======
Effect of dilutive securities
Warrants and options...............................
Convertible preferred dividends.................... N/A N/A
----------- ----------
Diluted Loss Per Share
Loss attributable to common stockholders........... $(1,260,000) 3,283,000 $(0.39)
=========== ========== ======
</TABLE>
15. PROPOSED ACQUISITION
In December 1997, the Company entered into a letter of intent pursuant to
which it intends to acquire all of the outstanding capital stock of DigiVision,
Inc. ("DigiVision"), a San Diego-based developer of video enhancement products,
for an aggregate cash purchase price of approximately $750,000. Upon
consummation of the acquisition, the Company may record a one-time charge to
write-off certain technology and in-process research and development to be
acquired from DigiVision. Although management of the Company cannot currently
estimate the amount of the charge, it is expected such charge could represent a
substantial portion of the purchase price, including costs related to the
acquisition. The final allocation of the purchase price will be subject to the
completion of due diligence procedures, including appraisals and valuation
analyses, as necessary.
The Company's proposed acquisition of DigiVision is subject to a number of
significant conditions precedent, including the execution of a definitive
acquisition agreement and approval of the proposed Transaction by DigiVision's
shareholders. The Company expects to consummate the acquisition in the Spring of
1998. However, no assurance can be given that the acquisition will occur or as
to the timing thereof.
F-19
<PAGE> 73
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. SUBSEQUENT EVENT
In January 1998, the Company received a commitment from Fleet Bank, N.A.
(the "Bank") pursuant to which the Bank has agreed to make available to the
Company a $5.0 million unsecured revolving credit facility to be used for
general working capital purposes, including the issuance of standby letters of
credit (the "Facility"). Drawings under the Facility may not be used to fund
acquisitions unless approved in advance by the Bank. Amounts drawn under the
Facility will bear interest at a variable rate per annum selected by the Company
and equal to either the Bank's prime rate less 0.75% or LIBOR (determined on the
basis of a 30-, 60- or 90-day interest period, as applicable) plus 2.0%. The
Facility will expire on June 30, 1999, subject to renewal. The Facility will be
guaranteed by the Company's primary U.S. subsidiary, Barringer Instruments Inc.
("BII"). Pursuant to the Facility, the Company and BII will be required to
comply with certain customary covenants, including certain financial tests. In
addition, BII and the Company's Canadian subsidiary (BRL) must agree not to
pledge their assets to any other creditor without the Bank's prior written
consent.
F-20
<PAGE> 74
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> 75
[Barringer Name and Logo]
<PAGE> 76
[BARRINGER TECH 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................................ 65,000
Legal fees and expenses..................................... 180,000
Blue Sky fees and expenses.................................. 5,000
Printing and engraving expenses............................. 200,000
Miscellaneous............................................... 17,920
--------
Total............................................. $500,000
========
</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) At various times between January 1, 1995 and February 1, 1998, the
Company granted stock options to retain employees of the Company covering
an aggregate of 610,150 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 PC.**
10.1 Amended and Restated Employment Agreement, dated as of
December 31, 1997, between the Company and Stanley S.
Binder.**
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).
10.17 Letter Agreement, dated February 20, 1998 by and between the
Company and The Boyle Company.
10.18 Supplemental Executive Retirement Plan.**
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 PC (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
II-4
<PAGE> 81
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.
(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 March
3, 1998.
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 PC.**.........................
10.1 Amended and Restated Employment Agreement, dated as of
December 31, 1997, between the Company and Stanley S.
Binder.**...................................................
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)..................................................
10.17 Letter Agreement, dated February 20, 1998 by and between the
Company and The Boyle Company. .............................
10.18 Supplemental Executive Retirement Plan.**...................
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 PC (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
EXHIBIT 1.1
ALSTON & BIRD DRAFT 2/28/98
2,000,000 SHARES(1)
BARRINGER TECHNOLOGIES INC.
COMMON STOCK
UNDERWRITING AGREEMENT
March , 1998
BANCAMERICA ROBERTSON STEPHENS
PACIFIC GROWTH EQUITIES, INC.
As Representatives of the several Underwriters
c/o BancAmerica Robertson Stephens
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Barringer Technologies Inc., a Delaware corporation (the "Company"),
and Stanley S. Binder, a resident of the State of New Jersey ( the "Selling
Stockholder"), 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
1,970,000 shares of its authorized and unissued Common Stock, $0.01 par value
per share, to the several Underwriters. The Selling Stockholder proposes to sell
30,000 shares of the Company's authorized and outstanding Common Stock, $0.01
par value per share, to the several Underwriters. The 1,970,000 shares of Common
Stock, $0.01 par value per share, of the Company to be sold by the Company are
hereinafter called the "Company Shares" and the 30,000 shares of Common Stock,
$0.01 par value per share, of the Company to be sold by the Selling Stockholder
are hereinafter called the "Selling
- ----------------------
(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
Stockholder Shares." The Company Shares and the Selling Stockholder Shares are
hereinafter collectively referred to as the "Firm Shares." The Company also
proposes to grant 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 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 Stockholder
I. The Company represents and warrants to and agrees with each
Underwriter and the 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 BancAmerica Robertson
Stephens, 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 BancAmerica Robertson Stephens, on behalf of
- 2 -
<PAGE> 3
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 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 BancAmerica Robertson Stephens, 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 BancAmerica Robertson Stephens, 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
- 3 -
<PAGE> 4
the Act and the Rules and Regulations and, as of its date, did 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 (except to the extent corrected in a subsequent
Preliminary Prospectus or the Prospectus); 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 or the Representatives specifically for use in the preparation
thereof or written information relating to the Selling Stockholder furnished to
the Company by the Selling Stockholder specifically for use in the preparation
thereof.
(c) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation or limited liability company
in good standing under the laws of the jurisdiction of its organization 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 or membership interests 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 or foreign limited liability
company 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 except for instances of non-compliance which would not, individually or
in the aggregate, have a material adverse effect on the condition (financial and
- 4 -
<PAGE> 5
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise; 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 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
except for such defaults which would not, individually or in the aggregate, have
a material adverse effect on the condition (financial and otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; 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
except for such violations which would not, individually or in the aggregate,
have a material adverse effect on the condition (financial and otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise. 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. Barringer Consumer Products, LLC does
not presently own, lease or otherwise hold or possess, nor has it ever owned,
leased or otherwise held or possessed, any material assets or rights, and
Barringer Consumer Products, LLC does not presently conduct, nor has it ever
conducted, any business operations.
(d) The Company has full legal right, power and authority
to enter into this Agreement and to 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
- 5 -
<PAGE> 6
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 under the Act or the Exchange Act 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 (in the
capacity of an officer, employee or agent of the Company or its subsidiaries) 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) if determined adversely
could reasonably be expected to result in 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)
if determined adversely could reasonably be expected to 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 Selling Stockholder Shares) have been duly authorized and are
validly issued, 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 as
of December 31, 1997 is as set forth in the Prospectus under the caption
"Capitalization" and conforms in 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 Company Shares and the Option Shares to be
purchased from the
- 6 -
<PAGE> 7
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 Company 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, those that have been fully
complied with 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 corporate 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. All
outstanding membership interests in each limited liability company subsidiary
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 membership interests 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 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, 1996 and 1997 and for each of the years in the three
(3) years ended December 3l, 1997 filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are independent
accountants with respect to the Company 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, included in 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
- 7 -
<PAGE> 8
are required under the Act or the Rules and Regulations 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.
(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 is
described in the Registration Statement and Prospectus and 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 material 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.
(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
- 8 -
<PAGE> 9
thereon as due except for those currently being contested in good faith (which
contested amounts, if any, are not material to the Company and its subsidiaries
considered as one enterprise), 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 could reasonably be expected to 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 such types and in such
amounts as are reasonable and appropriate for the business conducted by the
Company and, to the Company's best knowledge, 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 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 could reasonably 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 licenses or other 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 except
as otherwise disclosed in the Registration Statement and Prospectus; there are
no patents, patent rights, trade secrets, trademarks, service marks, trade names
or copyrights expiring (based upon current expiration dates), the expiration of
which would 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
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<PAGE> 10
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, could reasonably be expected to
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 during the last 18 months any notification that the Commission or the
National Association of Securities Dealers, Inc. ("NASD") is contemplating
terminating such registration or listing.
(o) The Company is not, nor will the Company become upon
the sale of the Shares and the application of the proceeds therefrom as
described in the Prospectus under the caption "Use of Proceeds," an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(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.
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<PAGE> 11
(s) Each executive officer and director of the Company, the
Selling Stockholder, each employee of the Company who beneficially owns more
than 10,000 shares of Common Stock 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 of the Prospectus (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 limited partners or shareholders of such person, provided
that the recipients thereof agree in writing to be bound by this restriction,
(iii) pursuant to a qualified domestic relations court order, provided that the
recipients thereof agree in writing to be bound by this restriction, (iv) if
such person is an individual, as a transfer during such person's lifetime or on
death, by will or intestacy, to such person's immediate family or a trust, the
beneficiaries of which are exclusively such person and/or a member of such
person's immediate family, provided that the transferees thereof agree in
writing to be bound by this restriction, (v) upon exercise or conversion of
Securities (including stock options) that are exercisable solely for or
convertible solely into other Securities, provided that the Securities issued
upon any such exercise or conversion remain subject to this restriction, or (vi)
with the prior written consent of BancAmerica Robertson Stephens. 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, 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
executive officers, directors and stockholders have agreed to such or similar
restrictions (the "Lock-up Agreements"). 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 prior to the respective stated termination dates of such Lock-up
Agreements without the prior written consent of BancAmerica Robertson Stephens.
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<PAGE> 12
(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 except for such instances of non-compliance
which would not, individually or in the aggregate, 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 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, and (iii) to the Company's knowledge, 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. Section 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.
II. The Selling Stockholder represents and warrants to and agrees
with each Underwriter and the Company that:
(a) The Selling Stockholder now has, and on the Closing
Date will have, valid marketable title to the Selling Stockholder Shares, 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 Selling Stockholder Shares hereunder and payment of the purchase price as
herein contemplated, each of the Underwriters will obtain valid marketable title
to the Selling Stockholder Shares purchased by it from the Selling Stockholder,
free and clear of any pledge, lien, security interest pertaining to the Selling
Stockholder or the 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
the Selling Stockholder.
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<PAGE> 13
(b) The Selling Stockholder has duly executed and
delivered, in the form heretofore furnished to the Representatives, a Letter of
Transmittal and Custody Agreement (the "Custody Agreement") with
_________________, as custodian (the "Custodian"); the Custody Agreement
constitutes a valid and binding agreement on the part of the 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.
(c) All consents, approvals, authorizations and orders
required for the execution and delivery by the Selling Stockholder of the
Custody Agreement, the execution and delivery by the Selling Stockholder of this
Agreement and the sale and delivery of the Selling Stockholder Shares pursuant
to this Agreement (other than, at the time of the 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; and the Selling Stockholder has full legal
right, power and authority to enter into and perform his obligations under this
Agreement and the Custody Agreement, and to sell, assign, transfer and deliver
the Selling Stockholder Shares pursuant to this Agreement.
(d) The Selling Stockholder will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by the Selling Stockholder or with respect to which the 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) pursuant to a qualified domestic
relations court order, provided that the recipients thereof agree in writing to
be bound by this restriction, (iii) as a transfer during the Selling
Stockholder's lifetime or on death, by will or intestacy, to the Selling
Stockholder's immediate family or a trust, the beneficiaries of which are
exclusively the Selling Stockholder and/or a member of the Selling Stockholder's
immediate family, provided that the transferees thereof agree in writing to be
bound by this restriction, (iv) upon exercise or conversion of Securities
(including stock options) that are exercisable solely for or convertible solely
into other Securities, provided that the Securities issued upon any such
exercise or conversion remain subject to this restriction, or (v) with the prior
written consent of BancAmerica Robertson Stephens. 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 include,
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.
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<PAGE> 14
The 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 the Selling Stockholder except in compliance with this
restriction.
(e) Certificates in negotiable form for all Selling
Stockholder Shares, together with a stock power or powers duly endorsed in blank
by the Selling Stockholder, have been placed in custody with the Custodian for
the purpose of effecting delivery hereunder.
(f) This Agreement has been duly executed and delivered by
the Selling Stockholder and is a valid and binding agreement of the 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,
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 the
Selling Stockholder is a party or by which the Selling Stockholder, or any
Selling Stockholder Shares, may be bound or, to the best of the 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 the
Selling Stockholder or over the properties of the Selling Stockholder.
(g) The Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or that could 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) The 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 the
Selling Stockholder relating to the Selling Stockholder and the Selling
Stockholder Shares that is 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
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<PAGE> 15
material fact or omit to state a material fact required to be stated therein or
necessary to make such information not misleading.
(j) The Selling Stockholder will review the Prospectus and
will comply with all agreements and satisfy all conditions on his 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 BancAmerica Robertson Stephens prior to the Closing Date
or such later date on which Option Shares are to be purchased, as the case may
be, if any statement to be made by the 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) The 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 to the Underwriters pursuant to this Agreement; the 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 the Selling Stockholder in the transactions to which
this Agreement relates in accordance with the terms of this Agreement; and the
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) The 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, (i) 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 Company Shares as hereinafter set forth and (ii) the
Selling Stockholder agrees to sell to the Underwriters, and each Underwriter
agrees, severally and not jointly, to purchase from the Selling Stockholder, at
a purchase price of $_____ per share, the respective number of Selling
Stockholder Shares as hereinafter set forth. The obligation of each Underwriter
to the Company shall be to purchase from the Company that number of Company
Shares which is set forth opposite the name of such Underwriter in Schedule A
hereto (subject to adjustment as provided in Section 10). The obligation of each
Underwriter to the Selling Stockholder shall be to purchase from the Selling
Stockholder that number of Selling Stockholder Shares which is set forth
opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 10).
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<PAGE> 16
The certificates in negotiable form for the Selling Stockholder
Shares have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. The Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares so held in custody are subject to the interests of
the Underwriters hereunder, that the arrangements made by the Selling
Shareholder for such custody are to that extent irrevocable and that the
obligations of the Selling Stockholder hereunder shall not be terminated by the
act of the Selling Stockholder or by operation of law, whether by the death or
incapacity of the Selling Stockholder or the occurrence of any other event,
except as specifically provided herein or in the Custody Agreement. If the
Selling Stockholder should die or be incapacitated, or if any other such event
should occur, before the delivery of the certificates for the Selling
Stockholder Shares hereunder, the Selling Stockholder Shares shall, except as
specifically provided herein or in the 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.
Delivery of 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 same-day funds, or by wire transfer of same day funds, payable
to the order of or to an account specified by the Company with regard to the
Shares being purchased from the Company, and to the order of or to an account
specified by the Custodian for the account of the Selling Stockholder with
regard to the Shares being purchased from the Selling Stockholder, 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 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. Any 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.
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<PAGE> 17
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(a) 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 Stockholder
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.
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 thereto, 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 reasonably 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
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<PAGE> 18
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 reasonably 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 reasonably 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 reasonable request, it will prepare
and file with the Commission any amendments or supplements to the Registration
Statement or Prospectus which, in the reasonable opinion of outside 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 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
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<PAGE> 19
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 contain original or photocopies signatures 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 BancAmerica Robertson Stephens, 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 (including,
at the Company's option, Rule 158 promulgated thereunder) and 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
so long as the Company is subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company will, as soon as practicable after the
end of each respective period, furnish to its stockholders annual reports
(including financial statements audited by independent certified public
accountants) and shall provide to its stockholders, upon request, 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 or making such reports available to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished or made available 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
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<PAGE> 20
NASD, and (v) any additional information of a public nature concerning the
Company or its subsidiaries, or its business which you may reasonably request.
During such 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) So long as a public market for its Common Stock exists,
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 the 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 prevent this Agreement
from becoming effective pursuant to Section 11(b)(i) hereof, the Company will
reimburse the several Underwriters for all reasonable out-of-pocket expenses
(including reasonable fees and disbursements of Underwriters' Counsel) incurred
by the Underwriters in investigating or preparing to market or marketing the
Shares.
(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
reasonable 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, consult with you concerning such rumor, publication or event and will not
unreasonably refuse to 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 (i) the
sale of the Company Shares and the Option Shares hereunder, (ii) the Company's
issuance of options or Common Stock under the Company's 1997 Stock Compensation
Program (the "Option Plan") or (iii) as provided in Section 2I(s).
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<PAGE> 21
(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 any employee benefit plan other than the
Option Plan.
5. Expenses.
(a) The Company agrees with each Underwriter and the
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 (other than the fees and disbursements of Underwriters' counsel (other
than as expressly provided for elsewhere herein), fees and expenses incurred by
the Underwriters in connection with the preparation of the Registration
Statement, the Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto (other than as expressly provided for elsewhere herein),
transfer taxes, if any, in connection with the resale of the Common Stock
purchased hereunder, and any advertising and marketing expenses incurred in
connection with the offering by the Underwriters (other than as expressly
provided for elsewhere herein)); 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 reasonable 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 Stockholder in connection with
the performance of their obligations hereunder. Any additional expenses incurred
as a result of the sale of the Shares by the Selling Stockholder will be borne
collectively by the Company and the Selling Stockholder. 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 Stockholder and the Company hereby agree to
pay, but shall not affect any agreement which the Selling Stockholder 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 Stockholder hereunder to the several Underwriters.
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<PAGE> 22
(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 out-of-pocket expenses (including reasonable fees and
disbursements of counsel) 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, the 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 the Selling Stockholder,
it will reimburse the Underwriters on a monthly basis for all reasonable
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
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 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 Stockholder, 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 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 the Selling Stockholder on a monthly basis for all reasonable
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
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 the Selling Stockholder
for such expenses and the
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<PAGE> 23
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 the
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 the 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 Stockholder
herein, to the performance by the Company and the Selling Stockholder 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, the 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 reasonable satisfaction of Underwriters' Counsel.
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<PAGE> 24
(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 so material and adverse as to make 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 Stockholder, 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) Each of the Company and Barringer Instruments,
Inc. ("BII") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation;
(ii) Each of the Company and BII has the corporate
power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus;
(iii) Each of the Company and BII 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;
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<PAGE> 25
(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 authorized shares of capital stock of the Company have
been duly authorized, the issued and outstanding Shares to be
sold by the Selling Stockholder have been duly 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;
(v) All issued and outstanding shares of capital
stock of BII 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 known to such
counsel;
(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 and delivered by the Company;
(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 the
other financial and statistical data included therein as to
which no opinion is expressed), as of the effective date of
the Registration Statement, complied as to form in all
material
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<PAGE> 26
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 form of certificates evidencing the
Common Stock complies with Delaware law;
(xii) 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
under the Act and the Rules and Regulations;
(xiii) 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 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 New Jersey, Delaware or
federal statute, rule or regulation known to such counsel and
applicable to the transactions contemplated hereby or, to such
counsel's knowledge (without search of any court dockets), any
order, writ or decree of any New Jersey, Delaware or federal
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;
(xiv) No consent, approval, authorization or order of
or qualification with any New Jersey, Delaware or federal
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 (as to which no opinion is given);
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<PAGE> 27
(xv) 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;
(xvi) 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;
(xvii) 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 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;
(xviii) The Custody Agreement has been duly executed
and delivered by the Selling Stockholder; and the Custody
Agreement constitutes the valid and binding agreement of the
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;
(xix) The Selling Stockholder has full right, power
and authority to enter into and to perform his obligations
under this Agreement and to sell, transfer, assign and deliver
the Selling Stockholder Shares to be sold by the Selling
Stockholder hereunder;
(xx) This Agreement has been duly executed and
delivered by or on behalf of the Selling Stockholder; and
(xxi) Upon the delivery of and payment for the
Selling Stockholder Shares as contemplated in this Agreement,
each of the
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<PAGE> 28
Underwriters will receive valid marketable title to the
Selling Stockholder Shares purchased by it from the 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 Selling Stockholder Shares being purchased from the
Selling Stockholder.
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,
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 the other financial and statistical information included in the
Registration Statement, 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 the provisions of the Delaware General Corporation Law upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, of the Selling Stockholder, and of
government officials, in which case their opinion is to state that they are so
relying and that they have no reason to believe that such reliance is not
justified. Copies of any opinion, representation or certificate so relied upon
shall be delivered to you, as Representatives of the Underwriters, and to
Underwriters' Counsel.
You shall also 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 the Company's Canadian counsel, 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:
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<PAGE> 29
(i) Barringer Resources, Ltd.. ("BRL") has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation;
(ii) BRL has the corporate power and authority to
own, lease and operate its properties and to conduct its
business as now conducted by it;
(iii) BRL 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;
(iv) All issued and outstanding shares of capital
stock of BRL 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 known to such
counsel;
(v) 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 BRL'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
BRL is a party or by which its properties are bound, or any
statute, rule or regulation of Canada or Ontario known to such
counsel and applicable to the transactions contemplated hereby
or, to such counsel's knowledge (without search of any court
dockets), any order, writ or decree of any Cananda or Ontario
court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or
over any of their respective properties or operations;
(vi) No consent, approval, authorization or order of
or qualification with any Cananda or Ontario court, government
or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or over any of their
respective properties or operations is
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<PAGE> 30
necessary in connection with the consummation by the Company
of the transactions herein contemplated, except such as have
been obtained or such as may be required under the securities
laws of Cananda or its provinces in connection with the
distribution of the Shares by the Underwriters in Canada;
(vii) To such counsel's knowledge, there are no legal
or governmental proceedings pending or threatened against BRL;
and
(viii) To such counsel's knowledge, BRL is not
presently (a) in material violation of its 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 BRL or
over any of its properties or operations.
Canadian counsel rendering the foregoing opinion may rely as
to questions of fact upon representations or certificates of officers of BRL or
the Company, and of government officials, in which case their opinion is to
state that they are so relying and that they have no reason to believe that such
reliance is not justified. Copies of any 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, the Board of
Directors of the Company and the officers of the Company signing the
Registration Statement 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 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
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<PAGE> 31
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 so material and adverse as to make 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, the Board
of Directors of the Company and the officers of the Company signing the
Registration Statement in form and substance reasonably 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 sheets of the Company as of December 31, 1996 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended December 3l, 1997, and (iii)
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, 1997, 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 in all material
respects (except that those representations and warranties
that are qualified as to materiality shall be true and correct
in all respects), 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 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, to the best of such
officer's knowledge, are pending or threatened under the Act;
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<PAGE> 32
(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 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 from the Selling Stockholder to the effect
that, as of the Closing Date:
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<PAGE> 33
(i) The representations and warranties made by the
Selling Stockholder herein are true or correct in all material
respects (except that those representations and warranties
that are qualified as to materiality shall be true and correct
in all respects) as if made on and as of the Closing Date; and
(ii) The Selling Stockholder has complied with all
obligations and satisfied all conditions which are required to
be performed or satisfied on the part of the Selling
Stockholder at or prior to the Closing Date.
(i) The Company shall have obtained and delivered to you an
agreement from each executive officer and director of the Company, the Selling
Stockholder, each employee of the Company who beneficially owns more than 10,000
shares of Common Stock 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 limited partners or
shareholders of such person, provided that the recipients thereof agree in
writing to be bound by this restriction, (iii) pursuant to a qualified domestic
relations court order, provided that the recipients thereof agree in writing to
be bound by this restriction, (iv) if such person is an individual, as a
transfer during such person's lifetime or on death, by will or intestacy, to
such person's immediate family or a trust, the beneficiaries of which are
exclusively such person and/or a member of such person's immediate family,
provided that the transferees thereof agree in writing to be bound by this
restriction, (v) upon exercise or conversion of Securities (including stock
options) that are exercisable solely for or convertible solely into other
Securities, provided that the Securities issued upon any such exercise or
conversion remain subject to this restriction, or (vi) with the prior written
consent of BancAmerica Robertson Stephens. 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.
(j) The Company and the Selling Stockholder shall have
furnished to you such further certificates and documents as you shall reasonably
request (including
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<PAGE> 34
certificates of officers of the Company or certificates of the Selling
Stockholder as to the accuracy of the representations and warranties of the
Company and the Selling Stockholder herein, as to the performance by the Company
and the Selling Stockholder 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 Stockholder
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 hereby grants 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 the Option Shares from
the Company 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.
Delivery of 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 same-day
funds, payable to the order of the Company or by wire transfer in same-day funds
payable to the account specified by the Company. 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 and the Company (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.
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<PAGE> 35
Any 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.
(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 herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
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 issuance and sale of such Option Shares shall be reasonably
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 reasonably 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 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, (or actions in respect thereof) 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, 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
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<PAGE> 36
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 reasonable out-of-pocket expenses (including the reasonable
fees and disbursements of counsel) 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 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) The Selling Stockholder agrees to indemnify and hold
harmless each Underwriter against any losses, claims, damages or liabilities,
joint or several, (or actions in respect thereof) 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, arising
out of or based upon (i) any breach of any representation, warranty, agreement
or covenant of the 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
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<PAGE> 37
made in reliance upon and in conformity with written information furnished to
the Company or such Underwriter by the Selling Stockholder, directly or through
the Selling Stockholder's representatives, specifically for use in the
preparation thereof, and agrees to reimburse each Underwriter for any reasonable
out-of-pocket expenses (including the reasonable fees and disbursements of
counsel) 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 the Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and the Selling Stockholder against any
losses, claims, damages or liabilities, joint or several, (or actions in respect
thereof) to which the Company or the Selling Stockholder may become subject
under the Act or otherwise, 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 the Selling Stockholder for any reasonable out-of-pocket
expenses (including the reasonable fees and disbursements of counsel) incurred
by the Company and the Selling Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or action.
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<PAGE> 38
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 and each person, if any, who controls the Company 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 (which may be regular counsel to the
Company if such counsel is reasonably satisfactory to the 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 the employment of counsel reasonably satisfactory to
the indemnified party, 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 reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after the receipt of notice of commencement of the action from the
indemnified party or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
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
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<PAGE> 39
could have been a party and indemnification could have been sought hereunder by
such indemnified party, unless such settlement 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 total price of which the Firm shares
and the Option Shares underwritten by it and distributed to the public were
offered to the public 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 or the Company 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 the 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 the Selling Stockholder to the Underwriters minus the
amount of the underwriting discount paid thereon to the Underwriters by the
Selling Stockholder. The Company and the Selling Stockholder 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
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<PAGE> 40
made in the Registration Statement and Prospectus as required by the Act and the
Exchange Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholder 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 the 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 Closing 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 Closing Date 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
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<PAGE> 41
promptly to file any amendments to the Registration Statement, 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 the 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
Stockholder and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or the 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(i), 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 (financial
- 41 -
<PAGE> 42
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 reasonable
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(i), 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 BancAmerica Robertson Stephens, 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 the Selling
Stockholder, such notice shall be sent mailed, delivered, telegraphed (and
confirmed by letter) or telecopied (and confirmed by letter) to Stanley S.
Binder at Barringer Technologies Inc., 219 South Street, Murray Hill, New Jersey
07974, telecopier number (908) 665-8298.
- 42 -
<PAGE> 43
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and the Selling
Stockholder 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 BancAmerica Robertson Stephens 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.
- 43 -
<PAGE> 44
If the foregoing correctly sets forth the understanding among
the Company, the Selling Stockholder 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 Stockholder
and the several Underwriters.
Very truly yours,
BARRINGER TECHNOLOGIES INC.
By:
Name:
Title:
STANLEY S. BINDER
Accepted as of the date first above written:
BANCAMERICA ROBERTSON STEPHENS
PACIFIC GROWTH EQUITIES, INC.
On their behalf and on behalf of each of the several Underwriters named in
Schedule A hereto.
By BANCAMERICA ROBERTSON STEPHENS
By:
Authorized Signatory
- 44 -
<PAGE> 45
SCHEDULE A
Number of Selling
Number of Company Stockholder
Shares To Be Shares To Be
Underwriters Purchased Purchased
BancAmerica Robertson Stephens........
Pacific Growth Equities, Inc..........
---------- --------
Total............................ 1,970,000 30,000
========== ========
<PAGE> 1
[Exhibit 10.17]
[THE BOYLE COMPANY LETTERHEAD]
February 20, 1998
Mr. Richard Rosenfeld
Chief Financial Officer
BARRINGER TECHNOLOGIES
219 South Street
New Providence, NJ 07974
RE: LEASE EXTENSION
Dear Rich:
Pursuant to our telephone conversation regarding your desire to extend the
terms of the existing Lease on a short-term basis, allow this letter to serve
as an Addendum to the present Lease.
Whereas, it is agreed between the parties that Barringer Technologies
shall extend their existing Lease for Suites 200 and 201, as well as to new
Suite 204, for a period of an additional six (6) months. It is further agreed
that Barringer Technologies can terminate their Lease by giving the Landlord 60
days' notice in writing of their intend to do so.
Very truly yours,
THE BOYLE COMPANY
/s/ John P. Boyle, III
John P. Boyle, III
Executive Vice President
AGREED AND ACCEPTED:
/s/ Richard Rosenfeld VP
- --------------------------------
Richard Rosenfeld,
Barringer Technologies
<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 19, 1998, relating to the
consolidated financial statements 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
March 3, 1998
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