-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RO2K/HYXY8Lh3kC1jD25MYuJNvhJHyr0aaVKRl/KA8SaMgEn4cKSfjg5Cox4fn1s JLV1fP9cyt4mck9OOL9EVg== 0000950123-96-005469.txt : 19961009 0000950123-96-005469.hdr.sgml : 19961009 ACCESSION NUMBER: 0000950123-96-005469 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19961008 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARRINGER TECHNOLOGIES INC CENTRAL INDEX KEY: 0000010119 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 840720473 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-13703 FILM NUMBER: 96640808 BUSINESS ADDRESS: STREET 1: 219 SOUTH STREET CITY: NEW PROVIDENCE STATE: NJ ZIP: 07974 BUSINESS PHONE: 9086658200 MAIL ADDRESS: STREET 1: 219 SOUTH STREET CITY: NEW PROVIDENCE STATE: NJ ZIP: 07974 FORMER COMPANY: FORMER CONFORMED NAME: BARRINGER RESOURCES INC DATE OF NAME CHANGE: 19910331 FORMER COMPANY: FORMER CONFORMED NAME: BARRINGER RESEARCH INC DATE OF NAME CHANGE: 19800821 SB-2 1 BARRINGER TECHNOLOGIES INC. / FORM SB-2 1 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BARRINGER TECHNOLOGIES INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3829 84-0720473 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION)
219 SOUTH STREET, NEW PROVIDENCE, 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, NEW PROVIDENCE, NEW JERSEY 07974 (908) 665-8200 (NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: JOHN D. HOGOBOOM, ESQ. ARTHUR M. BORDEN, ESQ. LOWENSTEIN, SANDLER, KOHL, FISHER & BOYLAN, P.A. ROSENMAN & COLIN LLP 65 LIVINGSTON AVENUE 575 MADISON AVENUE ROSELAND, NEW JERSEY 07068 NEW YORK, NEW YORK 10022 (201) 992-8700 (212) 940-8790
------------------------ 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. / / CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF OF SECURITIES OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE - --------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value........................ $8.00 $9,200,000 $2,788 - --------------------------------------------------------------------------------------------------------------- Common Stock Purchase Warrants...................... $.05 $57,500 $18 - --------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value, underlying Common Stock Purchase Warrants(2)........................ $8.00 $4,600,000 $1,394 - --------------------------------------------------------------------------------------------------------------- Underwriter's Warrants.............................. $.0012 $120 $1 - --------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value, underlying Underwriter's Warrants(2)......................... $8.00 $800,000 $243 - --------------------------------------------------------------------------------------------------------------- Common Stock Purchase Warrants underlying Underwriter's Warrants(2)......................... $.05 $5,000 $2 - --------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value, underlying Common Stock Purchase Warrants underlying Underwriter's Warrants(2)....................................... $8.00 $400,000 $122 - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act of 1933 on the basis of the average of the high and low bid prices for a share of Common Stock on The NASDAQ SmallCap Market on October 3, 1996. (2) Pursuant to Rule 416, this Registration Statement also relates to (i) an indeterminate number of additional shares of Common Stock issuable upon exercise of the Warrants pursuant to anti-dilution provisions contained therein, and (ii) an indeterminate number of additional shares of Common Stock and Warrants issuable upon the exercise of the Underwriter's Warrants pursuant to anti-dilution provisions contained therein. ------------------------ 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 OCTOBER 8, 1996 PROSPECTUS LOGO BARRINGER TECHNOLOGIES INC. 1,000,000 SHARES OF COMMON STOCK AND 1,000,000 COMMON STOCK PURCHASE WARRANTS Barringer Technologies Inc., a Delaware corporation (the "Company"), hereby offers 1,000,000 shares (the "Shares") of common stock, $.01 par value per share (the "Common Stock"), and 1,000,000 Common Stock Purchase Warrants (the "Warrants"). The Shares and Warrants are sometimes hereinafter collectively referred to as the "Securities." Each Warrant is exercisable for three years and entitles the registered holder to purchase one-half of a share of Common Stock at an exercise price of $ per share [120% of the initial offering price per share] during the first year, $ per share [130% of such price] during the second year and $ per share [140% of such price] during the third year. The Warrant exercise price and the number of shares issuable upon exercise of the Warrants are subject to adjustment under certain circumstances. The Company may redeem outstanding Warrants commencing six months after the date of this Prospectus on not less than 30 days notice at a price of $.25 per Warrant if the closing bid price of the Common Stock averages in excess of 200% of the applicable exercise price for a period of 30 days ending within 15 days of the redemption notice date. The Shares and Warrants may only be purchased together, but will be separately transferable immediately following the completion of the Offering. The Common Stock is traded on The NASDAQ SmallCap Market under the symbol "BARR." The Company intends to apply to include the Warrants on The NASDAQ SmallCap Market. On October 7, 1996, the closing sale price of the Common Stock as reported by NASDAQ was $7.25 per share. See "Price Range of Common Stock." ------------------------ SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - ----------------------------------------------------------------------------------------------------------- Per Share................................ $ $ $ - ----------------------------------------------------------------------------------------------------------- Per Warrant.............................. $ $ $ - ----------------------------------------------------------------------------------------------------------- Total(3)................................. $ $ $ - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933 (the "Securities Act"). The Company also has agreed to issue warrants to the Representative of the Underwriters to purchase 100,000 shares of Common Stock and 100,000 Common Stock Purchase Warrants, in each case at an initial exercise price of 120% of the initial offering price. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $475,000 and a 2% non-accountable expense allowance payable to the Representative of the Underwriters. See "Underwriting." (3) The Company has granted to the Underwriters a 30-day option to purchase up to 150,000 additional shares of Common Stock and 150,000 Warrants solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. ------------------------ The Securities are being offered on a firm commitment basis by the Underwriters named herein, subject to prior sale, when, as and if delivered to and accepted by them subject to certain conditions. It is expected that certificates for the Securities offered hereby will be available for delivery on or about , 1996, at the office of Janney Montgomery Scott Inc., 26 Broadway, New York, New York. ------------------------ JANNEY MONTGOMERY SCOTT INC. , 1996 3 Photo #1 Shows a picture of the Company's IONSCAN(R) Model 400, a portable desk-top instrument that utilizes a proprietary implementation of ion mobility spectrometry technology to determine the presence or absence of targeted compounds in a sample. Photo #2 Shows a technician using a sampling cloth to collect particle samples from a piece of carry-on luggage for testing with the Model 400 IONSCAN(R). Photo #3 Shows a technician using a glove to collect particle samples from a piece of carry-on luggage for testing with the Model 400 IONSCAN(R). IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AND THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING." 2 4 AVAILABLE INFORMATION The Company is subject to the information requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549; and at the Commission's Regional Offices at 500 West Madison, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at its principal office at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding issuers, such as the Company, that file electronically with the Commission and the address of such Web site is http://www.sec.gov. The Common Stock is included in The NASDAQ SmallCap Market, under the symbol BARR, and reports, proxy statements and other information regarding the Company can be inspected at the offices of the National Association of Securities Dealers, Inc. at 33 Whitehall Street, 10th Floor, New York, New York 10004. The Company has filed with the Commission a Registration Statement on Form SB-2 (together with all amendments thereto, the "Registration Statement") under the Securities Act with respect to the Securities offered hereby (the "Offering"). This Prospectus does not contain all of the information set forth in the Registration Statement and exhibits thereto, certain portions of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Securities offered hereby reference is made to the Registration Statement and related exhibits and to documents filed with the Commission. Any statements contained herein concerning the provisions of any document are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. Copies of the Registration Statement and the exhibits thereto are on file at the offices of the Commission and may be obtained, upon payment of the fee prescribed by the Commission, or may be examined without charge at the public reference facilities of the Commission described above. FORWARD-LOOKING STATEMENTS This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of 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, markets and extension of its IONSCAN(R) products, the development of new IONSCAN(R) products, the probability of the Company's success in the sales of its IONSCAN(R) products in current markets, governmental regulations and directives changing security requirements, liquidity and capital requirements and use of proceeds. Forward-looking statements are inherently subject to risks and uncertainties, many of which can not 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 herein. Important factors that could contribute to such differences are set forth below under "Risk Factors," including, but not limited to, "History of Losses," "Cash Constraints," "Dependence on and Effects of Governmental Regulation," "Dependence on IONSCAN(R) and Market Acceptance," "Dependence on New Product Development; Technological Advancement" and "Competition." 3 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in this Prospectus. Each prospective investor is urged to read this Prospectus in its entirety. 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 Warrants; (ii) no exercise of the Underwriters' over-allotment option; (iii) no exercise of the Warrants issuable to the representative of the Underwriters (the "Underwriter's Warrants"), and (iv) no exercise or conversion of outstanding securities, including options, exercisable for or convertible into Common Stock. See "Description of Capital Stock," "Description of Warrants" and "Underwriting." Unless the context otherwise requires, all references in this Prospectus to the Company refer to Barringer Technologies Inc. and its subsidiaries. THE COMPANY Barringer Technologies Inc. (the "Company") is principally engaged in the design, development, manufacture and sale of analytical instruments used for the high sensitivity detection of trace amounts of plastic and other explosives and illegal narcotics. The Company's principal product, the IONSCAN(R), is a portable, desk-top instrument that utilizes a proprietary implementation of ion mobility spectrometry ("IMS") technology to determine the presence or absence of targeted compounds in a sample. The IONSCAN(R) can detect targeted substances in amounts smaller than one-billionth of a gram in approximately six seconds. See "Business -- IONSCAN(R) Technology." The Company's customers are primarily governmental, security and law enforcement agencies throughout the world, including the Federal Bureau of Investigation (the "FBI"), the Drug Enforcement Agency (the "DEA"), the General Services Administration (the "GSA"), the United States, French, and Canadian customs services and various airports worldwide. Because of its high sensitivity, the IONSCAN(R) is used both in lieu of and in conjunction with other detection technologies, such as X-ray, computer aided tomography ("CATSCAN"), quadropole resonance and nuclear magnetic resonance imaging. As of June 30, 1996, the Company had sold over 300 IONSCAN(R)s, and the Company believes that, in terms of units sold, it is the world's leading supplier of trace particle detection instruments. See "Business -- Overview." IONSCAN(R)s have been sold for explosives detection applications primarily outside the United States and for drug interdiction and detection both within the United States and elsewhere. For example, the IONSCAN(R) is used in foreign airports, on trains and at the Eurotunnel to check for explosives and by the United States Coast Guard to check ships and cargo in U.S. territorial waters for illegal narcotics. The Company believes that the security-related market for the IONSCAN(R) is growing as a result of governmental actions, particularly in the United States, which reflect heightened public safety concerns in the wake of an increasing number of terrorist acts. Recently, Congress appropriated $144,000,000 for the purchase of enhanced explosives detection equipment for use at certain airports in the United States, and the Company believes that a portion of such appropriation will be utilized for the acquisition of trace particle detection equipment. The Company also believes that additional growth will occur in the drug interdiction market for the IONSCAN(R) as a result of recently reported increases in domestic drug usage, particularly among teenagers. However, no assurance can be given as to the growth of either the security-related market or the drug interdiction market for the IONSCAN(R). The Company's objective is to strengthen its position as the leading supplier of trace detection equipment by (i) further penetrating existing markets for the IONSCAN(R) through aggressive pursuit of additional sales, (ii) expanding the uses of the IONSCAN(R), particularly for security screening of individuals and for process control and quality assurance in certain industrial applications, and (iii) extending the capabilities and the potential uses of the IONSCAN(R) for environmental, biological and chemical testing by, among other things, combining the IMS technology used by the IONSCAN(R) with other existing technologies, such as gas chromatography, and by developing a hand-held detector utilizing the IONSCAN(R) technology. See "Business -- Strategy." The Company believes that it is well positioned to implement its strategy as a result of the large installed base of IONSCAN(R)s, the IONSCAN(R)'s favorable field performance, its low price as compared to other available detection equipment and its ease of use. 4 6 THE OFFERING SECURITIES OFFERED.............. 1,000,000 shares of Common Stock and 1,000,000 Warrants. See "Description of Capital Stock" and "Description of Warrants." The Shares and the Warrants may only be purchased together, but will be separately transferable immediately following the completion of the Offering. DESCRIPTION OF WARRANTS......... Each Warrant is exercisable for three years and entitles the registered holder to purchase one-half of a share of Common Stock at an exercise price of $ per share [120% of the initial offering price per share] during the first year, $ per share [130% of such price] during the second year and $ per share [140% of such price] during the third year. The Warrant exercise price and the number of shares issuable upon exercise of the Warrants are subject to adjustment under certain circumstances. The Company may redeem outstanding Warrants commencing six months after the date of this Prospectus on not less than 30 days notice at a price of $.25 per Warrant if the closing bid price of the Common Stock averages in excess of 200% of the applicable exercise price for a period of 30 days ending within 15 days of the redemption notice date. See "Description of Warrants." COMMON STOCK OUTSTANDING BEFORE OFFERING...................... 3,506,474 shares COMMON STOCK OUTSTANDING AFTER OFFERING...................... 4,506,474 shares(1) USE OF PROCEEDS................. Net proceeds received from the Offering will be used to fund product development, to repay certain indebtedness, to expand the Company's manufacturing and assembling capabilities and for working capital and general corporate purposes, including possible acquisitions and joint ventures. See "Use of Proceeds" and "Business -- Strategy." NASDAQ SYMBOLS: COMMON STOCK.................... BARR WARRANTS (PROPOSED)............. BARRW - --------------- (1) Excludes a total of 2,284,244 shares which will be reserved for issuance upon completion of the Offering, consisting of (i) 500,000 shares of Common Stock issuable upon exercise of the Warrants, (ii) 481,250 shares of Common Stock issuable upon exercise of outstanding warrants, (iii) 463,750 shares of Common Stock issuable upon exercise of outstanding stock options, (iv) 464,244 shares of Common Stock issuable upon conversion of the Company's outstanding convertible securities, (v) 100,000 shares of Common Stock issuable upon exercise of the Underwriter's Warrants, and 50,000 shares of Common Stock issuable upon exercise of the Warrants underlying the Underwriter's Warrants, and (vi) an aggregate of 225,000 shares of Common Stock subject to the Underwriters' over-allotment option (collectively, the "Reserved Shares"). 5 7 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) The summary consolidated financial information set forth below should be read in conjunction with the Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in the Prospectus.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------- --------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------ ------- ------- ------ ------ STATEMENT OF OPERATIONS DATA(1): Revenues from operations......... $ 1,963 $ 2,838 $7,770 $ 5,514 $ 6,374 $3,110 $5,012 Gross profit..................... 260 627 3,840 1,245 2,570 1,218 2,365 Operating income (loss).......... (3,105) (1,714) 541 (2,469) (886) (186) 667 Income (loss) from continuing operations.................... (3,324) (1,763) 593 (2,633) (1,178) (356) 564 Income (loss) from operations held for sale................. (339) (44) 2 68 351 55 -- Net Income (loss)................ (3,663) (1,807) 595 (2,565) (827) (301) 564 Preferred stock dividends........ (103) (160) (114) (108) (82) (51) (24) Net Income (loss) attributable to common stockholders........... (3,766) (1,967) 481 (2,673) (909) (352) 540 Income (loss) per common share from continuing operations.... (1.84) (0.90) 0.20 (0.97) (0.39) (0.13) 0.15 Net income (loss) per common share: Primary....................... (2.02) (0.92) 0.20 (0.95) (0.28) (0.11) 0.16 Fully-diluted................. -- -- -- -- -- -- 0.15 Weighted average common shares outstanding: Primary....................... 1,862 2,135 2,570 2,827 3,283 3,060 3,483 Fully diluted................. -- -- -- -- -- -- 3,854
JUNE 30, 1996 ------------------------- ACTUAL AS ADJUSTED(2) ------ -------------- BALANCE SHEET DATA: Working capital............................ $ 940 $7,710 Current assets............................. 4,828 10,367 Total assets............................... 5,881 11,420 Current liabilities........................ 3,888 2,657 Long-term liabilities...................... 113 113 Stockholders' equity....................... 1,880 8,650
- --------------- (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 December 1995. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." (2) As adjusted for the issuance and sale of the Securities offered hereby (at an assumed initial offering price of $8.00 per Share and $.05 per Warrant), after deducting the estimated underwriting discounts and estimated offering expenses payable by the Company and the application of the net proceeds therefrom. See "Use of Proceeds." 6 8 RISK FACTORS In addition to the other information contained in this Prospectus, the following risk factors should be considered carefully in evaluating an investment in the Securities offered hereby. HISTORY OF LOSSES The Company sustained net losses of $2,565,000 and $827,000 for the years ended December 31, 1994 and 1995, respectively, and had an accumulated deficit of $16,003,000 at June 30, 1996. Although the Company generated net income of $564,000 for the first six months of 1996, there can be no assurance that the Company will be able to sustain a profitable level of operations in any future period. CASH CONSTRAINTS Historically, the Company has not generated net cash flow from operations and, accordingly, has experienced periodic severe cash shortages. Although the Company will seek to improve its cash flow through, among other things, the use of a portion of the proceeds of this Offering and the implementation of its business strategy, no assurance can be given that the Company will have sufficient cash to implement such strategy or that implementation of such strategy will enable the Company to satisfy its long-term cash requirements. See "Business -- Strategy." DEPENDENCE ON AND EFFECTS OF GOVERNMENTAL REGULATION The Company's business is dependent upon purchases of IONSCAN(R)s by governmental agencies. See "Government and Other Procurement Policies." While the Company believes that certain of its governmental customers will continue to purchase IONSCAN(R)s for explosives detection and drug interdiction applications, growth in the Company's business will be driven in part by the adoption of regulations or requirements in the aviation security market resulting in the use of enhanced explosives detection systems, including trace particle detection equipment. As a result of certain government initiatives in the United States, including the recent report of the Aviation Safety and Security Commission (the "Gore Commission"), the Company anticipates that such regulations or requirements will be adopted in the United States in the near future. Among other things, the initial Gore Commission report recommended that the government purchase enhanced explosives detection equipment for deployment at certain United States airports. In October 1996, Congress appropriated approximately $1.1 billion to fund certain anti-terrorist programs in fiscal 1997, including the initial recommendations contained in the Gore Commission report. It is anticipated that approximately $144,000,000 of such appropriation will be used to purchase enhanced explosives detection equipment. There can be no assurance that funding for the purchase of such equipment will be continued in subsequent fiscal years or as to the level thereof. While the recent government initiatives have contemplated the deployment of trace particle detection equipment, such as the IONSCAN(R), a substantial amount of the appropriated funds will be used to purchase equipment utilizing other technologies, such as CATSCAN, enhanced X-ray, quadropole resonance and other imaging techniques. 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 IONSCAN(R) will meet any certification or other requirements that may be adopted in connection with such initiatives. The Company anticipates that the aviation security market will undergo significant technological changes in the future. As part of its oversight of the domestic aviation industry, the Federal Aviation Administration (the "FAA") sponsors research in the area of enhanced explosives detection technologies. During the last five years, the FAA has spent approximately $150,000,000 on such research and development activities. The FAA's sponsorship covers a wide range of areas, such as imaging technologies, development of bomb-resistant containers and trace detection methods including those developed by the Company and other entities. The Gore Commission recommended dramatically increasing the amount spent on research and development of enhanced explosives detection technologies and Congress recently increased the FAA's budget for such research and development activities in fiscal 1997. As a result of these initiatives, the Company anticipates that new technology will be introduced into the aviation security market in the future. While the Company 7 9 believes that its IONSCAN(R) functions at a state-of-the-art level, there can be no assurance that the Company will be able to maintain its present position in this market. See "Dependence on New Product Development; Technological Advancement." GOVERNMENT AND OTHER PROCUREMENT POLICIES The Company's principal customers are governmental agencies and law enforcement entities that are subject to budgetary processes and expenditure constraints. Budgetary allocations for detection equipment are dependent, in part, upon governmental policies which fluctuate from time to time in response to political and other factors. A reduction of funding for drug interdiction and security efforts could materially and adversely affect the Company's business, financial condition and results of operations. Moreover, although the Company's sales are not seasonal in nature, governmental agencies and certain of the Company's 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. Since the Company recognizes substantially all of the revenue from a sale upon shipment, and since 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 constraints on the delivery date of a relatively few units could significantly affect the Company's quarterly results. DEPENDENCE ON IONSCAN(R) AND MARKET ACCEPTANCE The Company's future profitability is substantially dependent on the Company's ability to successfully market the IONSCAN(R). While the Company believes that significant markets exist for its IONSCAN(R) technology, there can be no assurance that such markets 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. DEPENDENCE ON NEW PRODUCT DEVELOPMENT; TECHNOLOGICAL ADVANCEMENT The Company's success is dependent upon its ability to continue to enhance the IONSCAN(R) and to develop and introduce in a timely manner new IONSCAN(R) products that incorporate technological advances, keep pace with evolving industry standards and respond to customer requirements. There can be no assurance that the Company will be successful in developing and marketing enhancements to the IONSCAN(R) or new IONSCAN(R) products on a timely basis or that any new or enhanced IONSCAN(R) products will adequately address the changing needs or preferences of the marketplace. 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 and operating results would be materially adversely affected. In addition, from time to time the Company or its present or potential competitors may announce new products, capabilities or technologies that have the potential to replace or shorten the life spans of the Company's existing products. Announcements of currently planned or other new products may cause customers to delay their purchasing decisions in anticipation of such products, as occurred in late 1994 when the Company introduced the Model 400 IONSCAN(R). See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Such delays could have a material adverse effect on the Company's business, results of operations and financial condition. LACK OF PROPRIETARY TECHNOLOGY The Company believes that its implementation of IMS technology in the IONSCAN(R) is proprietary to the Company. The Company has an exclusive license from the Canadian government for certain technology used in the IONSCAN(R). See "Business -- Patents, Trademarks and Proprietary Rights." In addition, the Company has a number of patents covering certain aspects of the IONSCAN(R). However, the basic IMS technology is not proprietary and is available in the public domain. Accordingly, present and potential competitors could use such technology to duplicate the performance of the IONSCAN(R). However, 8 10 the Company believes that such competitors could not readily replicate the IONSCAN(R)'s performance and that any attempt to do so would require substantial time and resources. COMPETITION The Company competes with other entities, a number of which have significantly greater financial, marketing and other resources than the Company. In particular, the Company competes for governmental expenditures with equipment manufacturers utilizing other types of detection technologies, including CATSCAN, enhanced X-ray and quadropole resonance, as well as with other forms of trace particle detection technology, such as gas chromatography and chemoluminescence detection. As a result of recent governmental initiatives, the Company anticipates that additional technologies will be developed and that new competitors will enter the Company's markets. See "Dependence on and Effect of Governmental Regulation." While the Company believes that it competes effectively in its principal markets, there can be no assurance that the Company will maintain its competitive position. NONCOMPLIANCE UNDER CREDIT FACILITY The Company's principal subsidiary, Barringer Research Ltd. ("BRL"), is a party to a credit facility (the "Facility") with the Toronto-Dominion Bank (the "Bank") which the Company intends to repay in full with a portion of the net proceeds of the Offering. See "Use of Proceeds." From time to time, BRL has not been in compliance with the terms of the Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 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 an employment agreement with its Chief Executive Officer and expects to enter into employment agreements with 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 the Company has not experienced significant warranty claims, there can be no assurance that such claims will not increase as the Company's sales increase. A material increase in warranty claims could have a material adverse effect on the Company's business, results of operations and financial condition. POTENTIAL PRODUCT LIABILITY INSURANCE LIMITS The Company currently maintains product liability insurance in the amount of $5 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. No significant product liability claims have been asserted or, to the knowledge of the Company's management, threatened against the Company to date. The Company believes that, as the Company distributes more products into the marketplace and expands its product lines, the Company's exposure to potential product liability claims and litigation arising from injuries and other damages allegedly caused by the improper functioning or design of its IONSCAN(R) products will occur and 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 the existing coverage or additional coverage at commercially reasonable rates. To the extent product liability losses are beyond the limits or scope of the Company's insurance coverage, the Company could experience a materially adverse effect on its business, results of operations and financial condition. 9 11 CURRENCY FLUCTUATIONS A portion of the Company's revenues and expenses are denominated in foreign currencies. As a result, the Company is exposed to a certain degree of exchange rate risk. The Company currently does not hedge its foreign exchange exposure. To date, the Company has not experienced any material loss as a result of currency fluctuations. However, there can be no assurance that the Company will not experience material losses in the future as a result of currency fluctuations. SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of the Offering, 4,506,474 shares of Common Stock will be outstanding (4,656,474 shares, assuming exercise of the Underwriters' over-allotment option). Up to 500,000 additional shares of Common Stock (575,000 shares, assuming exercise of the Underwriters' overallotment option) will be issuable upon the conversion of the Warrants offered hereby. 623,164 of the shares that will be outstanding upon consummation of the Offering are held by officers, directors and other affiliates of the Company, all of which are freely tradeable, subject to the lock-up described below. An additional 1,025,292 shares of Common Stock are issuable to such officers, directors and other affiliates upon the conversion or exercise of outstanding securities, including stock options. The Company recently registered for resale 967,042 shares of Common Stock held by or issuable to officers, directors and other affiliates of the Company upon the exercise or conversion of outstanding securities which had previously been restricted. The Company also intends, in the near future, to register for resale an additional 414,500 restricted shares of Common Stock issuable upon exercise of options previously granted to officers and directors. Thereafter, all 1,381,542 of such shares will be generally available for sale in the open market by the holders thereof. The Company can not 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 or the Warrants. Sale in the public market of substantial amounts of Common Stock (including shares issued upon the exercise or conversion of outstanding securities), or the perception that such sales could occur, could adversely affect prevailing market prices for the Common Stock or the Warrants. 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. It is expected that the officers and directors of the Company, who hold an aggregate of 681,934 shares of Common Stock (including shares issuable upon the exercise or conversion of outstanding securities), will agree with the Underwriters not to offer or sell, directly or indirectly, any securities of the Company in the public market for a period of 180 days after the date of this Prospectus, subject to certain exceptions, without the prior written consent of Janney Montgomery Scott Inc. See "Description of Capital Stock -- Shares Eligible For Future Sale" and "Underwriting." VOLATILITY OF COMMON STOCK PRICE Prior to the 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 the Offering. See "Price Range of Common Stock." DETERMINATION OF WARRANT EXERCISE PRICE The exercise price of the Warrants has been set at a premium to the existing market price of the Common Stock and bears no relationship to any objective criteria of future value and, accordingly, should in no event be regarded as an indication of any future market price of the Securities offered hereby. ABSENCE OF TRADING MARKET FOR THE WARRANTS There currently is no trading market for the Warrants. Although the Company intends to apply for listing of the Warrants on the NASDAQ SmallCap Market, there can be no assurance that an active market will develop for the Warrants or, if developed, that it will be maintained. The price for the Warrants is expected to be directly related to the market price for the Common Stock. The market price of the Common Stock and thus the price for the Warrants are likely to be subject to significant fluctuation in response to variations in 10 12 quarterly results of operations, general trends in the market place and other factors, many of which are not within the Company's control. UNDERWRITER'S WARRANTS In connection with the Offering, the Company has agreed to sell to Janney Montgomery Scott Inc., the representative of the Underwriters (the "Representative"), the Underwriter's Warrants pursuant to which the Representative will have the right to purchase from the Company 100,000 shares of Common Stock and 100,000 Warrants. The Underwriter's Warrants are exercisable with respect to the Common Stock for a period of four years commencing one year after the date of this Prospectus at varying exercise prices and with respect to the Warrants underlying the Underwriter's Warrants for a period of two years following such one year period at varying exercise prices. See "Underwriting." The Underwriter's Warrants, and the Warrants issuable upon exercise thereof, afford the holders thereof the opportunity, at nominal cost, to profit from a rise in the market price of the Common Stock, which may adversely affect the terms upon which the Company could issue additional shares of Common Stock during the exercise period of the Underwriter's Warrants. Additionally, the holders of the Underwriter's Warrants, and the Warrants issuable upon exercise thereof, will most likely exercise the Underwriter's Warrants and the Warrants issuable upon exercise thereof at a time when the Company could obtain capital from other sources on terms more favorable than those contained in the Underwriter's Warrants. CERTAIN CHARTER PROVISIONS The Company currently has 7,000,000 shares of Common Stock authorized for issuance. Upon completion of the Offering, the Company will have 4,506,474 shares of Common Stock outstanding (4,656,474 shares, assuming full exercise of the Underwriters' over-allotment option). An additional 2,059,244 shares of Common Stock (2,134,244 shares, assuming full exercise of the Underwriters' over-allotment option) will be reserved for issuance upon the conversion or exercise of outstanding securities of the Company. The Company intends to seek stockholder approval at its next annual meeting of stockholders to increase the number of shares of Common Stock the Company is authorized to issue. In the event that the authorized number of shares of Common Stock is not increased, the Company's ability to issue additional shares of capital stock, including in connection with acquisitions and subsequent financings, would be significantly restricted. 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% 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% of the Company's outstanding voting equity securities or any affiliate of such entity. These provisions could discourage potential acquisition proposals, delay or prevent a change in control of the Company and limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. The Board of Directors of the Company is empowered to issue shares of preferred stock without stockholder action. The existence of this "blank check" preferred stock could render more difficult or discourage an attempt to obtain control of the Company by means of a tender offer, merger, proxy contest or otherwise and may adversely affect the prevailing market price of the Common Stock. The Company currently has no plans to issue additional shares of preferred stock. In addition, Section 203 of the Delaware General Corporation Law prohibits certain persons from engaging in business combinations with the Company. See "Description of Capital Stock." 11 13 USE OF PROCEEDS The net proceeds to the Company from the sale of the Securities offered hereby are estimated to be approximately $6,770,000 ($7,857,000 if the Underwriter's over-allotment option is exercised in full) assuming an initial offering price of $8.00 per Share and $.05 per Warrant after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company. Such proceeds are intended to be applied approximately as follows: - $4,000,000 for product development, including research and development, tooling and drawing expenses and product testing (see "Business -- Strategy"); - up to $1,000,000 for repayment of the Company's 6% Subordinated Convertible Debentures due 1997 (the "Debentures"), to the extent not converted as described below; - up to $700,000 for repayment of the outstanding indebtedness under the Facility (see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources"); - up to $700,000 for repayment of BRL's loan (the "ODC Loan") from the Ontario Development Corporation ("ODC") (see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources"); - $300,000 for expansion of the Company's manufacturing and assembling capabilities (see "Business -- Manufacturing and Assembly"); and - the balance for general corporate purposes, including additions to working capital and inventory. The Company issued $1,000,000 of the Debentures in July 1996. The Debentures bear interest at the rate of 6% per annum, are presently convertible into shares of Common Stock at a conversion rate of $2.75, and mature 30 days after the consummation of the Offering unless converted prior thereto. Because the conversion rate of the Debentures is substantially lower than the current per share price of the Common Stock, the Company anticipates that substantially all of the Debentures will be converted into shares of Common Stock. Any Debentures not so converted will be repaid with a portion of the net proceeds of the Offering. $300,000 of the net proceeds of the Debentures were utilized to repay the Company's 12 1/2% convertible subordinated debentures due 1996 (the "Old Debentures"), and the remaining proceeds were added to working capital. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Facility bears interest at a variable rate (8% at June 30, 1996) equal to 1 1/2% above the Bank's prime lending rate, although from time to time certain amounts thereunder have borne interest at a default rate of 21%. See Note 5 to Consolidated Financial Statements. Borrowings under the Facility are payable upon demand and have been used for working capital, including manufacturing and inventory requirements. The ODC Loan bears interest at a variable rate set quarterly by ODC, which was 10% at June 30, 1996, and matures on April 30, 1997, subject to renewal. Borrowings under the ODC Loan have been used to support Canadian export, sales and related production and receivables financing. A portion of the net proceeds of the Offering may be used to make future strategic acquisitions or to invest in joint ventures, although currently the Company has no agreement, understanding or commitment with respect to any acquisition, investment or joint venture. Pending the applications described above, the Company will invest the proceeds principally in short-term bank certificates of deposit, highly rated short-term debt securities, United States governmental obligations, money market instruments or other highly rated interest-bearing investments with maturities of less than one year. 12 14 PRICE RANGE OF COMMON STOCK The Common Stock is traded in the over-the-counter market and quoted on The NASDAQ SmallCap Market under the symbol BARR. The Company intends to apply to include the Warrants in The NASDAQ SmallCap Market. The following table sets forth, for each period indicated, the high and low bid prices for the Common Stock as reported on The NASDAQ SmallCap Market after giving effect to the one-for-four reverse stock split effected September 25, 1995. Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
HIGH LOW ------ ----- 1994 First Quarter........................................... $11.24 $9.00 Second Quarter.......................................... 9.24 6.00 Third Quarter........................................... 6.76 4.00 Fourth Quarter.......................................... 4.52 2.00 1995 First Quarter........................................... $ 6.88 $1.25 Second Quarter.......................................... 5.00 2.00 Third Quarter........................................... 4.25 2.25 Fourth Quarter.......................................... 3.25 0.50 1996 First Quarter........................................... $ 0.56 $0.31 Second Quarter.......................................... 4.19 0.44 Third Quarter........................................... 13.88 2.88 Fourth Quarter (through October 7, 1996)................ 8.38 7.19
On October 7, 1996, the last reported sale price of the Common Stock was $7.25 per share. As of August 26, 1996, the Company had approximately 965 stockholders of record. DIVIDEND POLICY Since inception, the Company has not paid cash dividends on its Common Stock. The Company 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 Company's 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 the Company's Class A Convertible Preferred Stock and Class B Convertible Preferred Stock at an annual rate of $.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." In addition, the ability of the Company to pay dividends has been limited because BRL is restricted from providing cash to the Company by the terms of the Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company's ability to pay dividends on its Common Stock may be further limited in the future by other legal or contractual restrictions placed on the Company and on the ability of its subsidiaries to provide cash to the Company. 13 15 CAPITALIZATION The following table sets forth the short-term debt and the capitalization of the Company as of June 30, 1996 and as adjusted to give effect to the sale by the Company of the 1,000,000 shares of Common Stock and 1,000,000 Warrants offered hereby (assuming an initial offering price of $8.00 per Share and $.05 per Warrant, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by the Company) and the application by the Company of the net proceeds therefrom. See "Use of Proceeds." This table should be read in conjunction with the Consolidated Financial Statements, including the Notes thereto, included elsewhere in this Prospectus.
JUNE 30, 1996 ------------------------------- ACTUAL AS ADJUSTED(1) ------------ -------------- Short-term debt(2).............................................. $ 300,000 $ -- ============ ============ Long-term debt.................................................. -- -- Stockholders' equity(3): Convertible Preferred Stock, $1.25 per 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, 74,000 shares outstanding less discount of $57,000.. $ 91,000 $ 91,000 730,000 shares designated as Class B Convertible Preferred Stock, 233,000 shares outstanding........................ 465,000 465,000 Common Stock, $.01 par value, 7,000,000 shares authorized, 3,498,000 shares issued and outstanding, 4,498,000 shares, as adjusted(4)............................................. 35,000 45,000 Additional paid-in-capital...................................... 17,765,000 24,525,000 Accumulated deficit............................................. (16,003,000) (16,003,000) Foreign currency translation.................................... (460,000) (460,000) Less: Common Stock in treasury at cost, 31,000 shares......... (13,000) (13,000) ------------ ------------ Total stockholders' equity...................................... 1,880,000 8,650,000 ------------ ------------ Total capitalization............................................ $ 1,880,000 $ 8,650,000 ============ ============
- --------------- (1) Assumes that all of the outstanding Debentures are repaid with a portion of the net proceeds of the Offering and are not converted into shares of Common Stock. See "Use of Proceeds." (2) Short-term debt at June 30, 1996 consisted of the Old Debentures. The Old Debentures were repaid on July 15, 1996 with a portion of the net proceeds from the sale of the Debentures. (3) See "Description of Capital Stock" for a description of the relative rights of the Company's Preferred Stock and Common Stock. (4) Excludes an aggregate of 2,284,244 Reserved Shares. 14 16 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The selected consolidated financial data presented below for the years ended December 31, 1991 through 1995 have been derived from financial statements which have been audited by BDO Seidman, LLP, independent certified public accountants. The selected consolidated financial data presented below for the six-month periods ended June 30, 1995 and 1996 have been derived from unaudited financial statements which, in the opinion of management, reflect all adjustments, consisting only of normal recurring items, necessary for a fair presentation of such data. Results for the six months ended June 30, 1996 are not necessarily indicative of the results that can be expected for any other interim period or for the year ended December 31, 1996 as a whole. The selected consolidated financial data appearing below should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein.
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ---------------------------------------------- --------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------ ------- ------- ------ ------ STATEMENT OF OPERATIONS DATA(1): Revenues from operations................... $ 1,963 $ 2,838 $7,770 $ 5,514 $ 6,374 $3,110 $5,012 Cost of sales.............................. 1,703 2,211 3,930 4,269 3,804 1,892 2,647 ------- ------- ------ ------- ------- ------ ------ Gross profit............................... 260 627 3,840 1,245 2,570 1,218 2,365 ------- ------- ------ ------- ------- ------ ------ Selling, general and administrative expenses................................ 2,733 2,180 3,117 3,352 3,305 1,300 1,641 Unfunded research and development.......... 632 161 182 362 151 104 57 ------- ------- ------ ------- ------- ------ ------ Operating expenses......................... 3,365 2,341 3,299 3,714 3,456 1,404 1,698 ------- ------- ------ ------- ------- ------ ------ Operating income (loss) from operations.... (3,105) (1,714) 541 (2,469) (886) (186) 667 Other expense, net......................... (219) (49) (101) (89) (292) (170) (103) Income tax benefit (provision)............. -- -- 153 (75) -- -- -- ------- ------- ------ ------- ------- ------ ------ Income (loss) from continuing operations... (3,324) (1,763) 593 (2,633) (1,178) (356) 564 Income (loss) from operation held for sale.................................... (339) (44) 2 68 351 55 -- ------- ------- ------ ------- ------- ------ ------ Net income (loss).......................... (3,663) (1,809) 595 (2,565) (827) (301) 564 Preferred stock dividends.................. (103) (160) (114) (108) (82) (51) (24) ------- ------- ------ ------- ------- ------ ------ Net income (loss) atributable to common stockholders............................ (3,766) (1,967) 481 (2,673) (909) (352) 540 ======= ======= ====== ======= ======= ====== ====== Income (loss) per common share from continuing operations(2)................ (1.84) (0.90) 0.20 (0.97) (0.39) (0.13) 0.15 Net income (loss) per common share(2): Primary................................. (2.02) (0.92) 0.20 (0.95) (0.28) (0.11) 0.16 Fully-diluted........................... -- -- -- -- -- -- 0.15 Weighted average common shares outstanding(2): Primary................................. 1,862 2,135 2,570 2,827 3,283 3,060 3,483 Fully-diluted........................... -- -- -- -- -- -- 3,854
YEAR ENDED JUNE 30, DECEMBER 31, ----------------- 1995 1995 1996 ------------ ------ ------ BALANCE SHEET DATA: Working capital........................................ $ 370 $1,139 $ 940 Current assets......................................... 3,672 5,532 4,828 Total assets........................................... 4,735 6,278 5,881 Current liabilities.................................... 3,302 4,393 3,888 Long-term liabilities.................................. 108 -- 113 Stockholders' equity................................... 1,325 1,885 1,880
- --------------- (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 December 1995. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." (2) Adjusted to give effect to the one-for-four reverse split of the Common Stock effected on September 25, 1995. 15 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, the Company's Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in this Prospectus. Historical results are not necessarily indicative of trends in operating results for any future period. OVERVIEW Since 1990, the Company has principally engaged in the design, development, manufacture and sale of the IONSCAN(R). To a lesser extent, the Company also manufactures specialty instruments and engages in contract research and development activities for industrial companies and various governmental agencies. Prior to 1990, the Company engaged primarily in airborne mineral exploration utilizing trace particle collection techniques and analysis, and funded research and development activities, consisting of contracts and grants received by the Company for research and development on behalf of third parties. In 1990, the Company decided to use the trace particle expertise gained in its airborne exploration business and research and development activities to pursue the more attractive detection instrument market. Accordingly, the Company ceased its airborne exploration business and began the development of the IONSCAN(R). For the year ended December 31, 1995 and the six months ended June 30, 1996, approximately 82% and 88%, respectively, of the Company's consolidated revenues were derived from the sale and servicing of IONSCAN(R)s and other speciality instruments. The Company sells IONSCAN(R)s in two primary markets, explosives detection and drug interdiction. The Company sold its first IONSCAN(R) in 1990 and had sold a total of approximately 300 units as of June 30, 1996. Historically, the Company sold a majority of its units for drug interdiction applications. However, during 1996 the Company's sales have been divided almost evenly between the explosives detection market and the drug interdiction market. Management expects that the explosives detection market will account for an increasingly significant portion of the Company's future growth. The Company sells IONSCAN(R)s for between $50,000 and $95,000 per unit, depending principally on the configuration of the unit and the purchaser's location. While substantially all of the Company's revenues are denominated in U.S. dollars, the Company operates in several foreign countries, including Canada, the United Kingdom and France, and in certain instances, the Company sells the IONSCAN(R) in other denominations, particularly British pounds and French francs. In addition, the Company conducts operations in Canada and, as a result, certain of the Company's costs are incurred in Canadian dollars. To date, the Company has not experienced significant losses as a result of foreign currency fluctuations. The Company currently does not hedge its foreign currency exposure. The Company manufactures to a sales forecast in order to have inventory available to meet anticipated demand promptly and, accordingly, does not have a significant backlog. 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 and the complexity of the customer's procurement process. The Company also considers the effect of competition in obtaining an order. The Company has publicly announced its intention to double its production in the second half of 1996 in order to accommodate anticipated demand. There can be no assurance that the Company will receive orders for all of the units to be produced and, if such orders are not received, the Company's liquidity and results of operations could be materially and adversely affected. The Company believes that its existing manufacturing facilities, which the Company intends to supplement through the use of a portion of the proceeds from the Offering, will be sufficient for the anticipated growth in orders for the IONSCAN(R) in the foreseeable future. Through the period ended June 30, 1996, the Company reported two segments for financial statement purposes: (i) specialty instruments and (ii) funded research and development. Because of the rapid growth in sales of IONSCAN(R)s through June 1996, the funded research and development segment is no longer 16 18 significant to the Company's consolidated revenues. Accordingly, effective June 30, 1996, the Company ceased reporting segment information. Approximately 72% and 82% of the Company's revenues for the year ended December 31, 1995 and for the six months ended June 30, 1996, respectively, were derived from non-United States sources. Approximately 30% of revenues in 1995 were derived from customers in Canada. 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. Prior to December 1995, the Company controlled Barringer Laboratories, Inc. ("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. A portion of the net cash proceeds from such sale were contributed to BRL pursuant to an agreement with the Bank. 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"). The Company is only entitled to the return of the Retained Shares if Labco meets 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. Labco had the right until January 2, 1997 to purchase the Company's remaining ownership interest in Labco under certain circumstances. In addition, the Company agreed to certain restrictions on the transferability of its remaining Labco stock until January 2, 1997. As a result of the transactions contemplated by the Stock Purchase Agreement, the Company reclassified its financial statements, where appropriate, to reflect its remaining interest in Labco as a discontinued operation and commenced using the equity method of accounting. 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 and to terminate the 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 must sell its Labco shares as provided above if it receives an offer to acquire such shares at a price per share at least equal to the Target Price. The restrictions described above also apply to any shares of Labco common stock issuable to the Company upon the exercise of certain warrants held by the Company. Labco has registered the Company's Labco shares for resale pursuant to the Securities Act to facilitate such sales. In the Termination Agreement, the Company and Labco agreed 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, Stanley S. Binder and John J. Harte will resign their positions with Labco. 17 19 The following table presents certain income statement items expressed as a percentage of total revenue for the fiscal years ended December 31, 1993, 1994, and 1995 and the six months ended June 30, 1995 and 1996. PERCENTAGE OF TOTAL REVENUE
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------- --------------- 1993 1994 1995 1995 1996 ----- ----- ----- ----- ----- STATEMENT OF OPERATIONS DATA:(1) Revenues from operations......................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales.................................... 50.6 77.4 59.7 60.8 52.8 Gross profit..................................... 49.4 22.6 40.3 39.2 47.2 Selling, general and administrative expenses..... 40.1 60.8 51.9 41.8 32.7 Unfunded research and development................ 2.3 6.6 2.4 3.3 1.1 Operating income (loss).......................... 7.0 (44.8) (13.9) (6.0) 13.3 Other expense, net............................... (1.3) (1.6) (4.6) (5.5) (2.1) Income tax benefit (provision)................... 2.0 (1.4) -- -- -- Income (loss) from continuing operations......... 7.6 (47.8) (18.5) (11.4) 11.3 Income from operation held for sale.............. * 1.2 5.5 1.8 -- Net Income (loss)................................ 7.7 (46.5) (13.0) (9.7) 11.3 Preferred stock dividends........................ (1.5) (2.0) (1.3) (1.6) (0.5) Net income (loss) attributable to common stockholders........................ 6.2% (48.5)% (14.3)% (11.3)% 10.8%
- --------------- * less than 0.1% (1) Columns may not foot due to rounding. Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Revenues from operations of the Company consist of (a) net sales of its IONSCAN(R) drug and explosives detection equipment, related accessories and consumable supplies, maintenance, training and billable repairs; (b) net sales of other instruments; and (c) revenues derived from funded research and development grants and contracts. Revenues from operations increased by $1,902,000, or 61.2%, in the six months ended June 30, 1996 compared to the same period in 1995. Net sales of the IONSCAN(R) and related products increased by approximately $1,676,000, or 77.1%, in the six months ended June 30, 1996 compared to the same period in 1995, due to an increase in the number of units sold of approximately 73%. The increase in IONSCAN(R) sales was due to increased sales of the Model 400 which was introduced in the first quarter of 1995 in various configurations designed to suit customers' needs. Management believes the increased sales resulted from an expanding market, coupled with the Model 400 having a lower selling price than the predecessor Model 350, and being smaller, lighter and containing more features. Net sales of other instruments increased by approximately $346,000, or 155%, in the six months ended June 30, 1996 compared to the same period in 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 $145,000, or 21.2%, in the six months ended June 30, 1996 compared to the same period in 1995. The reduced revenues are attributable to reduced work performed under 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 as a percentage of sales for the six months ended June 30, 1996 increased to 47.2% from 39.2% in the same period last year. The improvement was primarily attributable to higher margins on special 18 20 orders and 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. Improved gross profits from funded research and development activities also contributed to the overall improvement. Selling, general and administrative expenses, consisting primarily of salaries and related fringe benefits, occupancy costs, professional fees and travel expenses, increased by approximately $341,000, or 26.2%, for the six months ended June 30, 1996 as compared to the same period in 1995. However, in the 1995 period the Company recognized an expense decrease of $152,000 attributable to a negotiated reduction in professional fees. But for such reduction, selling, general and administrative expenses in the 1996 period would have increased by $189,000. As a percentage of revenues, selling, general and administrative expenses decreased to 32.7% for the first six months of 1996 from 41.8% for the same period in 1995. The decrease as a percentage of revenues was primarily attributable to spreading costs over increased revenues. Selling expenses increased by $256,000, or 34.3%, for the six-month period ended June 30, 1996 compared to the same period in 1995. Most of the increase was attributable to expenses associated with the Company's French and United Kingdom offices being open for a six-month period in 1996 at full staffing levels. The balance of the increase was attributable to increased levels of sales activity in Canada and the United States and marketing expenses associated with the DrugAlert(TM) product (a drug testing kit designed for use by individuals), which marketing expenses were substantially eliminated as of July 1, 1996. In the first six months of 1996, unfunded research and development expenses consisting primarily of salaries and related benefits and occupancy costs for product and application development applied to IONSCAN(R) technology decreased by approximately $47,000, or 45.2%, compared to the first six months of 1995. The level of unfunded research and development engaged in by the Company at any time is primarily a function of the resources, both financial and personnel, that are available at the time. Interest expense increased by approximately $8,000 in the six months ended June 30, 1996, or 6.6%, over the same period in 1995. The increase is the result of higher levels of borrowing, at higher interest rates. Equity in earnings of Labco represents the Company's share of the earnings and losses of Labco, in which the Company has a 26% ownership interest. Prior to December 31, 1995, the Company had a controlling interest in Labco, but since the first quarter of 1995, the Company has presented Labco as an operation held for sale. Fluctuations in earnings and losses are dependent upon the performance of Labco. The Company's share of Labco's net income for the six months ended June 30, 1996 was $20,000, as compared to $55,000 for the same period in 1995 (where it is shown under the caption "Income from operation held for sale"). Other income, net of expense, was $7,000 for the six months ended June 30, 1996 as compared to other expense, net of income, of $48,000 for the same period last year. The increase was primarily due to gains of approximately $42,000 recognized during the first six months of 1996 on trading securities held for pension funding purposes. 1995 Compared to 1994 Sales of all instruments increased by $34,000, or 0.01%, in 1995 as compared to 1994. Sales of IONSCAN(R) instruments and related products decreased by approximately $200,000, or 3.9%. The decrease was due, in part, to the lower selling price of the new Model 400 IONSCAN(R), which was introduced in the first quarter of 1995. This reduction in selling price, coupled with other improvements of the new model, resulted in approximately 60% more unit sales. Sales of instruments other than IONSCAN(R) products increased in 1995 by approximately $100,000, or 23%, principally due to the award in 1995 of the contract to build four heavy water analyzers for use at a nuclear facility in Asia, which was completed in mid-1996. The introduction of the Model 400 resulted in reduced sales of the Model 350. As a result, the Company reduced the carrying value of the Model 350s remaining in inventory. Revenues of the research and development business increased by approximately $754,000, or 253.0%, in 1995 as compared to 1994. The improved sales are attributable to work performed in 1995 under the 19 21 Company's contract with the Emergencies Science Division, Environment Canada to design and build an airborne laser-fluorosensor system. The Company introduced and made a limited distribution of DrugAlert(TM) in 1995. Sales of such product were not significant. Gross profit as a percentage of sales for the year ended December 31, 1995 increased to 40.3% from 22.6% in 1994. The gross profit as a percentage of sales for the research and development business improved to a negative 14.2% in 1995 from a negative 44.6% in 1994. The improvement was due to higher volume which absorbed a greater portion of the fixed overhead. The gross profit as a percentage of sales for the instruments business increased to 53.1% in 1995 from 26.4% in 1994. The 1995 gross profit was impacted by the write down of the carrying value of the Model 350 inventory which aggregated approximately $450,000, approximately $160,000 of which related to excess spare parts inventory and the balance to finished goods. In 1994, the Company took an $800,000 charge against its Model 350 inventory. The consumer products business had negative gross profit in 1995 due primarily to the expensing of tooling, software and other development costs. Selling, general and administrative expenses in 1995 decreased by approximately $47,000, or 1.4%, over 1994. As a percentage of revenues, selling, general and administrative expenses decreased to 51.9% for 1995 from 60.8% in 1994. The decrease as a percentage of revenues was primarily attributable to such costs being spread over a higher revenue base. Selling expenses increased by $759,000, or 48.3%, in 1995. The increase was primarily attributable to the expenses associated with the Company's Paris, France and London, England offices being open for a full year and marketing expenses associated with the DrugAlert(TM) product. General and administrative expenses decreased by approximately $806,000 in 1995, or 45.3%, over 1994. This reduction was attributable primarily to the recovery of $147,000 relating to the 1993 conversion of the Canadian pension plan from a defined benefit plan to a money purchase plan, a reduction in accounts payable of $226,000 relating to a settlement of professional fees and the effect of staff and expense reductions implemented in late 1994. Unfunded research and development in 1995 decreased by approximately $211,000, or 58.3%, over 1994. The 1994 level was attributable to the completion of the development of the Company's new Model 400. Interest expense increased by approximately $38,000 in 1995, or 18.8%, over 1994 levels. The increase is the result of higher levels of borrowing, at higher interest rates. Other expense, net of income, in 1995, was approximately $52,000 as compared to other income, net of expense, in 1994 of approximately $113,000. The difference of $165,000 was attributable primarily to the changes in exchange rates which generated a gain of $135,000 in 1994 compared to a loss of $79,000 in 1995. 1994 Compared to 1993 Sales of all instruments for 1994 decreased by $1,545,000, or 22.8%, over 1993. The decrease was attributable to several factors. Management believes that the pending introduction of the Company's new Model 400 IONSCAN(R) caused a deferral of purchases until the Model 400 was available. Because of the announcement of the Model 400, the Company anticipated that its remaining Model 350s would be sold at lower prices over a longer period of time than previously expected. Accordingly, it offered reduced prices to certain customers as inducements to secure more timely purchase commitments and reduced prices on outstanding quotations in order to expedite buying decisions. Revenues of the research and development business decreased by $711,000, or 70.5%, in 1994 compared to 1993, partially as a result of a decrease in government sponsored research due to budgetary constraints. In addition, the Company had several proposals outstanding involving potential new applications of its IONSCAN technology with U.S., Canadian and European governmental agencies, which resulted in 1995 revenues for the research and development business being significantly improved from 1994. See "1995 Compared to 1994." Gross profit for the instrument and research and development businesses as a percentage of sales for the year ended December 31, 1994 decreased from 49.4% in 1993 to 22.6% in 1994. The gross profit as a 20 22 percentage of sales on the research and development business decreased from 6.5% in 1993 to a negative 44.6% in 1994 and the gross profit as a percentage of sales on the instruments business decreased from 55.8% in 1993 to 26.4% in 1994. As a result of the decline in the value of its inventory of Model 350s in 1994, which resulted from the introduction of the Model 400, the Company provided for approximately $800,000 in inventory and other charges against the remaining inventory of Model 350s. This charge reduced 1994 gross profit percentage of the instruments business by approximately 15.3% from 1993. The remaining decrease in gross profit percentage was due primarily to volume variances as a result of cutbacks in planned Model 350 production to meet the anticipated reduction in sales levels. Selling, general and administrative expenses in 1994 increased by $235,000, or 7.5%, over 1993. As a percentage of revenues, selling, general and administrative expenses increased to 60.8% in 1994 from 40.1% in 1993. The increase was primarily attributable to such costs being spread over a lower revenue base. Selling expenses decreased by $274,000 in 1994, or 14.9%, over 1993, as a result of reduced commissions resulting from reduced unit sales during 1994, offset in part by the expenses incurred in connection with the opening of the Company's Paris office. General and administrative expenses increased by $509,000, or 40%, primarily as a result of the impact of the Canadian pension expense of approximately $100,000 in 1994 against a pension credit of $206,000 in 1993, which was the result of converting from a defined benefit plan to a money purchase plan similar to the 401(k) savings plans available to the Company's U.S. employees. Also, payroll costs increased during the first three quarters of 1994 in anticipation of increased volume which did not materialize. Subsequently, significant staff reductions were implemented. In addition, a reserve against accounts receivable of approximately $110,000 was established. Unfunded research and development in 1994, applied to IONSCAN(R) technology, doubled to $362,000 from 1993 levels. The increase was primarily attributable to the development of the Company's new Model 400 instrument. Interest expense increased by $38,000, or 23.2%, in 1994, as a result of higher average borrowings and rising interest rates. Other income, net of expense in 1994 was approximately $113,000 as compared to other income, net of expense, in 1993 of approximately $63,000. The difference is attributable, in part, to foreign exchange gains realized during 1994. Sales of IONSCAN(R) units are quoted in U.S. dollars, while production costs are incurred in Canadian dollars. In 1994, the Company had a net reduction in its Canadian deferred tax assets of $75,000. In 1993, the Company had a net tax benefit of $153,000, composed of prior years' assessments by Revenue Canada of $147,000 and a net recognition of $300,000 in Canadian deferred tax assets. LIQUIDITY AND CAPITAL RESOURCES The Company sustained net losses of $2,565,000 and $827,000 for the years ended December 31, 1994 and 1995, respectively, and had an accumulated deficit of $16,003,000 at June 30, 1996. Although the Company generated net income of $564,000 for the six months ended June 30, 1996, the Company did not generate net cash flow from operations during such period as a result of the Company's need for working capital to support higher levels of accounts receivable and inventory. The Company's history of losses and its failure to generate positive operating cash flow have resulted in significant cash shortages from time to time. See "Risk Factors -- History of Losses" and "-- Cash Constraints." The Company's cash constraints were exacerbated during 1995 in connection with the introduction of the Company's Model 400 IONSCAN(R), as customers chose to wait for Model 400s to become available rather than purchase existing Model 350s. The Company has used the net proceeds of private sales of securities to fund a portion of its cash flow needs. During 1995, the Company generated net proceeds of $888,000 from such sales. In July 1996, the Company issued the Debentures, resulting in net proceeds to the Company of approximately $1,000,000. The Company used $300,000 of the net proceeds from the sale of the Debentures to repay the Old Debentures which matured on July 15, 1996. The remaining net proceeds were added to working capital. The Company intends to use a portion of the net proceeds of the Offering to repay the Debentures, if required, and to support 21 23 its working capital needs. See "Use of Proceeds." The Company believes that the net proceeds of the Offering will be sufficient to fund its working capital requirements for at least the next twelve months. In 1995, the Company also financed its working capital requirements in part through the sale of a portion of its investment in Labco. See "Overview." The Company funds a portion of BRL's operations through the Facility and the ODC Loan, which are used to support Canadian export production, sales and related receivables financing. At June 30, 1996, BRL's outstanding borrowings under these facilities were $1,231,000, and $250,000 remained available for future borrowings thereunder, to the extent qualifying collateral is available to support such additional borrowings. From time to time BRL's borrowings under the Facility have exceeded the limits set forth therein. In addition, from time to time BRL has not been in compliance with one or more of the financial covenants contained therein. See "Risk Factors -- Noncompliance Under Credit Facility" and Note 5 to Consolidated Financial Statements. The Company intends to repay the Facility and the ODC Loan out of the net proceeds of the Offering. Upon completion of the Offering, the Company intends to seek a new working capital facility to support its operations, although no assurance can be given that the Company will obtain a facility or as to the terms thereof. See "Use of Proceeds." The Company's capital expenditures relating to its continuing operations were $120,000, $490,000 and $358,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and $47,000 for the six months ended June 30, 1996. Such expenditures related primarily to the support of the production of the IONSCAN(R). During 1995, a portion of such expenditures related to the opening of the Company's foreign sales offices. Approximately $75,000 of the 1995 expenditures were for development of the DrugAlert product, further development of which has been suspended. The Company anticipates that total capital expenditures will be approximately $100,000 for the year ended December 31, 1996, substantially all of which will be used to support production of the IONSCAN(R). The Company intends to use approximately $300,000 of the net proceeds of the Offering for expansion of the Company's manufacturing and assembling capabilities. See "Use of Proceeds." The Company has substantial tax loss and research and development tax credit carryforwards to offset future tax liabilities both in Canada and the United States. However, it is anticipated that the Company will have utilized substantially all of its Canadian Provincial tax loss and research and development tax credit carryforwards and, commencing in the third quarter of 1996, may incur Canadian Provincial tax liabilities. INFLATION Inflation was not a material factor in either the sales or the operating expenses of the Company during the periods presented herein. RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD Recent pronouncements of the Financial Accounting Standards Board ("FASB"), which are not required to be adopted at this date, include Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), which are effective for fiscal years beginning after December 15, 1995. The Company's accounting policy with respect to Long-Lived Assets is in conformity with SFAS 121 and the Company does not presently intend to adopt the fair value based method for accounting for stock compensation plans pursuant to SFAS 123. 22 24 BUSINESS OVERVIEW The Company is principally engaged in the design, development, manufacture and sale of analytical instruments used for the high sensitivity detection of trace amounts of plastic and other explosives and illegal narcotics. The Company's principal product, the IONSCAN(R), is a portable, desk-top instrument that utilizes a proprietary implementation of ion mobility spectrometry ("IMS") technology to determine the presence or absence of targeted compounds in a sample. The IONSCAN(R) can detect targeted substances in amounts smaller than one-billionth of a gram in approximately six seconds. See "IONSCAN(R) Technology." The Company's customers are primarily governmental, security and law enforcement agencies throughout the world, including the Federal Bureau of Investigation (the "FBI"), the Drug Enforcement Agency (the "DEA"), the General Services Administration (the "GSA"), the United States, French, and Canadian customs services and various airports worldwide. Because of its high sensitivity, the IONSCAN(R) is used both in lieu of and in conjunction with other detection technologies, such as X-ray, computer aided tomography ("CATSCAN"), quadropole resonance and nuclear magnetic resonance imaging. As of June 30, 1996, the Company had sold over 300 IONSCAN(R)s, and the Company believes that, in terms of units sold, it is the world's leading supplier of trace particle detection instruments. IONSCAN(R)s have been sold for explosives detection applications primarily outside the United States and for drug interdiction and detection deployment both within the United States and elsewhere. For example, the IONSCAN(R) is used in foreign airports, on trains and at the Eurotunnel to check for explosives and by the United States Coast Guard to check ships and cargo in U.S. territorial waters for illegal narcotics. The Company believes that the security-related market for the IONSCAN(R) is growing as a result of governmental actions, particularly in the United States, which reflect heightened public safety concerns in the wake of an increasing number of terrorist acts. Recently, Congress appropriated $144,000,000 for the purchase of enhanced explosives detection equipment for use at certain airports in the United States, and the Company believes that a portion of such appropriation will be utilized for the acquisition of trace particle detection equipment. Governmental agencies in the United States, including the GSA and the FAA have accelerated their evaluation or use of enhanced methods to increase security measures currently employed in United States airports, other transportation centers and in public buildings. However, no assurance can be given as to the growth of the security-related market for the IONSCAN(R). The Company also believes that the market for the IONSCAN(R) for use in drug applications will increase as a result of recently reported increases in domestic drug usage, particularly among teenagers. Various governmental agencies, including the DEA, have purchased IONSCAN(R)s for use in their efforts to diminish drug trafficking. Prisons and private entities, including public utilities and drug rehabilitation clinics, also have purchased IONSCAN(R)s to detect the presence of drugs. No assurance can be given as to the growth of the drug interdiction and detection market for the IONSCAN(R). The Company believes that new markets for the IONSCAN(R) can be developed in other areas, such as security screening of individuals and process control and quality assurance in certain industrial applications. In addition, when coupled with certain other existing technologies, such as gas chromatography, the IONSCAN(R) can be adapted to other uses, including environmental, biological and chemical testing. Further, the Company intends to expand the potential uses of the IONSCAN(R) technology by developing a hand held detector. In addition to the IONSCAN(R), the Company manufactures specialty instruments and engages in contract research and development activities for industrial companies and various governmental agencies. For the year ended December 31, 1995 and the six months ended June 30, 1996, approximately 25% and 23%, respectively, of the Company's consolidated revenues were derived from these other activities. The Company was incorporated under the laws of the State of Delaware on September 7, 1967. The Company's principal executive offices are located at 219 South Street, New Providence, New Jersey 07974, and its telephone number is (908) 665-8200. 23 25 MARKET OVERVIEW Explosives Detection Since the 1970s, metal detection equipment and visual inspection have been employed throughout the world to detect the presence of weapons. Passengers boarding airplanes pass through metal detectors while carry-on baggage is scanned by security personnel utilizing X-ray equipment or is searched by hand. Similar security measures are used in a variety of public buildings, including courts, where security concerns are particularly high. The persistent occurrence of terrorist bombings has demonstrated that currently deployed security measures are inadequate, particularly for the detection of explosives. While existing screening installations are effective to detect metallic weapons and other metal objects, they are not always effective for detecting explosives. In addition, advanced detection equipment has not been uniformly deployed because of concerns relating to its efficacy, cost and reliability. In the aviation security market the need for deployment of more sophisticated explosives detection systems has been recognized for some time. In 1985, the FAA announced its intention to take certain actions to encourage the development of new technologies and to increase the use of enhanced detection equipment. In the aftermath of the bombing of Pan Am flight 103 over Scotland in 1988, the Aviation Security Improvement Act of 1990 (the "Safety Act") was enacted. The Safety Act directed the FAA to establish a research and development program related to the development and implementation of explosives detection technology and procedures to counteract terrorism against civilian aircraft. The Safety Act directed the FAA to develop certification protocols for explosives detection equipment and authorized the FAA Administrator to require the use of certified equipment commencing thirty-six months after enactment. In response to the requirements of the Safety Act, the FAA began funding research and development of enhanced explosives detection technology. During the past five years, the FAA has spent approximately $150,000,000 on such activities. In addition, the FAA adopted a certification protocol regarding the use of imaging detection systems for use on checked baggage. The imaging protocol focuses on (i) the explosive substances to be detected, (ii) the probability of detection, by explosive, (iii) the quantity of explosive that must be detected, and (iv) the number of bags processed per hour. In addition the protocol specifies a maximum acceptable false alarm rate by explosive. To date, only one imaging system has met the requirements of the protocol. The FAA has not mandated the deployment of such certified imaging equipment, in part, because of its cost (approximately $2 million per screening station). Concern also has been raised about its selectivity because its false alarm rate in airport testing has been much higher than the protocol results had indicated. A number of recent events, including the destruction of TWA flight 800 over Long Island and the bombing at the 1996 Olympics in Atlanta, have refocused attention on the need to deploy enhanced explosives detection equipment. In response to the crash of TWA flight 800, the FAA issued a classified security directive to all airlines subject to FAA regulation. Although the directive is not publicly available, the Company believes that the directive mandated enhanced security checks for all baggage checked-in through certain airports using one of three techniques: manual searching, deployment of certified imaging equipment and use of trace particle detection equipment. The Company believes that airlines are using manual searching techniques to comply with the FAA directive and have not deployed enhanced explosives detection equipment primarily because of the cost of such equipment which, under existing FAA regulations, must be borne by the airlines. On international flights, the FAA has mandated that airlines subject to FAA regulation comply with the International Civil Aviation Organization's International Standards and Recommended Practices Safeguarding International Civil Aviation Against Acts of Unlawful Interference ("Annex 17"). Annex 17 contains generalized recommendations regarding bag matching, the screening of checked bags and the taking of "appropriate actions" to determine if carry-on baggage contains explosives. For all international flights, the FAA requires airlines to use bag matching, to X-ray all carry-on and checked baggage and to confirm that electronic devices such as cellular telephones, tape recorders and laptop computers are operational. For certain international flights, the FAA has mandated more stringent security measures. The Company believes that the FAA directive augments these procedures in certain respects. 24 26 Annex 17 is implemented in a variety of ways outside the United States. In the United Kingdom, for instance, certain airports have implemented a tiered approach to baggage screening that utilizes trace particle detection equipment to resolve potential security concerns. See "Explosives Applications." Certain member countries have adopted different security protocols relying on manual searching or other techniques and many have taken no actions to implement Annex 17. As a result of the crash of TWA flight 800, the Gore Commission was formed to examine the security measures currently in place in United States airports and to make recommendations to the President with respect thereto. The Gore Commission's initial report made a number of general recommendations regarding the enhancement of airport security. These recommendations included, among other things, that the government bear the initial cost of enhanced security equipment, through ticket surcharges or other methods, that approximately $160,000,000 be appropriated initially for the purchase of enhanced explosives detection equipment at major airports, that approximately $50,000,000 be spent in fiscal 1997 on research and development activities and that cooperation and sharing of information among agencies be increased. Partially in response to the Gore Commission's initial report, the administration asked Congress to appropriate $1.1 billion to fund anti-terrorism activities. In October 1996, Congress appropriated all the funds recommended by the administration for fiscal 1997, including $144,000,000 for the purchase of enhanced explosives detection equipment. A published report indicates that the administration plans to use a portion of that appropriation to purchase 489 trace detection instruments in fiscal 1997. The Company believes that these instruments will be used to augment screening of carry-on baggage and to resolve false alarms reported by imaging equipment. Published reports estimate the total cost of implementing enhanced explosives detection equipment at the 75 busiest domestic airports will be upwards of $6 billion and will take ten years to complete. The Company believes that the aviation security market for the IONSCAN(R) will expand significantly as a result of the actions of Congress and the Gore Commission. While a substantial amount of the initial $144,000,000 appropriated for the purchase of enhanced explosives detection equipment in fiscal 1997 will be used to purchase equipment utilizing other technologies, such as CATSCAN, enhanced X-ray, quadropole resonance and other imaging techniques, the Company believes that, as indicated above, a significant number of trace particle detection instruments, including IONSCAN(R)s, will be purchased. In addition, the appropriation approved by Congress covers only a limited number of United States airports. The Company believes that additional appropriations will be required to deploy enhanced explosives detection equipment at all major airports in the United States. However, there can be no assurance that funding for the purchase of such equipment will be continued in subsequent fiscal years or as to the level thereof. In addition, 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 or that the IONSCAN(R) will meet any certification or other requirements that may be adopted in connection therewith. Other explosives detection markets for the IONSCAN(R) have been similarly affected by increased terrorist activity. For instance, as a result of the World Trade Center bombing in 1990 and the 1995 bombing in Oklahoma City, the Company has sold IONSCAN(R)s to customers, including the World Trade Center and the GSA, for facilities protection applications. Drug Interdiction The Company believes that concerns regarding the increasing usage of narcotics will result in substantial growth in the market for IONSCAN(R)s used in drug detection and interdiction efforts. According to the Office of National Drug Control Policy, use of certain illegal narcotics significantly increased during the past five years. Recent surveys have also indicated that the use of illegal narcotics by teenagers has reached a record level. X-ray scanning, random searches and the use of canines have not resulted in sufficient progress in programs to suppress illegal drug trafficking. Accordingly, customs and law enforcement agencies, particularly in the United States, have increasingly turned to more sophisticated detection equipment, including the IONSCAN(R), to assist in their interdiction and detection efforts. The United States Coast Guard and customs services throughout the world have purchased IONSCAN(R)s for use in their drug interdiction efforts. Prisons throughout the United States and around the world also are increasingly using sophisticated equipment, such as the IONSCAN(R), to reduce drug use. Various prisons in the United States, as well as in Canada and 25 27 Mexico, have purchased IONSCAN(R)s to test visitors, packages, cell blocks and vehicles for illegal narcotics. The Company believes that the successful integration of the IONSCAN(R) in drug interdiction and detection activities by the United States Coast Guard, as well as by the various customs services and correctional facilities described above, will result in additional purchases of the IONSCAN(R) for drug interdiction purposes, although no assurance can be given in such regard. As a result of increased drug usage and a heightened public awareness regarding criminal activity generally, governmental agencies have increased their spending on drug interdiction efforts. In addition, in connection with the implementation of United States foreign policy, grants have been provided to foreign countries, particularly in Latin America, for use in drug interdiction efforts. The Company believes that as a result of the increased governmental focus on drug prevention and the increased budgetary allocations for drug intervention programs, the drug detection market for the IONSCAN(R) will continue to grow, although no assurance can be given as to the growth of the drug interdiction and detection market for the IONSCAN(R). STRATEGY The Company's objective is to strengthen its position as the leading supplier of trace particle detection equipment by (i) further penetrating existing markets for the IONSCAN(R) through aggressive pursuit of additional sales from new and existing customers, (ii) expanding the uses of the IONSCAN(R), particularly for security screening of individuals and for process control and quality assurance in certain industrial applications, and (iii) extending the capabilities and the potential uses of the IONSCAN(R) for environmental, biological and chemical testing by, among other things, combining the IMS technology used by the IONSCAN(R) with other existing technologies, such as gas chromatography, and by developing a hand-held detector utilizing the IONSCAN(R) technology. The following are the key elements of the Company's strategy to achieve these objectives: Increased Penetration of Existing Markets The Company's primary strategic objective is to enhance its sales and marketing capabilities to take advantage of existing and emerging selling opportunities. The Company believes that the acceptance of the IONSCAN(R) by customers worldwide and its performance in the field both for explosives detection and drug detection place the Company in a favorable position to take advantage of the expected growth in its markets. Development of New Applications The Company is developing new applications for its IONSCAN(R) technology. For instance, under a research grant from the FAA, the Company recently began development of an individual passenger screening system for the aviation security market. The Company believes that the IONSCAN(R) is uniquely suited for this application due to its quick analysis time and high level of throughput in terms of items checked per hour. In addition, in the chemical manufacturing and processing industries, instrumentation is used to ensure that specified chemicals are present and in the correct proportions and to ensure the absence of other chemicals at various stages of the process. The Company believes that the IONSCAN(R) is readily adaptable for use in these applications. Product Extension The Company believes that the IONSCAN(R) can be combined with other readily available technologies, particularly gas chromatography, to enable the IONSCAN(R) to detect compounds contained in more difficult sampling media, such as soil. The Company believes that a modified IONSCAN(R) would be able to break down a complex matrix of chemicals to separate out the background material and permit testing for the targeted substance on site, instead of requiring shipment of a sample to an offsite laboratory for analysis. As a result, the modified IONSCAN(R) could be utilized to field test for the presence of microscopic organisms and other environmentally sensitive materials. In addition, the Company intends to use a portion of the net proceeds of the Offering to fund the development of a handheld detector utilizing the same technology as the IONSCAN(R). Such an instrument could be used, for instance, by law enforcement officers to test for the presence of illegal narcotics during an investigation. 26 28 IONSCAN(R) TECHNOLOGY The IONSCAN(R) is a portable, desktop instrument that utilizes a proprietary implementation of ion mobility spectrometry 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 which 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 which 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 which 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 following diagram illustrates the operation of the IONSCAN(R). [Schematic showing the operation of the IONSCAN(R)] 27 29 The Company assembles IONSCAN(R)s from components supplied to it by various suppliers and parts manufactured internally. Once the IONSCAN(R) is assembled, the IONSCAN(R) is "burned in" for up to 400 hours using certain chemicals to calibrate and tune the unit and to assure its proper functioning. After successful completion of this procedure, the IONSCAN(R) is ready for shipment to a customer. 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 trouble shoot 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 United States Coast Guard vessel on patrol needs the capability to test a suspect vessel for a particular type of illegal narcotics, the Coast Guard can download the required information to its unit. In addition, the Barringer Link allows the Company or the customer to run certain diagnostic programs to determine problems which may have occurred within a particular unit and to correct certain software problems. EXPLOSIVES APPLICATIONS Aviation Security IONSCAN(R)s are currently used in explosives detection applications in the aviation security market primarily outside the United States. In most cases, the IONSCAN(R) is used to resolve concerns regarding checked or carry-on baggage that may contain explosives. For instance, certain foreign airports have implemented a three-tiered security procedure for checked baggage. All checked bags are screened by an X-ray machine to identify those bags that may contain explosive materials. Bags identified through that process are then subjected to a second level of testing, generally using a more sensitive imaging system, such as enhanced X-ray or CATSCAN. Bags that are not cleared at this second level are either manually searched or tested using trace particle detection instruments such as the IONSCAN(R). A number of IONSCAN(R)s have been purchased for this purpose. IONSCAN(R)s also are used to augment screening of carry-on baggage. The carry-on bags of individuals meeting certain passenger profiles are searched manually (including using bomb sniffing canines), screened by imaging equipment or scanned using trace particle detection equipment, such as the IONSCAN(R). Although the IONSCAN(R) was approved in 1992 by the FAA for screening electronic items, there has been only limited use of it for such purpose. Although most airports use manual searching to resolve concerns about checked baggage and to provide enhanced security of certain carry-on baggage, the Company believes that as a result of recent governmental initiatives, governmental regulators will require deployment of more sophisticated equipment, such as the IONSCAN(R). Currently, IONSCAN(R)s are used in 15 airports throughout the world in explosives detection applications. Other Transportation Security IONSCAN(R)s also are employed in explosives detection applications in other segments of the transportation industry. In Europe, IONSCAN(R)s are in use at the Eurotunnel, which connects England and France, to scan vehicles and freight for explosive materials. In addition, IONSCAN(R)s are used by British Rail and train systems operating in the Eurotunnel to test for explosive materials. The Company believes that this market will experience substantial growth as governmental authorities increasingly recognize that terrorist acts, such as the poison gas incidents in Tokyo in 1995, may involve other forms of public transportation, such as 28 30 railroads and subways. However, there can be no assurance as to the ultimate size of this market or as to the technologies that will be used to implement any increased security measures. Building Security and Forensics IONSCAN(R)s are deployed at numerous facilities around the world, such as large electric utilities and landmark buildings, that are perceived as potentially likely targets for terrorist attacks. For instance, IONSCAN(R)s currently are in use at the World Trade Center in New York as a result of the bombing there in 1993. In addition, the Company recently sold several IONSCAN(R)s to the GSA, which is responsible for the maintenance and security of U.S. government buildings. In the wake of incidents such as the 1995 Oklahoma City bombing and the bombing in Atlanta during the 1996 Summer Olympics, the Company believes that this market will experience significant growth as the need for physical security measures at public facilities increases, although there can be no assurance as to the growth of this market for the IONSCAN(R). The Company believes that the IONSCAN(R) is particularly well suited for this application because of its fast scanning time, its high throughput and its low cost compared to other available detection technologies. Customers, such as the FBI, the New York City Police Department, and military forces in Europe and the Middle East use the IONSCAN(R) for forensic purposes to test debris for traces of explosives and other chemicals following the occurrence of a bombing or explosion. For example, IONSCAN(R)s were used to test debris from the crash of TWA flight 800 and at the site of the 1995 Oklahoma City bombing. DRUG APPLICATIONS Drug Interdiction As a result of the increased usage of illegal narcotics, governmental agencies in the United States and around the world are refining their drug interdiction techniques. Metal detectors, X-ray equipment, random manual searching and the use of canines have not resulted in sufficient progress in programs to suppress illegal drug trafficking, and governmental agencies have been increasingly utilizing more sophisticated detection equipment, including the IONSCAN(R), to supplement their drug interdiction efforts. Currently, law enforcement agencies around the world, including the FBI, the DEA, customs officials in the United States and eight other countries, the U.S. and Japanese Coast Guards, police departments in 10 states and five foreign countries and a number of federal and foreign prisons use the IONSCAN(R) for this purpose. IONSCAN(R)s also are in use in drug interdiction efforts in 16 airports throughout the world. The Company expects that this market will continue to grow as a result of continuing drug trafficking, increased governmental attention in this area and increased budgets for anti-drug activities. The Company believes that it will be well-positioned to take advantage of the expected growth in this market because of its large installed base, the breadth of its customers and the field performance of the IONSCAN(R) to date, although no assurance can be given as to the growth of the drug interdiction market for the IONSCAN(R). Drug Detection The increased usage of illegal narcotics also is driving sales of IONSCAN(R)s to other entities for drug detection applications. For instance, several large public utilities have purchased IONSCAN(R)s to test their facilities, vehicles and employees for the presence of illegal narcotics. In addition, various prisons in the United States, as well as in Canada and Mexico, have purchased IONSCAN(R)s to test visitors and packages entering prisons, cell blocks and vehicles for illegal narcotics. Drug rehabilitation centers also have purchased IONSCAN(R)s to supplement their testing procedures for patients. The Company believes that this market segment will experience additional growth as other large utilities, prisons and drug rehabilitation centers seek to supplement their current drug detection efforts, although no assurance can be given as to the growth of the drug detection market for the IONSCAN(R). 29 31 SALES AND MARKETING The Company sells its products through a direct sales and support force of 18 persons located at its headquarters in New Jersey and at its offices in Toronto, London and Paris. In addition, the Company has a network of independent sales representatives located throughout Europe, the Middle East, Africa, Asia, South America and Australia. See "Facilities." The Company also has entered into sales representative agreements with Mitsubishi Heavy Industries for distribution of the IONSCAN(R) in Japan. The Company's sales and marketing efforts typically involve extensive customer visits, demonstrations and field testing. Sales prospects generally are targeted by the Company or its independent sales representatives, although the Company also responds to requests for proposals. Typically, the Company sells its IONSCAN(R) instruments for prices between $50,000 and $95,000 per unit, depending principally on the configuration of the unit and the purchaser's location. Once a sale is consummated, the Company provides training at a customer's location to teach operators how to use the IONSCAN(R), including proper sampling techniques. The Company generally provides a one-year parts and labor warranty on its IONSCAN(R) instruments, although from time to time the Company has entered into service contracts which include extended warranties. To date, the Company's warranty claims experience has not been significant. The Company does not actively market its other specialty instruments or its contract research and development services. However, from time to time the Company responds to appropriate requests for proposals for non-IONSCAN(R) instruments and such services. Although sales of such instruments and such services have been material to the Company's historic results from time to time, as a result of the expected increase in sales of the IONSCAN(R), the Company does not expect that such sales will materially affect its results of operations in future periods. During 1995, no customer accounted for more than 10% of the consolidated revenues of the Company. During 1994, one customer accounted for 10.8% of the consolidated revenues of the Company. BACKLOG Although the Company's sales cycle is relatively long due to governmental budgetary and procurement policies, once orders are placed customers typically seek immediate delivery. Accordingly, for competitive purposes, the Company follows the practice of manufacturing to a sales forecast. As a result, the Company does not have a material backlog of orders for its instruments. The Company anticipates that all of its instrument backlog at June 30, 1996 will be shipped prior to December 31, 1996. Because the Company's funded research and development activities are undertaken pursuant to contracts which typically run for one or more fiscal periods, from time to time the Company has a backlog relating to research and development activities to be performed in future periods. Such backlog was not material at June 30, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." MANUFACTURING AND ASSEMBLY The Company manufactures and assembles IONSCAN(R)s at its facility in Toronto, Canada, and has recently expanded its capabilities to manufacture and assemble IONSCAN(R)s at its facility in New Providence, New Jersey. The Company intends to use a portion of the net proceeds from the Offering to augment its existing manufacturing and assembling capabilities. See "Use of Proceeds." Although many of the basic components of the IONSCAN(R), such as chipboards, resistors, capacitors, liquid crystal displays and other similar components, are readily available from a number of sources, the Company typically purchases such components from single suppliers. A limited number of components and sub-assemblies are manufactured for the Company, pursuant to the Company's proprietary specifications, but the Company does not believe it is dependent on any single source for these items. To date, the Company has not experienced any difficulty in obtaining any components or sub-assemblies. 30 32 COMPETITION The Company competes with other entities, 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 governmental expenditures with equipment manufacturers utilizing other types of detection technologies, including CATSCANs, enhanced X-ray and quadropole resonance, as well as with other forms of trace particle detection equipment, such as gas chromatography and chemoluminescence. Because trace particle detection equipment is used in certain instances to verify detection results obtained by other enhanced detection systems, the IONSCAN(R) and other trace particle detection equipment are used in conjunction with systems utilizing imaging technolgies. As a result of recent governmental initiatives, the Company anticipates that additional technologies will be developed and that new competitors will enter the Company's markets. See "Overview." In the trace particle detection market, the Company's main competitor is Thermedics, Inc. ("Thermedics"), which has greater financial, marketing and other resources than the Company. However, the Company believes that the IONSCAN(R) has certain advantages over Thermedics' instrument, including faster speed of analysis, lower cost, greater portability, lower power consumption and lower weight. Accordingly, the Company believes that it competes effectively with Thermedics and will continue to do so, although no assurance can be given. The Company also competes with the present use by various law enforcement agencies 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 United States and most foreign countries, the aviation industry is highly regulated and authorities, such as the FAA in the United States, have the ability to recommend or mandate use of enhanced explosives detection equipment. The FAA has adopted a certification protocol regarding the use of imaging detection systems for use on checked baggage. See "Overview." The FAA is currently developing a certification protocol for trace particle detection equipment, which the Company believes will be finalized in the second quarter of 1997. 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. In addition, the FAA recently issued a classified security directive that the Company believes authorizes the use of certain trace particle detection equipment, including the IONSCAN(R), on carry-on baggage. UNFUNDED RESEARCH AND DEVELOPMENT The Company's research and development expenses totaled $57,000, $151,000, $362,000 and $182,000, for the six months ended June 30, 1996 and the years ended December 31, 1995, 1994 and 1993, respectively. These amounts primarily relate to the development and enhancement of the Company's IONSCAN(R) instruments. All of these amounts were funded by the Company. 31 33 The Company intends to use a portion of the net proceeds from this Offering to fund increased research and development of the IONSCAN(R). In addition to further performance enhancements, the Company intends to combine the IONSCAN(R) with other existing technologies, such as gas chromatography, to enable the IONSCAN(R) to detect compounds contained in more difficult sampling media, such as soil. The Company believes that the modified IONSCAN(R) would be able to break down a complex matrix of chemicals to separate out the background material and permit testing for the targeted substance on site instead of shipment of a sample to an offsite laboratory for analysis. As a result, the modified IONSCAN(R) could be utilized to field test for the presence of microscopic organisms and other environmentally sensitive materials. In addition, the Company intends to use a portion of the net proceeds of the Offering to fund the development of a hand-held detector utilizing the same technology as the IONSCAN(R). Such an instrument could be used, for instance, by law enforcement officers to test for the presence of illegal narcotics during an investigation. See "Strategy." In order to gain access to technology and manufacturing expertise, the Company may also use a portion of the net proceeds of the Offering to make strategic acquisitions or to enter into development joint ventures. To date, the Company has not entered into any agreements or understandings with respect to any such acquisitions or joint ventures. See "Use of Proceeds." PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS The Company holds, through BRL, an aggregate of 10 patents throughout the world related to equipment, systems and techniques. While such patents may be regarded as having substantial value, the Company's current business is not deemed to be materially dependent upon either the aggregate of such patents or any one of them individually. The Company relies primarily on unpatented proprietary know-how in building the IONSCAN(R) which it protects through the use of nondisclosure agreements and other methods. However, the basic technology used in the IONSCAN(R) is not proprietary to the Company and the same functionality contained in the IONSCAN(R) could be duplicated by the Company's competitors without violating the Company's patents. The Company's 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 received a worldwide, perpetual license to certain unpatented technology developed from such work and pays Revenue Canada a royalty equal to 1% of sales of all IONSCAN(R) units. This licensing arrangement remains exclusive until March 31, 1999. The Company has entered into an agreement in principle with Revenue Canada, pursuant to which the Company expects to obtain the right to renew such exclusive arrangement on a year by year basis for up to ten additional years at which time Revenue Canada would have the right to license the technology to third parties. 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. 32 34 FACILITIES The Company does not own any real property and currently conducts its operations at the following leased premises:
SQUARE ANNUAL LEASE LOCATION FOOTAGE LEASE COST EXPIRATION USE - -------------------------- ------- ---------- -------------- ---------------------- 219 South Street 4,910 $ 78,000 March 1998 Corporate New Providence, NJ 07974 headquarters, sales, service and assembly 1730 Aimco Boulevard 28,380 $102,000* September 2005 Research, Mississauga, Ontario, manufacturing and Canada L4W 1V1 assembly, sales, service and administrative Aeroport DeParis 1,060 $ 21,000 February 1998 Sales and service Riossytech BP 10614-1 Rue Du Cercle 95724, Roissy C.D.G. France Unit 3 at Manor Royal 1,560 $ 19,000 February 1998 Sales and service Crawley, West Sussex England RH10 2QU
- --------------- * Increases to $156,000 on September 1, 2000. EMPLOYEES As of June 30, 1996, the Company had 62 full-time and 6 part-time employees of whom 26 were engaged in manufacturing, 18 were engaged in research and development activities, 16 of whom have advanced degrees (including 6 doctorates) and 24 were engaged in sales, service and general administration. 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 35 MANAGEMENT The following table sets forth the names and ages of the members the Company's Board of Directors and its executive officers, and the positions with the Company and its subsidiaries held by each:
NAME AGE POSITION - ---------------------- --- --------------------------------------- Stanley S. Binder 54 Director, President and Chief Executive Officer of the Company; Director of BRL John H. Davies 60 Director and Executive Vice President of the Company; President, Chief Executive Officer and Director of BRL John J. Harte 54 Director and Vice President, Special Projects, of the Company Richard D. Condon 61 Director of the Company John D. Abernathy 59 Director of the Company James C. McGrath 54 Director of the Company Richard S. Rosenfeld 50 Vice President-Finance, Chief Financial Officer, Treasurer and Assistant Secretary of the Company Kenneth S. Wood 44 Vice President and Secretary of the Company; President of Barringer Instruments, Inc. ("BII")
Mr. Stanley S. Binder, is a Director and the President and Chief Executive Officer of the Company. He has been a director of the Company since 1991. Mr. Binder also is a Director of Labco and BRL. In July 1989, Mr. Binder joined the Company and has since held the following offices with the Company: President from 1989 to the present date, Chief Operating Officer from 1989 to June 1990, Chief Financial Officer from 1989 until July 1993, and Chief Executive Officer from July 1990 to the present date. 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 Relationships and Related Transactions." Mr. Binder is chairman of the New Jersey Counsel of the American Electronics Association and a member of the Board of Directors of the American Electronics Association. Mr. John H. Davies, is a Director and Executive Vice President of the Company and the President, Chief Executive Officer and a Director of BRL. Mr. Davies has been an Executive Vice President and Director of the Company since January 1992. Mr. Davies joined BRL in 1967 and has been the President and Chief Executive Officer of BRL since August 1989. Mr. John J. Harte, is a Director and Vice President, Special Projects, of the Company. He has been Vice President, Special Projects since 1991 and has been Director since joining the Company in 1986. Mr. Harte also is the Chairman of the Board of Labco. He is a certified public accountant and, since 1978, has been a Vice President of Mid-Lakes Distributing Inc., a manufacturer and distributor of heating and air conditioning parts and equipment located in Chicago, Illinois. Mr. Richard D. Condon, has been a Director of the Company since February 1992. Since 1989, he has been a consultant to and director of Analytical Technology, Inc., Boston, Massachusetts, a scientific instrumentation company. Mr. John D. Abernathy, a Director of the Company since October 1993, 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 a 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 34 36 accessories, and Wahlco Environmental Systems, Inc., a manufacturer of air pollution control and power plant efficiency equipment. Mr. James C. McGrath, a Director of the Company since January 1994, 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. Mr. Richard S. Rosenfeld, a certified public accountant, has been Vice President-Finance and Chief Financial Officer of the Company since July 1993. He has been the Treasurer and Assistant Secretary of the Company since January 1992, and was a consultant to the Company from July 1991 to December 1991. Mr. Kenneth S. Wood, has been a Vice President of the Company and the President of BII since January 1992 and the Secretary of the Company since March 1993. He was Vice President of Operations for BII from April 1990 to January 1992. From July 1978 until April 1990, he was Program Director for Lockheed Electronics, the principal business of which is aerospace and defense electronics. 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. COMPENSATION OF DIRECTORS Outside directors are entitled to an annual retainer of $2,500 per quarter and a fee of $1,000 for each meeting attended. Although Mr. Harte is a non-employee director, he does not participate in the Company's compensation plan for non-employee directors. Mr. Harte receives a fee of $2,000 per month for services he renders to the Company, and a fee of $1,000 for each meeting he attends in his capacity as a director. See "Employment Agreements and Compensation Arrangements." The Board of Directors has adopted the 1991 Directors Warrant Plan (the "1991 Warrant Plan"), under which each non-employee director, upon election or appointment to the Board, is offered 3,750 warrants, at $0.40 per warrant, each of which may be exercised within five years to purchase one share of Common Stock at an exercise price to be determined by the Board at the time the warrants are issued, which may not be less than the then current market price for the shares underlying the warrants. The 1991 Warrant Plan provides that each such new director shall use the first quarterly director's fee to pay the purchase price for such warrants. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article Tenth of the Certificate of Incorporation and Section 10 of 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 Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 35 37 EXECUTIVE COMPENSATION The following table sets forth a summary of all compensation paid for the past three fiscal years to the President and Chief Executive Officer of the Company, the Chief Financial Officer of the Company and each other executive officer of the Company whose total annual salary and bonus are $100,000 or more: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ----------------------------------- AWARDS ANNUAL COMPENSATION ------------------------- PAYOUTS ------------------------------- RESTRICTED SECURITIES ------- ALL OTHER SALARY BONUS OTHER ANNUAL STOCK UNDERLYING LTIP COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS ($)(1) - ------------------------------- ---- ------- ------ ------------ ---------- ------------ ------- ------------ Stanley S. Binder 1995 171,491 -- -- -- 45,000 -- 5,940 President and Chief 1994 167,757 -- -- -- -- -- 5,940 Executive Officer 1993 148,272 17,400 -- -- -- -- 5,492 John H. Davies 1995 125,775* -- 12,149(2) -- 31,250 -- -- Executive Vice President 1994 120,582* -- -- -- -- -- 5,741 of the Company; President 1993 115,785* 15,600 -- -- -- -- -- and Chief Executive Officer of Barringer Research Ltd. Kenneth S. Wood 1995 114,190 -- -- -- 26,250 -- 2,283 Vice President and Secretary 1994 109,751 -- -- -- -- -- 2,436 of the Company; President 1993 97,874 14,400 -- -- -- -- 2,386 of Barringer Instruments, Inc. Richard S. Rosenfeld 1995 96,000 -- -- -- 22,500 -- 4,410 Vice President Finance, 1994 90,400 -- -- -- -- -- 4,545 Treasurer and Chief 1993 68,094 12,600 -- -- -- -- 1,976 Financial Officer of the Company
- --------------- * Amounts converted to U.S. dollars at the average exchange rate for the respective year. (1) Represents amounts contributed by the Company pursuant to the Company's tax-qualified 401(k) deferred compensation plan ("401(k) Plan"). The 401(k) Plan provides that the Company will make matching contributions to the participants in the 401(k) Plan equal to 100% of the first 2% of a participant's salary contributed and 50% of the next 5% of a participant's salary contributed, which contributions vest proportionately over a five-year period commencing at the end of the participant's first year with the Company. (2) The other annual compensation for Mr. John Davies represented the payment of previously accrued and unpaid vacation pay. The following table summarizes certain information relating to the grant of options to purchase Common Stock to each of the executives included in the Summary Compensation Table above: OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
NUMBER OF PERCENT OF TOTAL SECURITIES OPTIONS/SARS UNDERLYING GRANTED TO EXERCISE OPTIONS/SARS EMPLOYEES IN OR BASE PRICE EXPIRATION NAME GRANTED(#)(2) FISCAL YEAR(3) ($/SH) DATE ----------------------------------- ------------- ---------------- ------------- ---------- Stanley S. Binder.................. 45,000 24.80% $2.00 3/10/2000 John H. Davies..................... 31,250 17.20 $2.00 3/10/2000 Kenneth S. Wood.................... 26,250 14.50 $2.00 3/10/2000 Richard S. Rosenfeld............... 22,500 12.40 $2.00 3/10/2000
- --------------- (1) The Company did not grant any stock appreciation rights in 1995. 36 38 (2) The stock options expire on March 10, 2000. Forty percent of each option grant is exercisable after the first year, sixty percent after the second year, eighty percent after the third year and one hundred percent after the fourth year. See Note 7 of Notes to Consolidated Financial Statements. (3) Options covering a total of 181,375 shares of Common Stock were granted in 1995. In April 1996, the Company granted non-qualified options covering a total of 253,000 shares of Common Stock to certain officers and directors of the Company. These options are exercisable at $1.00 per share and expire on April 25, 2001. Twenty-five percent of each option grant was exercisable immediately, fifty percent is exercisable after the first year, seventy-five percent is exercisable after the second year and one-hundred percent is exercisable after the third year. The following table sets forth information with respect to the executive officers named in the Summary Compensation Table concerning the exercise of stock options during 1995 and unexercised options held by such executive officers as of December 31, 1995: AGGREGATED OPTION EXERCISES IN 1995 AND FISCAL YEAR-END OPTION VALUES INDIVIDUAL GRANTS
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS SHARES SECURITIES UNDERLYING AT YEAR-END(1) ACQUIRED VALUE OPTIONS/SARS AT YEAR-END -------------------- ON EXERCISE REALIZED ------------------------ EXERCISABLE/ NAME (#) ($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE --------------------------- ----------- -------- ------------------------ -------------------- Stanley S. Binder.......... -- -- 0/45,000 -- John H. Davies............. -- -- 0/31,250 -- Kenneth S. Wood............ -- -- 3,000/38,250 -- Richard S. Rosenfeld....... -- -- 1,250/27,500 --
- --------------- (1) The exercise price of such options exceeded the market price of the underlying Common Stock on December 31, 1995. 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. 1990 OPTION PLAN The Company maintained an option plan (the "1990 Option Plan") pursuant to which the Company was authorized to issue options covering a total of 100,000 shares of Common Stock. No shares are available for issuance under the 1990 Option Plan. However, options covering a total of 32,500 shares of Common Stock remain outstanding thereunder. Options granted pursuant to the 1990 Option Plan are exercisable after the expiration of two years from the date of grant and expire five years after the date of grant. 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 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 37 39 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 an Employment Agreement with Stanley S. Binder, the President and Chief Executive Officer of the Company, (the "Employment Agreement"), pursuant to which Mr. Binder receives $171,000 as compensation, subject to increases equal to percentage increases in the Consumer Price Index as well as by increases authorized by the Company's Executive Compensation Committee. The Employment Agreement provides that it will be automatically renewed each year, unless either party gives the other six months prior written notice of non-renewal. In addition, under the Employment Agreement Mr. Binder received an option to purchase 25,000 shares of Common Stock at an exercise price of $4.00 per share, which approximated market value at the time that the Employment Agreement was executed. In addition, Mr. Binder received a non-qualified option to purchase 25,000 shares of Common Stock at an exercise price of $8.00 per share, subject to anti-dilution provisions, which option became exercisable immediately as to all shares subject thereto. Such non-qualified option has been exercised by Mr. Binder, pursuant to the Stock Option Exercise Program. See "Certain Relationships and Related Transactions." During 1995, Mr. Binder received a non-qualified option to purchase 45,000 shares of the Company's Common Stock at $2.00 per share. The Company expects to enter into employment agreements with both Kenneth S. Wood and Richard S. Rosenfeld which will run for a term of one year, 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 will receive annual base salaries of $111,815 and $96,000, respectively, subject to periodic increases at the discretion of the Board of Directors, and will be entitled to participate in any cash bonus plan maintained by the Company. Both of the employment agreements will 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 will contain certain confidentiality and non-competition provisions which would continue in effect following the termination of the employee's employment by the Company. The Company has entered into a Consulting Agreement with John J. Harte (the "Consulting Agreement") pursuant to which Mr. Harte receives $2,000 per month as compensation. The Consulting Agreement provides that it will be automatically renewed each year, unless either party gives the other six months prior written notice of non-renewal. In addition, under the Consulting Agreement, Mr. Harte is entitled to participate in any grant of stock options to outside board members. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee is comprised of Messrs. Abernathy, Harte and McGrath. During the fiscal year ended December 31, 1995, Mr. Harte was also the Vice President, Special Projects, of the Company. Messrs. Abernathy and McGrath were not officers or employees of the Company during fiscal 1995. Mr. Harte is Chairman of the Board of Labco, and Mr. Binder is a Director of Labco. Mr. Binder serves 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 Compensation Committee. In January 1996, Mr. Binder received an option to purchase 10,000 shares of Labco common stock at an exercise price equal to the fair market value of the Labco Common Stock on the date of grant. For certain other transactions between Labco and the Company, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." 38 40 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of August 26, 1996, the number of shares of Common Stock, Class A Convertible Preferred Stock and Class B Convertible Preferred Stock owned by each executive officer named in the Summary Compensation Table, 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 Securities Exchange Act of 1934) known by the Company to own beneficially 5% or more of such securities. As of August 26, 1996, there were 3,506,474 shares of Common Stock, 74,008 shares of Class A Convertible Preferred Stock and 207,500 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, New Providence, New Jersey 07974.
BENEFICIAL OWNERSHIP OF CLASS A CONVERTIBLE CLASS B CONVERTIBLE COMMON STOCK(1)(2) PREFERRED STOCK PREFERRED STOCK ------------------------ ------------------------ ------------------------ NAME OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF BENEFICIAL OWNER SHARES CLASS SHARES CLASS SHARES CLASS - ------------------------------- --------- ---------- --------- ---------- --------- ---------- Stanley S. Binder.............. 110,386(3) 3.1% -- -- -- -- John H. Davies................. 93,295(4) 2.6 -- -- -- -- John J. Harte.................. 53,440(5) 1.5 -- -- -- -- Richard D. Condon.............. 20,500(6) * -- -- -- -- John D. Abernathy.............. 22,454(7) * -- -- -- -- James C. McGrath............... 20,500(6) * -- -- -- -- Kenneth S. Wood................ 47,574(8) 1.3 -- -- -- -- Richard S. Rosenfeld........... 36,161(9) 1.0 -- -- -- -- All directors and executive officers as a group consisting of eight (8) persons...................... 404,309 10.8 -- -- -- -- Austin W. Marxe................ 966,522(10) 27.6 -- -- -- -- 153 E. 53rd St. New York, NY 10022 John R. Purcell................ 35,583 * -- -- 100,000 48.2% 700 Canal Street Stamford, CT 06902-5921 Herbert Boeckmann II........... 21,350 * -- -- 60,000 28.9 155595 Roscoe Blvd. Sepulveda, CA 93134-6503 R.R. Bowlin.................... 8,895 * -- -- 25,000 12.0 2300 West Jefferson Ft. Wayne, IN 46802-4695 Esther & Carlos Otto........... 5,086 * 14,060 19.0% -- -- 5245 Fishing Bridge Cheyenne, WY 82009 Elizabeth Butenschoen.......... 2,362 * 6,530 8.8 -- -- 434 Catskill Drive Colfax, CA 95713 Max Gerber..................... 4,447 * -- -- 12,500 6.0 26 Broadway New York, NY 10004-1776
- --------------- * Less than 1% (1) Assumes the exercise of all outstanding warrants for Common Stock, the conversion of each outstanding share of Convertible Preferred Stock, Class A Convertible Preferred Stock and Class B Convertible Preferred Stock into Common Stock, the conversion of the Debentures into shares of Common Stock and the issuance of all shares of Common Stock subject to options exercisable within 60 days of August 26, 1996 for each person or entity. (2) Certain amounts shown are subject to adjustment in certain circumstances. (3) Includes 31,750 shares of Common Stock issuable upon exercise of options exercisable within 60 days of August 26, 1996, 12,500 shares of Common Stock issuable upon exercise of warrants and 3,636 shares of Common Stock 39 41 issuable upon conversion of Debentures owned by Mr. Binder. Excludes 558,561 shares of Common Stock owned by SSF III, of which Mr. Binder is an independent General Partner. Mr. Binder disclaims beneficial ownership of such shares. (4) Includes 22,063 shares of Common Stock issuable upon exercise of options exercisable within 60 days of August 26, 1996, 12,500 shares of Common Stock issuable upon exercise of warrants and 5,454 shares of Common Stock issuable upon conversion of Debentures owned by Mr. Davies. (5) Includes 6,750 shares of Common Stock issuable upon exercise of options exercisable within 60 days of August 26, 1996, 12,500 shares of Common Stock issuable upon exercise of warrants and 9,090 shares of Common Stock issuable upon conversion of Debentures owned by Mr. Harte. (6) Includes 6,750 shares of Common Stock issuable upon exercise of options exercisable within 60 days of August 26, 1996 and 8,750 shares issuable upon exercise of warrants. (7) Includes 6,750 shares of Common Stock issuable upon exercise of options exercisable within 60 days of August 26, 1996, 6,250 shares of Common Stock issuable upon exercise of warrants and 5,454 shares of Common Stock issuable upon conversion of Debentures owned by Mr. Abernathy. (8) Includes 33,938 shares of Common Stock issuable upon exercise of options exercisable within 60 days of August 26, 1996 and 3,636 shares of Common Stock issuable upon conversion of Debentures owned by Mr. Wood. (9) Includes 22,125 shares of Common Stock issuable upon exercise of options exercisable within 60 days of August 26, 1996, 5,000 shares of Common Stock issuable upon exercise of warrants and 3,636 shares of Common Stock issuable upon conversion of Debentures owned by Mr. Rosenfeld as custodian for a minor child. (10) Includes (i) 369,553 shares of Common Stock, 256,667 shares of Common Stock issuable upon the exercise of warrants and 72,727 shares issuable upon conversion of Debentures owned by SSF III, and (ii) 83,333 shares of Common Stock, 93,333 shares of Common Stock issuable upon the exercise of warrants and 90,909 shares issuable upon conversion of Debentures owned by Special Situations Cayman Fund, L.P. (the "Cayman Fund"). AWM Investment Company, Inc. ("AWM") is the sole general partner of the Cayman Fund and the sole general partner of MGP Advisors Limited ("MGP"), a general partner of SSF III. Mr. Marxe is the President and Chief Executive Officer of AWM and the principal limited partner of MGP. As such Mr. Marxe may be deemed to be the beneficial owner of all of the shares held by SSF III and the Cayman Fund. Stanley S. Binder, the Company's President and Chief Executive Officer, is an independent general partner of SSF III. Mr. Binder disclaims beneficial ownership of all shares held by SSF III. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to the Exercise Program, on April 21, 1994, Mr. Binder and Mr. Wood exercised options to purchase 37,500 shares of Common Stock and 10,000 shares of Common Stock, respectively, in exchange for which Mr. Binder and Mr. Wood executed notes payable to the Company in the amount of $203,000 and $71,600, respectively. In 1995, for the period in which no interest accrued to the Company (from January 1, 1995 through April 21, 1995), Mr. Binder and Mr. Wood received benefits of $5,469 and $1,929 respectively, under the Stock Option Exercise Program, representing interest otherwise payable on such notes. On May 9, 1995 the Company sold to SSF III, of which Mr. Binder is an independent General Partner with approximately .01% interest in such partnership, and to the Cayman Fund, an affiliate of SSF III (collectively, with SSF III, "SSF"), an aggregate of 125 units at a purchase price of $6,000 per unit for an aggregate purchase price of $750,000. Each unit consisted of 2,500 shares of Common Stock and a five-year warrant to purchase 2,500 shares of Common Stock at $1.96 per share, subject to certain anti-dilution provisions. As an inducement to enter into the transaction and in lieu of a transaction fee, the Company also issued to SSF warrants, exercisable for three years, to purchase an aggregate of 37,500 shares of Common Stock at $1.96 per share, subject to certain anti-dilution provisions. In addition, on June 30, 1995, the Company sold 22 units to certain officers and directors of the Company for an aggregate purchase price of $132,000. Such units were identical to those sold to SSF. 40 42 For a description of certain transactions between Labco and the Company, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview." Mr. John Harte is Chairman of the Board of Labco and Mr. Stanley Binder is a Director of Labco. See "Management - Compensation Committee Interlocks and Insider Participation." In July 1996, as part of a private placement and on the same terms as all other investors, the Company issued Debentures in an aggregate amount of $50,000 and $150,000 to Herbert Gardner and William Barrett, respectively. Herbert Gardner and William Barrett are officers of the Representative of the Underwriters. Mr. Gardner and Mr. Barrett purchased the Debentures without any understanding or agreement regarding this Offering. As part of the same private placement, certain officers and directors of the Company purchased Debentures in an aggregate principal amount of $85,000, and SSF purchased $200,000 in principal amount of the Debentures. 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 7,000,000 shares of Common Stock, par value $.01 per share, 1,000,000 shares of Convertible Preferred Stock, par value $1.25 per share, and 4,000,000 shares of Preferred Stock, par value $2.00 per share, of which 270,000 shares are designated as Class A Convertible Preferred Stock and 730,000 shares are designated as Class B Convertible Preferred Stock. As of August 26, 1996, the Company had outstanding 3,506,474 shares of Common Stock, no shares of Convertible Preferred Stock, 74,008 shares of Class A Convertible Preferred Stock and 207,500 shares of Class B Convertible Preferred Stock. Upon completion of the Offering, the Company will have outstanding 4,506,474 shares of Common Stock (4,656,474 shares if the Underwriters' over-allotment option is exercised in full). In addition, the Company will have 2,059,244 shares of Common Stock (2,134,244 shares if the Underwriters' overallotment option is exercised in full) reserved for issuance pursuant to outstanding options and the Warrants, and upon conversion or exercise of outstanding securities. See "Shares Eligible For Future Sale." As of August 26, 1996, there were approximately 965 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 Company's 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 pursuant to the Offering will be, upon payment therefor, fully paid and nonassessable. PREFERRED STOCK The Company's Preferred Stock may be issued from time to time in one or more classes or series, and the Company's 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 41 43 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, 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 Company's Board of Directors has designated two series of Preferred Stock, the Class A Convertible Preferred Stock and the Class B Convertible Preferred Stock. 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 Company's Board of Directors, cumulative dividends at an annual rate of $.16 per share, payable semiannually 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 .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 ninety (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 Company's Board of Directors, cumulative dividends at an annual rate of $.16 per share, payable semiannually 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 .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 ninety (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, 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. 42 44 Holders of Class B Convertible Preferred Stock also are entitled to vote as a class in certain limited circumstances. 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 Company's 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 (1) 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, 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 Company's Certificate of Incorporation contains provisions which require the favorable vote by the holders of not less than 80% 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% 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 Company's 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% 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% of the corporation's voting stock in the same transaction in which it exceeds 15%, 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 and the Warrants is American Stock Transfer & Trust Company, New York, New York. 43 45 SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of the Offering, 4,506,474 shares of Common Stock will be outstanding (4,656,474 shares, assuming exercise of the Underwriters' over-allotment option). Up to 500,000 additional shares of Common Stock (575,000 shares, assuming exercise of the Underwriters' overallotment option) will be issuable upon the conversion of the Warrants offered hereby. 623,164 of the shares that will be outstanding upon consummation of the Offering are held by officers, directors and other affiliates of the Company, all of which are freely tradeable, subject to the lock-up described below. An additional 1,025,292 shares of Common Stock are issuable to such officers, directors and other affiliates upon the conversion or exercise of outstanding securities, including stock options. The Company recently registered for resale 967,042 shares of Common Stock held by or issuable to officers, directors and other affiliates of the Company upon the exercise or conversion of outstanding securities which had previously been restricted. The Company also intends, in the near future, to register for resale an additional 414,500 restricted shares of Common Stock issuable upon exercise of options previously granted to officers and directors. Thereafter, all 1,381,542 of such shares will be generally available for sale in the open market by the holders thereof. It is expected that the officers and directors of the Company, who hold an aggregate of 681,934 shares of Common Stock (including shares issuable upon the exercise or conversion of outstanding securities), will agree with the Underwriters not to offer or sell, directly or indirectly, any securities of the Company in the public market for a period of 180 days after the date of this Prospectus, subject to certain exceptions, without the prior written consent of Janney Montgomery Scott Inc. See "Underwriting." DESCRIPTION OF WARRANTS The following is a brief summary of certain provisions of the Warrants. Such summary does not purport to be complete and is qualified in all respects by reference to the actual text of the Warrant Agreement (the "Warrant Agreement") between the Company, the Representative and American Stock Transfer & Trust Company (the "Warrant Agent"). A copy of the Warrant Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. See "Additional Information." EXERCISE PRICE AND TERMS Each Warrant entitles the registered holder thereof to purchase one-half of a share of Common Stock at an exercise price of $ per share [120% of the initial offering price per share] at any time during the period commencing on the date of this Prospectus and terminating on , 1997 [twelve months from the date of this Prospectus], $ per share [130% of the initial offering price per share] at any time during the period commencing , 1997 [twelve months from the date of this Prospectus] and terminating on , 1998 [twenty-four months from the date of this Prospectus] and $ per share [140% of the initial offering price] at any time during the period commencing , 1998 [twenty-four months from the date of this Prospectus] and terminating on , 1999 [thirty-six months from the date of this Prospectus] subject to adjustment in accordance with the anti-dilution and other provisions referred to below. The holder of any Warrant may exercise such Warrant by surrendering the certificate representing the Warrant to the Warrant Agent, with the subscription form thereon properly completed and executed, together with payment of the exercise price. The Warrants may be exercised at any time in whole or in part at the applicable exercise price until expiration or redemption of the Warrants. No fractional shares will be issued upon the exercise of the Warrants. The exercise price of the Warrants has been set at a premium to the existing market price of the Common Stock and bears no relationship to any objective criteria of future value and, accordingly, should in no event be regarded as an indication of any future market price of the Securities offered hereby. ADJUSTMENTS The exercise price and the number of shares of Common Stock purchasable upon the exercise of the Warrants are subject to adjustment upon the occurrence of certain events, including stock dividends, stock 44 46 splits, combinations or reclassifications of the Common Stock, or sale by the Company of shares of its Common Stock or other securities convertible into Common Stock (exclusive of shares issued upon the exercise or conversion of outstanding options, warrants and convertible securities) at a price below the market price (as defined) of the Common Stock. Additionally, an adjustment would be made in the case of a reclassification or exchange of Common Stock, consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving corporation) or sale of all or substantially all of the assets of the Company in order to enable Warrant holders to acquire the kind and number of shares of stock or other securities or property receivable in such event by a holder of the number of shares of Common Stock that might otherwise have been purchased upon the exercise of the Warrant. REDEMPTION PROVISIONS Commencing six months from the date of this Prospectus, the Warrants are subject to redemption by the Company, at $.25 per Warrant, 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 applicable exercise price of the Warrants for a period of 30 days ending within 15 days of the redemption notice date. In the event that the Company exercises the right to redeem the Warrants, such Warrants will be exercisable until the close of business on the date for redemption fixed in the redemption notice. If any Warrant called for redemption is not exercised by such time, it will cease to be exercisable and its holder will be entitled only to the redemption price. TRANSFER, EXCHANGE AND EXERCISE The Warrants are in registered form and may be presented to the Warrant Agent for transfer, exchange or exercise at any time on or prior to the earlier of (i) the redemption date, or (ii) their expiration date three years from the date of this Prospectus, at which time the Warrants become wholly void and of no value. If a market for the Warrants develops, the holder may sell the Warrants instead of exercising them. There can be no assurance, however, that a market for the Warrants will develop or continue. WARRANT HOLDER NOT A STOCKHOLDER The Warrants do not confer upon holders any voting, dividend or other rights as stockholders of the Company. MODIFICATION OF WARRANTS The Company and the Warrant Agent may make such modifications to the Warrants as they deem necessary and desirable that do not adversely affect the interests of the warrant holders. The Company may, in its sole discretion, lower the exercise price of the Warrants for a period of not less than thirty days on not less than thirty days' prior written notice to the warrant holders and the Representative. 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. The Warrants are not exercisable unless, at the time of the exercise, the Company has a current prospectus covering the shares of Common Stock issuable upon exercise of the Warrants, and such shares have been registered, qualified or are deemed to be exempt under the securities laws of the state of residence of the exercising holder of the Warrants. Although the Company will use its best efforts to have all the shares of Common Stock issuable upon exercise of the Warrants registered or qualified on or before the exercise date and to maintain a current prospectus relating thereto until the expiration of the Warrants, there can be no assurance that it will be able to do so. The Warrants are separately transferable immediately upon issuance. Although the Securities will not knowingly be sold to purchasers in jurisdictions in which the Securities are not registered or otherwise qualified for sale, purchasers may buy Warrants in the aftermarket in, or may move to, jurisdictions in which 45 47 the shares underlying the Warrants are not so registered or qualified during the period that the Warrants are exercisable. In this event, the Company would be unable to issue shares to those persons desiring to exercise their Warrants, and holders of Warrants would have no choice but to attempt to sell the Warrants in a jurisdiction where such sale is permissible or allow them to expire unexercised. UNDERWRITER'S WARRANTS In connection with this Offering, the Company has authorized the issuance of the Underwriter's Warrants and has reserved 150,000 shares of Common Stock for issuance upon exercise of such Underwriter's Warrants (including the Warrants issuable upon exercise of the Underwriter's Warrants). The Underwriter's Warrants will entitle the holder to acquire 100,000 shares of Common Stock and 100,000 Warrants at an exercise price of $ per Underwriter's Warrant and $ per Warrant. See "Underwriting." 46 48 UNDERWRITING Under the terms and subject to the conditions contained in the Underwriting Agreement, each of the Underwriters named below (the "Underwriters") has severally agreed to purchase, and the Company has agreed to sell to each such Underwriter, the respective number of Securities set forth opposite the name of such Underwriter below:
NUMBER UNDERWRITERS OF SECURITIES ----------------------------------------------------------------- ------------- Janney Montgomery Scott Inc...................................... ---------- Total.................................................. 1,000,000 ==========
The obligations of the Underwriters are subject to certain conditions precedent. The Underwriters are obligated to take and pay for all of the Securities offered hereby (other than those covered by the over-allotment option described below), if any such Securities are taken. The Underwriters for whom Janney Montgomery Scott Inc. is acting as representative (the "Representative") propose to initially offer the Securities directly to the public at the initial offering price set forth on the cover page hereof and to certain dealers (who may be Underwriters) at a price that represents a concession not in excess of $ per Share and $ per Warrant under the initial offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per Share and $ per Warrant to other Underwriters or to certain other dealers. After the commencement of the offering, the public offering prices and such concessions may be changed by the Representative. The Representative has informed the Company that it does not expect sales to discretionary accounts by the Underwriters to exceed five percent of the Securities offered hereby. The Company has granted to the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to 150,000 additional Shares and 150,000 additional Warrants at the offering prices set forth on the cover page hereof, less Underwriting discounts and commissions. The Underwriters may exercise such option to purchase additional Shares and Warrants solely for the purpose of covering over-allotments, if any, incurred in connection with the sale of the Securities offered hereby. The Company and the Underwriters have agreed to indemnify each other against certain liabilities that may be incurred in connection with the Offering, including liability that may be incurred in connection with the Offering under the Securities Act. In addition to underwriting discounts and commissions, the Company has agreed to pay the Representative a non-accountable expense allowance equal to 2% of the gross proceeds of this Offering. The Company, and its present executive officers and directors, have agreed not to offer, pledge, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any securities of the Company for a period of 180 days after the date of this Prospectus, subject to certain exceptions, without the prior written consent of the Representative. Certain Underwriters may engage in passive market making transactions in the Common Stock on the NASDAQ Stock Market in accordance with Rule 10b-6A under the Exchange Act prior to the commencement of offers or sales of Common Stock offered hereby. Passive market making consists of displaying bids and effecting transactions in the Common Stock at a price that is not in excess of the highest bid price for the Common Stock that is displayed on NASDAQ by a market maker who is not an Underwriter or an affiliated purchaser. New purchases on each day by a passive market maker are limited to 30% of the average daily trading volume in the Common Stock during the applicable period. 47 49 Although it has no obligation to do so, the Representative currently intends to make a market in the Company's Securities and may otherwise effect transactions in such Securities. Such market-making activity may be discontinued at any time. In connection with this offering, the Company has agreed to sell to the Representative, at a purchase price of $.0012 per Underwriter's Warrant, Underwriter's Warrants to purchase from the Company 100,000 shares of Common Stock and 100,000 Warrants (the "Underlying Warrants"). Each Underlying Warrant entitles the holder to purchase one-half of a share of Common Stock. The Underwriter's Warrants are exercisable for a period of four years commencing one year after the date of this Prospectus at an exercise price (the "Exercise Price") of 107% of the initial offering price of the Securities, 114% of the initial offering price of the Securities commencing two years from the date of this Prospectus, 121% of the initial offering price of the Securities commencing three years from the date of this Prospectus and 128% of the initial offering price of the Securities commencing four years from the date of this Prospectus. The Underwriter's Warrants and the Underlying Warrants provide for adjustment in the number of shares of Common Stock issuable upon the exercise thereof as a result of certain events, including stock dividends, stock splits, combinations and issuance of Common Stock for consideration less than the Exercise Price, subject to certain exceptions. The Underwriter's Warrants are restricted and may not be sold, transferred, assigned or hypothecated for a period of one year from the date of this Prospectus, except to officers of the Representative. The holders of Underwriter's Warrants and Underlying Warrants have no voting, dividend or other rights as stockholders of the Company with respect to shares underlying such warrants, or shares purchasable upon exercise of such warrants until and to the extent shares of Common Stock have been purchased, upon exercise of such warrants. The Underlying Warrants expire three years from the date of this Prospectus. If the Underwriter's Warrants to purchase Common Stock or the Underlying Warrants are exercised, the value of the Common Stock held by public investors will be diluted. The Underwriter's Warrants and the Underlying Warrants afford the holders thereof the opportunity, at nominal cost, to profit from a rise in the market price of the Common Stock, which may adversely affect the terms upon which the Company could issue additional shares of Common Stock during the four-year exercise period. A new registration statement or post-effective amendment to the registration statement of which this Prospectus is a part will be required to be filed and declared effective before distribution to the public of shares of Common Stock issuable upon exercise of the Underwriter's Warrants and the Underlying Warrants (the "Warrant Shares"). The Company has agreed, on one occasion when requested by the holders of a majority of the Warrant Shares and the Underlying Warrants, to make necessary filings, at its expense (subject to a maximum of $25,000), to permit a public offering of the Warrant Shares during the period beginning one year after the date of this Prospectus and ending four years thereafter, and to use its best efforts to cause such filing to become effective and remain effective for a period of at least one year. In addition, the Company has agreed, during the period commencing at the beginning of the second year and concluding at the end of the fifth year after the effective date of the Registration Statement, to give advance notice to holders of Underwriter's Warrants, Underlying Warrants and Warrant Shares of its intention to file a registration statement and, in such case, holders of such securities shall have the right to require the Company to include the Warrant Shares and the Underlying Warrants in such registration statement at the Company's expense and to maintain the effectiveness of such registration statement for a period of at least one year. LEGAL MATTERS The validity of the Securities offered hereby will be passed upon for the Company by Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., Roseland, New Jersey. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Rosenman & Colin LLP, New York, New York. 48 50 EXPERTS The Consolidated Financial Statements included in the Prospectus of Barringer Technologies Inc. and subsidiaries as of December 31, 1994 and 1995 and each of the years in the three-year period ended December 31, 1995, 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. 49 51 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Certified Public Accountants.................................... F-2 Consolidated Balance Sheets -- December 31, 1995 and 1994 and June 30, 1996 (unaudited)......................................................................... F-3 Consolidated Statements of Operations -- For Each of the Three Years Ended December 31, 1995, 1994 and 1993 and for the Six-Month Periods Ending June 30, 1996 and 1995 (unaudited)......................................................................... F-4 Consolidated Statements of Cash Flows -- For Each of the Three Years Ended December 31, 1995, 1994 and 1993 and for the Six-Month Periods Ending June 30, 1996 and 1995 (unaudited)......................................................................... F-5 Consolidated Statements of Stockholders' Equity -- For Each of the Three Years Ended December 31, 1995, 1994 and 1993 and for the Six-Month Period Ending June 30, 1996 (unaudited)......................................................................... F-6 Notes to Consolidated Financial Statements............................................ F-7
F-1 52 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Barringer Technologies Inc. New Providence, New Jersey We have audited the accompanying consolidated balance sheets of Barringer Technologies Inc. as of December 31, 1995 and 1994 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barringer Technologies Inc. at December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. BDO Seidman, LLP Woodbridge, New Jersey March 27, 1996 F-2 53 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, --------------------- JUNE 30, 1994 1995 1996 -------- -------- ----------- (UNAUDITED) ASSETS Current Assets: Cash.................................................... $ 267 $ 43 $ 17 Receivables, less allowances of $539, $41 and $90 (note 5)................................................... 2,565 1,533 2,658 Inventories............................................. 1,790 1,621 1,652 Prepaid expenses and other.............................. 220 250 276 Deferred tax asset (note 8)............................. 225 225 225 -------- -------- -------- Total current assets................................. 5,067 3,672 4,828 Property and equipment, net (note 4)...................... 1,364 586 558 Investment in unconsolidated subsidiary (note 2).......... -- 334 355 Other..................................................... 361 143 140 -------- -------- -------- $ 6,792 $ 4,735 $ 5,881 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Bank indebtedness and other notes (note 5).............. $ 1,160 $ 744 $ 1,231 Accounts payable........................................ 1,632 1,278 1,117 Accrued liabilities..................................... 949 723 902 Accrued payroll and related taxes....................... 444 257 338 Current portion of long-term debt (notes 6 and 14)...... 230 300 300 -------- -------- -------- Total current liabilities............................ 4,415 3,302 3,888 Other non-current liabilities............................. 451 108 113 Minority interest in subsidiary (note 2).................. 740 -- -- Commitments (notes 9 and 10) Stockholders' equity (notes 6, 7 and 14): Convertible preferred stock, $1.25 par value, 1,000 shares authorized, 445, 0, and 0 shares outstanding, respectively......................................... 555 -- -- Preferred Stock, $2.00 par value, 4,000 shares authorized, 270 shares designated class A convertible preferred stock, 83, 83, and 74 shares outstanding, less discount of $64, $64 and $57, respectively.... 101 101 91 730 shares designated class B convertible preferred stock, 318, 258, and 233 shares outstanding, respectively....................................... 635 515 465 Common stock, $0.01 par value, 5,000, 7,000, and 7,000 shares authorized, respectively and 2,872, 3,479, and 3,498 shares outstanding, respectively............... 29 35 35 Additional paid-in capital.............................. 16,036 17,685 17,765 Accumulated deficit..................................... (15,633) (16,542) (16,003) Cumulative foreign currency translation adjustment...... (524) (456) (460) -------- -------- -------- 1,199 1,338 1,893 Less: common stock in treasury, at cost, 31 shares...... (13) (13) (13) -------- -------- -------- Total stockholders' equity........................... 1,186 1,325 1,880 -------- -------- -------- $ 6,792 $ 4,735 $ 5,881 ======== ======== ========
See notes to consolidated financial statements. F-3 54 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------ ----------------- 1993 1994 1995 1995 1996 ------ ------- ------- ------ ------ (UNAUDITED) Sales....................................... $7,770 $ 5,514 $ 6,374 $3,110 $5,012 Cost of sales............................... 3,930 4,269 3,804 1,892 2,647 ------ ------- ------- ------ ------ Gross profit.............................. 3,840 1,245 2,570 1,218 2,365 Operating expenses: Selling, general and administrative....... 3,117 3,352 3,305 1,300 1,641 Unfunded research and development......... 182 362 151 104 57 ------ ------- ------- ------ ------ 3,299 3,714 3,456 1,404 1,698 ------ ------- ------- ------ ------ Operating income (loss)................ 541 (2,469) (886) (186) 667 Other income, (expense): Interest expense.......................... (164) (202) (240) (122) (130) Equity in earnings of Labco............... -- -- -- -- 20 Other..................................... 63 113 (52) (48) 7 ------ ------- ------- ------ ------ (101) (89) (292) (170) (103) Income (loss) before income tax provision (benefit).................. 440 (2,558) (1,178) (356) 564 Income tax provision (benefit) (note 8)..... (153) 75 -- -- -- ------ ------- ------- ------ ------ Income (loss) from continuing operations........................... 593 (2,633) (1,178) (356) 564 Operation held for sale (note 2): Income from operations.................... 2 68 258 55 -- Gain on sale of a portion of investment in Labco............................... -- -- 93 -- -- ------ ------- ------- ------ ------ 2 68 351 55 0 ------ ------- ------- ------ ------ Net income (loss)...................... 595 (2,565) (827) (301) 564 Preferred stock dividends................... (114) (108) (82) (51) (24) ------ ------- ------- ------ ------ Net income (loss) attributable to common stockholders.............................. $ 481 $(2,673) $ (909) $ (352) $ 540 ====== ======= ======= ====== ====== Primary Per Share Data (note 1): Continuing operations..................... $ 0.20 $ (0.97) $ (0.39) $(0.13) $ 0.16 Operation held for sale: Income from operations................. -- 0.02 0.08 0.02 -- Gain on sale of a portion of investment in Labco............................. -- -- 0.03 -- -- ------ ------- ------- ------ ------ Net income (loss) per share................. $ 0.20 $ (0.95) $ (0.28) $(0.11) $ 0.16 ====== ======= ======= ====== ====== Fully Diluted Per Share Data (note 1): Continuing operations..................... $ 0.20 $ (0.97) $ (0.39) $(0.13) $ 0.15 Operation held for sale: Income from operations................. -- 0.02 0.08 0.02 -- Gain on sale of a portion of investment in Labco............................. -- -- 0.03 -- -- ------ ------- ------- ------ ------ Net income (loss) per share............... $ 0.20 $ (0.95) $ (0.28) $(0.11) $ 0.15 ====== ======= ======= ====== ====== Weighted average common and common equivalent shares outstanding Primary................................... 2,570 2,827 3,283 3,060 3,483 Fully diluted............................. 2,570 2,827 3,283 3,060 3,854
See notes to consolidated financial statements. F-4 55 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------- ----------------- 1993 1994 1995 1995 1996 ------- ------- ----- ------ ------- (UNAUDITED) Operating Activities: Net income (loss)............................. $ 595 $(2,565) $(827) $ (301) $ 564 Items not affecting cash: Depreciation and amortization.............. 625 711 362 309 75 Inventory write-down and receivable reserves................................. -- 1,210 656 -- -- Minority interest.......................... (2) (76) -- -- -- Income and gain from operation held for sale..................................... -- -- (351) (55) -- Pension recovery........................... (92) -- (147) -- -- Deferred tax expense (benefit)............. (300) 75 -- -- -- Prepaid pension cost....................... (132) 132 (78) -- -- Other...................................... (27) 235 71 81 (1) Decrease (increase) in non-cash working capital balances........................... (2,819) 206 (397) (695) (1,083) ------- ------- ----- ------ ------- Cash used in operating activities........ (2,152) (72) (711) (661) (445) ------- ------- ----- ------ ------- Investing Activities: Purchase of equipment, net and other.......... (473) (847) (358) (262) (47) Escrowed cash on sale of Canadian subsidiary................................. (225) 225 -- -- -- Proceeds on sale of partial interest in Labco...................................... -- -- 300 -- -- Increase in investment in Labco............... -- -- -- (133) (21) ------- ------- ----- ------ ------- Cash used in investing activities........ (698) (622) (58) (395) (68) ------- ------- ----- ------ ------- Financing Activities Reduction in long-term debt................... (43) (184) -- -- -- Increase (decrease) in bank debt and other.... 407 488 (412) 210 487 Proceeds on issuance of securities and other...................................... 2,308 171 888 905 -- Rent inducement............................... -- -- 108 -- -- Receipt of subscriptions receivable........... 100 -- -- -- -- ------- ------- ----- ------ ------- Cash provided by financing activities.... 2,772 475 584 1,115 487 ------- ------- ----- ------ ------- Decrease in cash................................ (78) (219) (185) 59 (26) Cash -- beginning of period..................... 564 486 267 267 43 Less cash held for sale......................... -- -- (39) -- -- ------- ------- ----- ------ ------- Cash -- end of period........................... $ 486 $ 267 $ 43 $ 326 $ 17 ======= ======= ===== ====== ======= Changes in components of non-cash working capital balances related to operations: Receivables................................... $(3,075) $ 1,249 $ 38 $ (757) $(1,125) Inventories................................... (593) (987) (281) 281 (31) Other current assets.......................... (50) (58) 60 (8) (26) Other assets.................................. -- -- (12) (32) -- Accounts payable and accrued liabilities...... 899 2 (202) (179) 99 ------- ------- ----- ------ ------- Decrease (increase) in operating assets net of operating liabilities arising from cash transactions.................................. $(2,819) $ 206 $(397) $ (695) $(1,083) ======= ======= ===== ====== =======
See notes to consolidated financial statements. F-5 56 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
CLASS A CLASS B COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK TOTAL --------------- --------------- --------------- --------------- PAID IN EQUITY SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ------ ------ ------ ------ ------ ------ ------ ------ ------ ------- Balance at December 31, 1992.... $ 709 2,423 $ 24 452 $ 564 166 $ 203 471 $ 941 $12,765 Exercise of stock options/ warrants.................... 1,315 156 2 1,313 1993 dividend on preferred stock....................... 0 11 114 Conversion of preferred stock to common................... 0 63 1 (7) (9 ) (83) (102 ) (153) (306 ) 416 Subscription receivable payments.................... 100 100 Sale of common stock in private placement, net...... 768 109 1 767 Sale of treasury stock........ 225 208 Net income.................... 595 Translation adjustments....... (66) ------ ----- --- ---- ----- --- ----- ---- ----- ------- Balance December 31, 1993....... 3,646 2,762 28 445 555 83 101 318 635 15,683 Exercise of stock options/warrants............ 168 72 1 167 Issuance of common stock pursuant to settlement of 1993 litigation............. 70 12 78 1994 dividend on preferred stock....................... 0 26 108 Net loss...................... (2,565) Translation adjustment........ (133) ------ ----- --- ---- ----- --- ----- ---- ----- ------- Balance December 31, 1994....... 1,186 2,872 29 445 555 83 101 318 635 16,036 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 Net loss...................... (827) Translation adjustment........ 68 ------ ----- --- ---- ----- --- ----- ---- ----- ------- Balance December 31, 1995....... 1,325 3,479 35 0 0 83 101 258 515 17,685* Conversion of preferred stock (unaudited)................. 0 12 (9) (10 ) (25) (50 ) 60 1996 dividend on preferred stock (unaudited)........... 0 7 24 Net income (unaudited)........ 564 Translation adjustment (unaudited)................. (5) Miscellaneous adjustment (unaudited)................. (4) (4) ------ ----- --- ---- ----- --- ----- ---- ----- ------- Balance June 30, 1996 (unaudited)................... $1,880 3,498 $ 35 0 $ 0 74 $ 91 233 $ 465 $17,765* ====== ===== === ==== ===== === ===== ==== ===== ======= ACCUMULATED FOREIGN TREASURY DEFICIT TRANSLATION STOCK ----------- ----------- -------- Balance at December 31, 1992.... $ (13,441) $(325) $(22) Exercise of stock options/ warrants.................... 1993 dividend on preferred stock....................... (114) Conversion of preferred stock to common................... Subscription receivable payments.................... Sale of common stock in private placement, net...... Sale of treasury stock........ 17 Net income.................... 595 Translation adjustments....... (66) -------- ----- ---- Balance December 31, 1993....... (12,960) (391) (5) Exercise of stock options/warrants............ Issuance of common stock pursuant to settlement of 1993 litigation............. (8) 1994 dividend on preferred stock....................... (108) Net loss...................... (2,565) Translation adjustment........ (133) -------- ----- ---- Balance December 31, 1994....... (15,633) (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....................... (82) Net loss...................... (827) Translation adjustment........ 68 -------- ----- ---- Balance December 31, 1995....... (16,542) (456) (13) Conversion of preferred stock (unaudited)................. 1996 dividend on preferred stock (unaudited)........... (24) Net income (unaudited)........ 564 Translation adjustment (unaudited)................. (1) (4) Miscellaneous adjustment (unaudited)................. -------- ----- ---- Balance June 30, 1996 (unaudited)................... $ (16,003) $(460) $(13) ======== ===== ====
- --------------- * At December 31, 1995 and June 30, 1996, net of notes receivable of $274 from the sale of stock. See notes to consolidated financial statements. F-6 57 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements comprise the accounts of the Company and its continuing subsidiary companies. All intercompany transactions have been eliminated. Principles of Translation Assets and liabilities of the Company's foreign subsidiaries are translated by using year-end exchange rates and income statement 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 Income (loss) per share is computed by dividing net income (loss), less preferred stock dividends, by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of the dilutive effect, if any, of unissued shares under options and warrants, computed using the treasury stock method (using the average stock prices for primary basis and the higher of average or period-end stock prices for fully diluted basis). In applying the treasury stock method, the provisions of Accounting Principles Board Opinion 15, paragraph 38 were considered and had a dilutive effect on the fully diluted earnings per share calculation for the six months ended June 30, 1996. The effect of this provision is to limit the number of shares assumed to have been purchased under the treasury stock method to 20% of outstanding shares and apply the excess proceeds to reduce borrowings and related interest expense. 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 F-7 58 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) recognize revenue on the percentage of completion method similar to its recognition method in the research and development business. For the year ended December 31, 1995, the Company had recognized revenues of $264,000 on jobs in process and had incurred related costs of $183,000, of which $210,000 were billed to customers at December 31, 1995. For the six months ended June 30, 1996, the Company had recognized revenues of $123,000 on jobs in process and had incurred costs of $60,000, of which $87,000 were billed to customers at June 30, 1996. 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 primarily to United States and Canadian governmental agencies. Long-Lived Assets Long-lived assets, such as property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. 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, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of ", which is effective for the fiscal years beginning after December 15, 1995. No write-downs have been necessary through June 30, 1996. Stock-Based Compensation The Company does not presently intend to adopt the fair value based method for accounting for stock compensation plans as permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", which is effective for transactions entered into in fiscal years that begin after December 15, 1995. Fair Value of Financial Instruments The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. Unaudited Information The consolidated balance sheet of the Company as of June 30, 1996, the consolidated statements of operations and cash flows for the six months ended June 30, 1996 and 1995, the consolidated statement of stockholders' equity for the six months ended June 30, 1996 and the notes to such financial statements, are unaudited. However, in the opinion of management, such financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. 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 F-8 59 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 inventories and equipment. 2. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY During the first quarter of 1995, the Company began to seek a purchaser for its then 47% interest in Barringer Laboratories, Inc. ("Labco"). Accordingly, the financial statements have been reclassified, where appropriate, to reflect Labco as an operation held for sale. Pursuant to the terms of a Stock Purchase Agreement, dated December 8, 1995 ("Agreement"), by and between the Company and Labco, on December 13, 1995 the Company sold to Labco 647,238 shares of Labco's common stock for an aggregate purchase price of $809,000, resulting in a gain of $93,000. The purchase price consisted of cancellation of all intercompany obligations and $300,000 in cash. After giving effect to the sale of the Labco shares, the Company continued to own 437,475 shares of Labco stock. Under the terms of the Agreement, all intercompany agreements between the Company and Labco terminated and certain collateral securing the Company's obligations thereunder was returned to the Company. However, pursuant to the terms of the Agreement, Labco retained 88,260 shares of Labco stock owned by the Company (the "Retained Shares"). In the event that Labco meets certain pre-tax earnings goals for 1996, those shares will be returned to the Company. If Labco does not meet such goals, all or a portion of such Retained Shares will be retained by Labco. The Company has reduced its gain by the value of the retained shares. The Company also agreed to terminate all voting arrangements allowing it to vote shares of Labco stock not owned by it and agreed for a period of 24 months not to enter into any such voting arrangements. In addition, the Company granted Labco the right, until January 2, 1997, to purchase shares of Labco stock owned by the Company in the event that the Company wishes to sell any additional shares. In connection with such right, the Company agreed to certain restrictions on the transferability of any Labco stock owned until January 2, 1997. The right of first refusal and the related restrictions will terminate upon the first to occur of (a) the sale, within twelve months of the date of the Agreement, of Labco stock sufficient to give any one person or entity ownership of 50% or more of the Labco stock, or (b) the change of more than three members of the Board of Directors of Labco, other than as a result of resignation, during any twelve month period after the date of the Agreement. After the transaction described above, the Company retained a 26% ownership interest in the common stock of Labco and is reporting its remaining interest in Labco under the equity method of accounting. 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 and to terminate the 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 must sell its Labco shares as provided above if it receives an offer to acquire such shares at a price per share at least equal to the Target Price. The restrictions described above also apply to any shares of Labco common stock issuable to the Company upon the exercise of certain warrants held by the Company. Labco has registered the Company's Labco shares for resale pursuant to the Securities Act to facilitate such sales. F-9 60 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In the Termination Agreement, the Company and Labco agreed 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, Stanley S. Binder and John J. Harte will resign their positions with Labco. The following are the condensed results of operations and condensed balance sheet for Labco: CONDENSED RESULTS OF OPERATIONS (IN THOUSANDS)
FOR THE YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, ------------------- ------------------- 1994 1995 1995 1996 ------ ------ ------ ------ (UNAUDITED) Revenues.................................. $5,941 $6,758 $3,089 $2,971 Costs and expenses........................ 5,797 6,198 2,971 2,893 ------ ------ ------ ------ 144 560 118 78 Minority interest......................... (76) (302) (63) -- ------ ------ ------ ------ Income from operation held for sale....... $ 68 $ 258 $ 55 -- ====== ====== ====== Net income................................ $ 78 ====== Equity in earnings of Labco............... $ 20 ======
CONDENSED BALANCE SHEET (IN THOUSANDS)
JUNE 30, 1996 DECEMBER 31, ----------- 1995 ------------ (UNAUDITED) Current assets............................................ $1,362 $ 1,301 Property and equipment, net............................... 541 482 Other noncurrent assets................................... 47 52 ------ ------ Total assets.................................... $1,950 $ 1,835 ====== ====== Current liabilities....................................... $ 908 $ 625 Long-term liabilities..................................... 33 122 Equity.................................................... 1,009 1,088 ------ ------ Total liabilities and equity.................... $1,950 $ 1,835 ====== ======
3. INVENTORIES At December 31, 1994 and 1995, and June 30, 1996, the Company had work in process of $982,000, $1,010,000 and $1,211,000 and finished goods of $808,000, $611,000, and $441,000, respectively. F-10 61 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT The major categories of property and equipment are as follows:
(IN THOUSANDS) DECEMBER 31, --------------------- JUNE 30, 1994 1995 1996 ------- ------- ----------- (UNAUDITED) Owned: Office equipment.............................. $ 359 $ 350 $ 350 Machinery and equipment....................... 2,856 1,687 1,740 Leasehold improvement......................... 1,012 64 64 ------- ------- ------- 4,227 2,101 2,154 Accumulated depreciation...................... (3,279) (1,515) (1,596) ------- ------- ------- 948 586 558 ------- ------- ------- Capital leases: Machinery and equipment....................... 912 -- -- Accumulated amortization...................... (496) -- -- ------- ------- ------- 416 -- -- ------- ------- ------- Totals................................ $ 1,364 $ 586 $ 558 ======= ======= =======
5. BANK INDEBTEDNESS, OTHER NOTES AND ACCRUED LIABILITIES The Company's Canadian subsidiary, Barringer Research Ltd. ("BRL"), has a financing arrangement with the Ontario Development Corporation ("ODC") for a $730,000 export line of credit. BRL may borrow up to $730,000 on a formula basis of 90% of export accounts receivable plus 70% of the value of export purchase orders (subject to a maximum sub-limit of $230,000). The rate of interest is adjusted quarterly and was 10% at June 30, 1996. At June 30, 1996, the line was fully utilized. BRL also has a line of credit financing arrangement with the Toronto-Dominion Bank ("Bank") that provides up to $730,000 based on eligible receivables. The rate of interest is Canadian prime plus 1.5% (8% at June 30, 1996). At December 31, 1995, $295,000 was borrowed. At June 30, 1996, BRL had $250,000 available pursuant to the borrowing formula under this facility. This facility is guaranteed by the Company. Commencing in March 1995, BRL had not been in compliance with the collateral coverage covenant of the loan agreement. The amount of funds borrowed were in excess of the amount allowed pursuant to the collateral formula. At that time, the Bank agreed to give BRL approximately six months to comply with this formula. During this time, the Bank continued to finance BRL's needs. On September 28, 1995, the Company entered into an agreement ("Agreement") with the Bank, pursuant to which the Bank agreed that BRL would have until September 30, 1995 to comply with certain amended covenants specified in the Agreement and to maintain such requirements thereafter. In exchange, the Company agreed to remit 50% of the net proceeds realized on the sale of a portion of its stock in Labco (see Note 2) to BRL. In addition, the Company agreed to provide the Bank with additional collateral to secure its advances to BRL, resulting in the pledge of substantially all the assets of the Company as collateral. At September 30, 1995, BRL was in compliance with such covenants. However, at December 31, 1995 BRL was not in compliance with the minimum working capital requirement and at January 31 and February 29, 1996 BRL's borrowings under the line of credit exceeded the amount available thereunder. The Bank notified BRL of such defaults, and without waiving any other remedies available to it, has charged BRL an interest rate of 21% on the excess of such allowable borrowings. At June 30, 1996 BRL was not in compliance with the minimum working capital or the minimum net worth requirements. BRL was in compliance at August 31, 1996, although, there can be no assurances that F-11 62 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) BRL will remain in compliance in the future. Management believes that the Bank will continue to provide funding consistent with past practices, however, the Company cannot predict what actions, if any, the Bank may take or as to the timing thereof. Accrued liabilities consisted of the following:
(IN THOUSANDS) DECEMBER 31, --------------- JUNE 30, 1994 1995 1996 ----- ----- ----------- (UNAUDITED) Accrued commissions.................................... $ 404 $ 27 $ -- Accrued other.......................................... 545 696 902 ---- ---- ---- $ 949 $ 723 $ 902 ==== ==== ====
6. LONG-TERM DEBT AND OTHER LIABILITIES Long-term debt consists of the following:
(IN THOUSANDS) DECEMBER 31, --------------- JUNE 30, 1994 1995 1996 ----- ----- ----------- (UNAUDITED) 12 1/2% Convertible subordinated debentures(a)......... $ 300 $ 300 $ 300 Capital leases......................................... 344 -- -- Other(b)............................................... 37 108 113 ---- ---- ---- 681 408 413 Less: Current portion.................................. (230) (300) (300) ---- ---- ---- $ 451 $ 108 $ 113 ==== ==== ====
- --------------- (a) The 12 1/2% Convertible Subordinated Debentures were due July 17, 1996 and were convertible at face amount into common stock any time before maturity at $32.00 per share (9,375 shares of common stock reserved at June 30, 1996). Under the terms of the Indenture, so long as these debentures were outstanding, the Company could not pay cash dividends, nor make any payment on account of the purchase, redemption or other acquisition or retirement of its capital stock. The 12 1/2% Convertible Subordinated Debentures were repaid on July 15, 1996 with a portion of the net proceeds from the sale of $1,000,000 of 6% Convertible Subordinated Debentures due 1997 (see Note 14). (b) Other long-term liabilities at December 31, 1995 and June 30, 1996 represents rents payable on the Company's Canadian facility. 7. STOCKHOLDERS' EQUITY Private Offering On May 9, 1995, the Company completed the private placement 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 $2.00 per share. In addition, in order to induce the purchasers to enter into this transaction, an additional three-year warrant to acquire 37,500 shares of the Company's common stock at $2.00 per share was issued. On June 30, 1995, the Company completed a private placement in which it sold 28 similar Units, including 22 Units to 17 members of senior management and the Company's Board of Directors, for proceeds aggregating $168,000. This private placement did not include the additional three-year warrant. F-12 63 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Due from Officers/Stockholders 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 under the Company's stock option exercise program. 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. As of June 30, 1996, the notes were still outstanding. Common Stock Outstanding or Reserved for Issuance The following table sets forth the number of shares of Common Stock outstanding as of December 31, 1995 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.
COMMON STOCK OUTSTANDING EXERCISE, OR CONVERSION OR RESERVED FOR OPTION PRICE ISSUANCE --------------- ------------ Common stock.......................................... 3,479,131 Convertible subordinated notes........................ $32.00 9,375 Class A convertible preferred stock................... $6.06 27,439 Class B convertible preferred stock................... $6.19 83,147 Stock options(i)...................................... $2.00 to $14.00 234,500 Private placement warrants(ii)........................ $2.00 420,000 Other warrants(iii)................................... $4.00 to $14.23 68,750 --------- Total....................................... 4,322,342 =========
- --------------- (i) Stock Options -- Pursuant to the Company's 1990 Stock Option Plan the Company was authorized to issue both incentive stock options and qualified stock options. Options granted under the 1990 Stock Option Plan are exercisable after the expiration of two years from the date of grant until the expiration of five years after the date of grant. Options are exercisable only during the optionee's employment with the Company or a subsidiary of the Company. The Company also was permitted to grant stock options to consultants as authorized by the Board of Directors. These options are exercisable at varying times from date of grant and expire five years from date of grant. No shares are available for issuance under the 1990 Stock Option Plan. During the six months ended June 30, 1996, the Company issued non-qualified options to purchase 253,000 shares of the Company's common stock at a price of $1.00 per share to 20 employees which equaled the fair market value of the Common Stock on the date of grant. 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. During 1995, the Company issued non-qualified options to purchase 181,375 shares of the Company's common stock at a price of $2.00 per share to 20 employees and 5,625 options were canceled. 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 two years, 80% after the third year and 100% after the fourth year. During 1994 no options were issued and 6,250 options were canceled. During 1993, the Company issued options to purchase 13,750 shares of common stock at a price of $14.00 per share to 6 employees and 25,000 options were canceled. All outstanding stock options expire between July 17, 1996 and April 25, 2001. F-13 64 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. The warrants expire between May 9, 1998 and June 29, 2000. (iii) Other warrants -- During 1994, 60,600 Class D Warrants and 16,537 Underwriter's Warrants were exercised for an aggregate exercise price of $165,00, resulting in the issuance of 22,958 shares of common stock and 16,537 Class E Warrants. Both the Class D Warrants and the Class E Warrants have expired. In September 1994, the Company issued warrants to purchase 6,250 shares of the Company's common stock at $5.25 per share to the Ontario Development Corporation in connection with their increase in the export financing facility available to the Company's Canadian subsidiary, from $365,000 to $730,000). See Note 5 for additional information. On December 31, 1991, the Board of Directors adopted the 1991 Directors Warrant Plan ("Plan"). Pursuant to the Plan, each non-employee director will be sold a five-year warrant to purchase 3,750 shares of Common Stock at an exercise price to be determined by the Board at the time of such sale, but shall not be less than the current market price for such shares at the time of issuance of the warrant. During 1994, warrants to purchase 3,750 shares were issued to a director at $9.64 per share, subject to adjustment. No warrants were issued under the Plan in 1995 or during the six months ended June 30, 1996. On April 7, 1995, the Company issued warrants to purchase 6,250 shares of the Company's common stock at $4.00 per share to Labco in connection with the extension by Labco of an intercompany obligation, which was subsequently paid. All of the other warrants described herein expire between April 1, 1996 and January 12, 1999. Increase in Authorized Shares At the 1995 Annual Meeting of Stockholders, the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of capital stock of the Company from 7,000,000 to 12,000,000, comprised of 7,000,000 shares of Common Stock, 1,000,000 shares of Convertible Preferred Stock, par value $1.25 per share and 4,000,000 shares of Preferred Stock, par value $2.00 per share. The stockholders also approved a one for four reverse stock split of the Company's common stock. 8. INCOME TAXES Effective January 1, 1993 the Company prospectively adopted Financial Accounting Standards No 109 "Accounting for Income Taxes". The adoption had no effect on prior year financial statements presented. Accordingly, there was no cumulative effect adjustment required in the year ended December 31, 1993. F-14 65 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision for income taxes (benefits) charged to continuing operations are as follows:
(IN THOUSANDS) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------- ------------- 1993 1994 1995 1995 1996 ----- ---- ---- ---- ---- (UNAUDITED) Current Tax Expense: U.S.......................................... -- -- -- -- -- Canadian..................................... $ 147 -- -- -- -- ----- --- --- --- ---- Total Current............................. 147 -- -- -- -- ----- --- --- --- ---- Deferred Tax Expense (Benefit): Canadian..................................... (300) $75 -- -- -- ----- --- --- --- ---- Total Deferred............................ (300) 75 -- -- -- ----- --- --- --- ---- Total income tax provision (benefit).......................... $(153) $75 $ 0 $ 0 $ 0 ===== === === === ====
Deferred tax assets are comprised of the following temporary differences and carryforwards at December 31:
(IN THOUSANDS) 1994 1995 ------- ------- Nondeductible allowances against trade receivables............... $ 206 $ 15 Nondeductible inventory reserves................................. 133 90 Nondeductible expense accruals................................... 52 50 Depreciation..................................................... 82 50 Other............................................................ 10 10 Tax benefit of U.S. operating loss carry forwards................ 6,552 6,870 Tax benefit of Canadian operating loss and investment credit carry forwards................................................. 850 790 ------- ------- Gross deferred tax assets...................................... 7,885 7,875 Deferred tax assets valuation allowance.......................... (7,660) (7,650) ------- ------- Net deferred tax asset................................. $ 225 $ 225 ======= =======
As a result of the Company's history of losses, a valuation allowance has been provided for all U.S. deferred tax assets and for substantially all of the Canadian deferred tax assets. The net deferred tax asset relates to the Company's Canadian subsidiary, which has available tax credits and loss carryforwards. The Canadian subsidiary has a history of profitability, despite the consolidated losses of the Company. Based on this history and estimated 1996 earnings, which includes earnings from certain contracts, as well as available tax planning strategies, management considers realization of the unreserved deferred tax asset more likely than not. During 1995 the Canadian subsidiary realized tax loss carryforwards of approximately $75,000 with a tax benefit of approximately $29,000. F-15 66 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) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------- --------------- 1993 1994 1995 1995 1996 ----- ----- ----- ----- ----- (UNAUDITED) Income taxes (benefit) computed at the U.S. statutory rate.................... $ 155 $(821) $(280) $(125) $ 197 U.S. losses for which no tax benefit has been recognized........................ 315 943 398 125 51 Consolidated subsidiaries outside the U.S.: Change in deferred tax asset valuation allowance........................... (300) 75 (89) -- -- Use of Canadian tax credits and net operating loss carryforwards to offset Canadian income net of effect of U.S./ Canada tax rate differential........................ (323) (122) (29) -- (248) ----- ----- ----- ----- ----- Provision (benefit) for income taxes..... $(153) $ 75 $ 0 $ 0 $ 0 ===== ===== ===== ===== =====
At December 31, 1995, the Company has net operating loss carryforwards of approximately $13,152,000 for federal income tax purposes which expire in varying amounts through 2011. The Company also has Canadian net operating loss carryforwards of approximately $2,190,000 and research and development investment tax credits of approximately $730,000 which expire in varying amounts through 2005. 9. COMMITMENTS The Company rents facilities, automobiles and equipment under various operating leases. Rental expenses under such leases amounted to $280,000, $191,000 and $108,000 for 1995, 1994 and 1993, respectively. At December 31, 1995, the aggregate minimum commitments pursuant to operating leases are as follows:
YEAR ENDING DECEMBER 31, ------------------------------------------------------------------ 1996............................................................ $275,000 1997............................................................ 269,000 1998............................................................ 160,000 1999............................................................ 121,000 2000 and thereafter............................................. 545,000
10. PENSION PLAN The Company's Canadian subsidiary's defined benefit pension plan, which covered its Canadian employees, was terminated at December 31, 1993. At the same time, it established a money purchase plan that is structured after the 401(k) salary deferral plan available to all U.S. employees and as such, does not establish any corporate obligation other than a discretionary matching formula to employee contributions. As a result of the termination, the Company recognized a gain of $214,000, representing the excess of the Plan's projected benefit obligation over the accumulated benefit obligation, in 1993 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 will be put into a money purchase contract F-16 67 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and used by the Company to provide for its matching contributions under the new arrangement. This amount is being carried as a prepaid pension expense asset on the balance sheet. The Company maintains a 401(k) salary deferral plan instituted for all U.S. employees with more than one year of service. As a money purchase plan, it does not establish any Company liability other than a matching formula to employee contributions. The aggregate cost of the plan for 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 was $14,000, $16,000, $15,700, $8,000 and $9,000, respectively. 11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION The Company made cash payments for interest of $180,000, $246,000, $189,000, $150,000 and $107,000 for the three years ended December 31, 1995 and for the six months ended June 30, 1995 and 1996. Additionally, income taxes of $123,000 and $3,500 were paid for the years ended December 31, 1993 and 1994. The Company did not pay income taxes for the year ended December 31, 1995 or for the six-month periods ended June 30, 1995 and 1996. In the three years ended December 31, 1995 and for the six months ended June 30, 1995 and 1996 the Company paid Preferred Stock dividends in the amount $114,000, $108,000, $82,000, $51,000 and $24,000 in the form of 11,338, 25,291, 65,417, 17,232 and 7,950 shares of common stock, respectively. 12. INFORMATION CONCERNING THE COMPANY'S PRINCIPAL ACTIVITIES A summary of the Company's continuing operations by geographic area for the three years ended December 31, and the six months ended June 30, 1995 and 1996 is as follows:
(IN THOUSANDS) SIX MONTHS ENDED YEAR ENDED DECEMBER 31 JUNE 30, ------------------------------- ------------------- 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- (UNAUDITED) Total sales of goods and services: United States.................. $ 4,061 $ 1,862 $ 1,867 $ 845 $ 1,394 Canada......................... 6,185 5,593 5,110 2,346 3,690 Europe......................... -- -- 1,599 708 1,590 Eliminations................... (2,476) (1,941) (2,202) (789) (1,662) ------- ------- ------- ------- ------- Totals................. $ 7,770 $ 5,514 $ 6,374 $ 3,110 $ 5,012 ======= ======= ======= ======= ======= Income (loss) from continuing operations: United States.................. $ (902) $(2,653) $(1,548) $ (247) $ (146) Canada......................... 1,495 20 270 (190) 577 Europe......................... -- -- 100 81 133 ------- ------- ------- ------- ------- $ 593 $(2,633) $(1,178) $ (356) $ 564 ======= ======= ======= ======= ======= Identifiable assets: United States.................. $ 8,982 $ 6,400 $ 4,253 $ 5,568 $ 4,158 Canada......................... 3,890 4,422 6,248 6,394 7,366 Europe......................... -- -- 696 718 1,210 Eliminations................... (3,933) (4,030) (6,462) (6,402) (6,853) ------- ------- ------- ------- ------- Totals................. $ 8,939 $ 6,792 $ 4,735 $ 6,278 $ 5,881 ======= ======= ======= ======= =======
F-17 68 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Export sales, including sales from Canada to other countries, comprised 43.8% 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 three years ended December 31, 1995 and the six months ended June 30, 1996 is as follows:
(IN THOUSANDS) RESEARCH AND CORPORATE TOTAL ELIMINATION DEVELOPMENT INSTRUMENTS AND OTHER ------- ----------- ----------- ----------- ---------- June 30, 1996 (Unaudited): Revenues....................... $ 5,012 $ 594 $ 4,329 $ 89 ======= ====== ======= ======= Operating Income (loss)........ $ 667 $ (30) $ 1,030 $ (333) ====== ======= ======= Interest expense and other..... (103) ------- Income before income taxes..... $ 564 ======= Depreciation and amortization................. $ 75 $ 11 $ 49 $ 15 ======= ====== ======= ======= Capital expenditures........... $ 47 -- $ 47 -- ======= ====== ======= ======= Identifiable assets............ $ 5,881 $(6,853) $ 240 $ 9,563 $ 2,931 ======= ======= ====== ======= ======= 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 ======= ======= ====== ======= ======= 1994: Revenues....................... $ 5,514 $ 298 $ 5,216 -- ======= ====== ======= ======= Operating income (loss)........ $(2,469) $ (208) $(1,075) $ (1,186) ====== ======= ======= Interest expense and other..... (89) ------- Loss before income taxes....... $(2,558) ======= Depreciation and amortization................. $ 320 $ 8 $ 280 $ 32 ======= ====== ======= ======= Capital expenditures........... $ (491) -- $ (491) -- ======= ====== ======= ======= Identifiable assets............ $ 5,003 $(4,030) $ 302 $ 5,486 $ 3,245 ======= ====== ======= ======= Identifiable assets -- held for sale......................... 1,789 ------- Identifiable assets -- per balance sheet................ $ 6,792 =======
F-18 69 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS) RESEARCH AND CORPORATE TOTAL ELIMINATION DEVELOPMENT INSTRUMENTS AND OTHER ------- ----------- ----------- ----------- --------- 1993: Revenues....................... $ 7,770 $ 1,009 $ 6,761 -- ======= ====== ======= ======= Operating income (loss)........ $ 541 $ (56) $ 1,709 $(1,112) ====== ======= ======= Interest expense and other..... (101) ------- Income before income taxes..... $ 440 ======= Depreciation and amortization................. $ 214 $ 20 $ 162 $ 32 ======= ====== ======= ======= Capital expenditures........... $ 120 -- $ 116 $ 4 ======= ====== ======= ======= Identifiable assets -- continuing operations................... $ 7,144 $(3,933) $ 325 $ 6,363 $ 4,389 ======= ====== ======= ======= Identifiable assets -- held for sale......................... 1,795 ------- Identifiable assets -- per balance sheet................ $ 8,939 =======
13. FOURTH QUARTER ADJUSTMENTS During the fourth quarter of 1995, the Company recorded adjustments for estimated losses on inventories and receivables of approximately $450,000 and $200,000, respectively. During the fourth quarter of 1994, the Company recorded adjustments for estimated losses on inventories and receivables of approximately $800,000 and $515,000, respectively. 14. SUBSEQUENT EVENT On July 10, 1996, the Company completed the sale of $1,000,000 of its 6% Convertible Subordinated Debentures, due 1997, in a private transaction to private investors including members of management. These debentures are due July 9, 1997 and are convertible into shares of the Company's Common Stock at the rate of $2.75 per share of Common Stock 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 (see Note 6). F-19 70 Photo #4 Shows a security agent using a portable Model 400 IONSCAN(R) to check for explosives in luggage on board a European train. Photo #5 Shows a security agent using a suction device to obtain samples from a piece of checked luggage for testing using the Model 400 IONSCAN(R). Photo #6 Shows a portable Model 400 IONSCAN(R) ready for use on the tarmac at a French airbase. 71 - ------------------------------------------------------ - ------------------------------------------------------ NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK AND WARRANTS OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. ------------------------ TABLE OF CONTENTS Available Information................. 3 Forward-Looking Statements............ 3 Prospectus Summary.................... 4 Risk Factors.......................... 7 Use of Proceeds....................... 12 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............................ 34 Security Ownership of Certain Beneficial Owners and Management.... 39 Certain Relationships and Related Transactions........................ 40 Description of Capital Stock.......... 41 Description of Warrants............... 44 Underwriting.......................... 47 Legal Matters......................... 48 Experts............................... 49 Index to Consolidated Financial Statements.......................... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ 1,000,000 SHARES OF COMMON STOCK AND 1,000,000 COMMON STOCK PURCHASE WARRANTS [ BARRINGER LOGO ] BARRINGER TECHNOLOGIES INC. ------------------------ PROSPECTUS ------------------------ JANNEY MONTGOMERY SCOTT INC. , 1996 - ------------------------------------------------------ - ------------------------------------------------------ 72 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article Tenth of the Certificate of Incorporation, as amended (the "Certificate of Incorporation"), and Section 10 of 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. Article Tenth of 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 73 ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table lists the expenses which will be incurred in connection with the issuance and distribution of the Securities being registered:
EXPENSE -------- SEC Registration Fee.............................................. $ 4,568 National Association of Securities Dealers, Inc. Filing Fee....... 2,007 NASDAQ Listing Fee................................................ 40,727 Accounting Fees and Expenses...................................... 75,000 Legal Fees and Expenses........................................... 175,000 Blue Sky Fees and Expenses........................................ 25,000 Printing and Engraving............................................ 110,000 Miscellaneous..................................................... 42,698 -------- TOTAL................................................... $475,000 ========
All of the above amounts, other than the registration fee, are estimates only. All of the above expenses will be paid by the Company. 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 Company's common stock, $.01 par value (the "Common Stock") effected on September 25, 1995): (i) On July 10, 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 exemptions provided by Section 4(2) of the Securities Act. There were no underwriters for this issuance. (ii) On June 30, 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 exemptions provided by Section 4(2) of the Securities Act. There were no underwriters for this issuance. (iii) On May 9, 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 exemptions provided by Section 4(2) of the Securities Act. There were no underwriters for this issuance. (iv) At various times between October 1993 and October 1996, the Company granted stock options to certain employees of the Company covering an aggregate of 434,375 shares of Common Stock. These grants were exempt from registration pursuant to Securities Act Release No. 33-6188 (Feb. 1, 1980). No underwriter was involved in these grants. II-2 74 ITEM 27. EXHIBITS The following exhibits are filed as part of this Registration Statement: 1.1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation of the Company, as amended.(1) 3.2 Bylaws of the Company.(2) 4.1 Form of Warrant Agreement.* 4.2 Form of Warrant to be issued to Janney Montgomery Scott Inc.* 5.1 Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.* 10.1 Employment Agreement between Stanley S. Binder and the Company dated as of July 10, 1989.(3) 10.2 Form of Employment Agreement between Richard S. Rosenfeld and the Company.* 10.3 Form of Employment Agreement between Kenneth S. Wood and the Company.* 10.4 Consulting Agreement between John J. Harte and the Company dated as of January 1, 1991. 10.5 Barringer Resources, Inc. 1990 Stock Option Plan.(4) 10.6 Form of 1995 nonqualified stock option agreement. 10.7 Form of 1996 nonqualified stock option agreement. 10.8 Description of 1991 Warrant Plan. 10.9 Description of Exercise Plan. 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. 10.11 Termination Agreement between the Company and Labco dated October 7, 1996. 10.12 Unit Purchase Agreement and Form of Warrant Agreement by and between the Company, Special Situations Fund III, L.P. and Special Situations Cayman Fund, L.P. dated May 9, 1995.(5) 10.13 Form of Subscription Agreement and Form of Warrant Agreement by and between the Company and certain officers and directors of the Company, dated as of June 30, 1995.(6) 10.14 Form of Debenture Purchase Agreement dated as of July 10, 1996, by and between the Company and certain accredited investors. 10.15 Loan Agreement dated September 20, 1994 by and between Ontario Development Corporation and Barringer Research Limited.(7) 10.16 Agreement dated September 28, 1995 between the Toronto-Dominion Bank, the Company and Barringer Research Limited.(8) 10.17 Lease between the Company and Murray Hill Inn Associates dated as of February 17, 1993. 10.18 Lease between BRL and Lehndorff Management Limited ("Lehndorff") dated as of July 27, 1995. 10.31 Form of Stock Purchase Agreement dated as of November 30, 1992 by and between the Company and certain accredited investors.(9) 10.33 Stock Purchase Agreement dated as of February 2, 1993 by and between the Company and Special Situations Cayman Funds, L.P.(9) 10.34 Form of Stock Purchase Agreement dated as of December 13, 1993 by and between the Company and certain accredited investors.(9) 11 Earnings per share computation for the six months ended June 30, 1996.(10) 21 List of Subsidiaries of the Company.
II-3 75 23.1 Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. (included in Exhibit 5.1 to this registration statement). 23.2 Consent of BDO Seidman, LLP, independent certified public accountants. 24.1 Power of Attorney (included on the signature page).
- --------------- * To be filed by Amendment. (1) Incorporated by reference to Exhibit 3.1A to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, File No. 0-3207. (2) Incorporated by reference to 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. (3) Incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1, File No. 33-3162. (4) Incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 0-3207. (5) Incorporated by reference to Exhibit 4.17 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, File No. 0-3207. (6) Incorporated by reference to Exhibit 4.19 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, File No. 0-3207. (7) Incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, File No. 0-3207. (8) Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on October 13, 1995, File No. 0-3207. (9) Incorporated by reference to the identically numbered Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File No. 0-3207. (10) Incorporated by reference to the identically numbered Exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1996, File No. 0-3207. ITEM 28. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) For the purpose of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act, shall be deemed a part of this Registration Statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (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 indemnifications, 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-4 76 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 registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New Providence, State of New Jersey, on October 8, 1996. BARRINGER TECHNOLOGIES INC. By: /s/ STANLEY S. BINDER ------------------------------------ Stanley S. Binder, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated below on October 8, 1996. Each of the undersigned hereby constitutes and appoints Stanley S. Binder and Richard S. Rosenfeld, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement on Form SB-2 relating to the securities offered pursuant hereto and to file the same, together with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and such other state and federal government commissions and agencies as may be necessary or advisable, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE - --------------------------------------------- ----------------------------------------- /s/ STANLEY S. BINDER President, Chief Executive Officer - --------------------------------------------- (Principal Executive Officer) and Stanley S. Binder Director /s/ JOHN D. ABERNATHY Director - --------------------------------------------- John D. Abernathy /s/ RICHARD D. CONDON Director - --------------------------------------------- Richard D. Condon /s/ JOHN H. DAVIES Director - --------------------------------------------- John H. Davies /s/ JOHN J. HARTE Director - --------------------------------------------- John J. Harte /s/ JAMES C. MCGRATH Director - --------------------------------------------- James C. McGrath /s/ RICHARD S. ROSENFELD Vice President-Finance, Chief Financial - --------------------------------------------- Officer and Treasurer (Principal Richard S. Rosenfeld Accounting and Financial Officer)
II-5 77 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- --------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement................................... 3.1 Certificate of Incorporation of the Company, as amended(1)....... 3.2 Bylaws of the Company(2)......................................... 4.1 Form of Warrant Agreement*....................................... 4.2 Form of Warrant to be issued to Janney Montgomery Scott Inc.*.... 5.1 Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.*..... 10.1 Employment Agreement between Stanley S. Binder and the Company dated as of July 10, 1989(3)..................................... 10.2 Form of Employment Agreement between Richard S. Rosenfeld and the Company*......................................................... 10.3 Form of Employment Agreement between Kenneth S. Wood and the Company*......................................................... 10.4 Consulting Agreement between John J. Harte and the Company dated as of January 1, 1991............................................ 10.5 Barringer Resources, Inc. 1990 Stock Option Plan(4).............. 10.6 Form of 1995 nonqualified stock option agreement................. 10.7 Form of 1996 nonqualified stock option agreement................. 10.8 Description of 1991 Warrant Plan................................. 10.9 Description of Exercise Plan..................................... 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............................................ 10.11 Termination Agreement between the Company and Labco dated October 7, 1996.......................................................... 10.12 Unit Purchase Agreement and Form of Warrant Agreement by and between the Company, Special Situations Fund III, L.P. and Special Situations Cayman Fund, L.P. dated May 9, 1995(5)........ 10.13 Form of Subscription Agreement and Form of Warrant Agreement by and between the Company and certain officers and directors of the Company, dated as of June 30, 1995(6)............................ 10.14 Form of Debenture Purchase Agreement dated as of July 10, 1996, by and between the Company and certain accredited investors...... 10.15 Loan Agreement dated September 20, 1994 by and between Ontario Development Corporation and Barringer Research Limited(7)........ 10.16 Agreement dated September 28, 1995 between the Toronto-Dominion Bank, the Company and Barringer Research Limited(8).............. 10.17 Lease between the Company and Murray Hill Inn Associates dated as of February 17, 1993............................................. 10.18 Lease between BRL and Lehndorff Management Limited ("Lehndorff") dated as of July 27, 1995........................................
78
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- --------------------------------------------------------------------------------- 10.31 Form of Stock Purchase Agreement dated as of November 30, 1992 by and between the Company and certain accredited investors(9)...... 10.33 Stock Purchase Agreement dated as of February 2, 1993 by and between the Company and Special Situations Cayman Funds, L.P.(9).......................................................... 10.34 Form of Stock Purchase Agreement dated as of December 13, 1993 by and between the Company and certain accredited investors(9)...... 11 Earnings per share computation for the six months ended June 30, 1996(10)......................................................... 21 List of Subsidiaries of the Company.............................. 23.1 Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. (included in Exhibit 5.1 to this registration statement)......... 23.2 Consent of BDO Seidman, LLP, independent certified public accountants...................................................... 24.1 Power of Attorney (included on the signature page)...............
- --------------- * To be filed by amendment. (1) Incorporated by reference to Exhibit 3.1A to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, File No. 0-3207. (2) Incorporated by reference to 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. (3) Incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1, File No. 33-3162. (4) Incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 0-3207. (5) Incorporated by reference to Exhibit 4.17 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, File No. 0-3207. (6) Incorporated by reference to Exhibit 4.19 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, File No. 0-3207. (7) Incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, File No. 0-3207. (8) Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on October 13, 1995, File No. 0-3207. (9) Incorporated by reference to the identically numbered Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File No. 0-3207. (10) Incorporated by reference to the identically numbered Exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1996, File No. 0-3207. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 1,000,000 SHARES OF COMMON STOCK 1,000,000 COMMON STOCK PURCHASE WARRANTS BARRINGER TECHNOLOGIES INC. UNDERWRITING AGREEMENT , 1996 JANNEY MONTGOMERY SCOTT INC. 1801 Market Street 20th Floor Philadelphia, Pennsylvania 19103 Attention: Syndicate Department Dear Ladies and Gentlemen: Barringer Technologies Inc., a Delaware corporation (the "Company"), proposes to issue and sell to the several underwriters named in Schedule I hereto (the "Underwriters") 1,000,000 shares of its Common Stock, par value $.01 per share (the "Common Stock") and 1,000,000 Common Stock Purchase Warrants. Each such Warrant shall represent the right to acquire one-half share of Common Stock, shall expire three years from the effective date of the public offering, shall be exercisable at a price equal to 120% of the public offering price per share of Common Stock for the first twelve months from the date of issuance, at a price equal to 130% of such public offering price during the ensuing twelve months and at a price equal to 140% of such price during the last twelve months of the term of such Warrants, and shall contain such other terms and conditions as are set forth in the related exhibit to the Registration Statement described below. The 1,000,000 shares of Common Stock to be purchased by the Underwriters are hereinafter referred to as the "Firm Shares" and the 1,000,000 Common Stock Purchase Warrants to be purchased by the Underwriters as the "Firm Warrants". The Firm Shares and Firm Warrants are hereinafter collectively referred to as the "Firm Securities". In addition, the Company proposes to grant to the several Underwriters, solely for the purpose of covering over-allotments, the option described in Section 5 of this agreement (the "Agreement") to purchase up to 150,000 additional shares of Common Stock of the Company (the "Additional Shares") and 150,000 additional Common Stock Purchase Warrants (the "Additional Warrants"). The Additional Shares and the Additional Warrants are hereinafter collectively referred to as the "Additional Securities". The Additional Securities may only be purchased on the basis of one Additional Warrant for each Additional Share purchased. 2 The Firm Securities and the Additional Securities, and the shares of Common Stock issuable on exercise of the Firm Warrants and the Additional Warrants are hereinafter collectively referred to as the "Offered Securities"; the Offered Securities and the Representative's Securities (itself defined in Section 6 hereof) collectively as the "Securities"; all the warrants included in the Securities as the "Warrants" and all of the shares of Common Stock issuable on exercise of the Warrants as the "Warrant Shares". You, as representative of the Underwriters (the "Representative"), have advised the Company that you and the other Underwriters desire to purchase, severally and not jointly, the Firm Securities and that you have been authorized by the Underwriters to execute this Agreement on their behalf. The Company hereby confirms the agreement made by it with respect to the purchase of the Firm Securities by the several Underwriters on whose behalf you are signing this agreement, as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and agrees with, each of the Underwriters that: (a) REGISTRATION STATEMENT AND PROSPECTUS. The Company has filed with the Securities and Exchange Commission ("Commission") a registration statement on Form SB-2 (No. 333-_________) for the registration under the Securities Act of 1933, as amended ("Securities Act"), of the Securities, and may have filed one or more amendments thereto, copies of which have heretofore been delivered to you. The registration statement, including the prospectus, financial statements and exhibits, when it shall become effective, and such additional information, if any, with respect to the offering permitted to be omitted from such registration statement when it becomes effective if subsequently filed with the Commission pursuant to Rule 430A of the General Rules and Regulations of the Commission under the Securities Act (the "Rules under the Securities Act"), is hereinafter called the "Registration Statement" and the final prospectus included as part of the Registration Statement is herein called the "Prospectus", except that, if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the Rules under the Securities Act), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use. The term "Preliminary Prospectus" as used in this agreement means a preliminary prospectus as defined in Rule 430 of the Rules under the Securities Act. The Securities Act, the Securities Exchange Act of 1934, as amended ("Exchange Act"), and the rules and regulations promulgated thereunder are sometimes collectively referred to in this agreement as the "Acts." All contracts and documents required by the Acts to be filed or submitted in connection with the Registration Statement have been so filed or submitted. 2 3 (b) COMPLIANCE WITH SECURITIES ACT, ETC. When the Registration Statement shall become effective and at all times subsequent thereto, up to and including the Closing Date and the Option Closing Date (as such terms are herein defined), and during such longer period until any post-effective amendment to the Registration Statement shall become effective, the Registration Statement (and any post-effective amendment to the Registration Statement) will contain all statements which are required to be stated therein in accordance with the Securities Act and the Rules under the Securities Act, will fully comply in all material respects with the applicable provisions of the Securities Act and the Rules under the Securities Act, and the Registration Statement and any post-effective amendment to the Registration Statement will not contain any untrue statement of a material fact and will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and the Prospectus and any amendment or supplement thereto will at all times up to and including the Closing Date and the Option Closing Date (as hereinafter defined), and during such longer period as the Prospectus may be required to be delivered in connection with sales of Securities by the Underwriters or any dealer, or in connection with the issuance and sale by the Company of shares of Common Stock on exercise of any of the Warrants fully comply in all material respects with the provisions of the Securities Act and the Rules under the Securities Act and will not contain any untrue statement of a material fact and will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to the information contained in or omitted from the Registration Statement and any post-effective amendment to the Registration Statement or the Prospectus or any amendment of, or supplement to, either of them in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representative specifically for use in connection with the preparation of the Registration Statement or of the Prospectus. It is understood that for all purposes of this Agreement the statements set forth in the Prospectus on page 2 with respect to stabilization, under the section entitled "Underwriting" and the identity of counsel for the Underwriters under the section entitled "Legal Matters" constitute the only information furnished in writing by or on behalf of the Underwriters for inclusion in the Registration Statement and Prospectus. (c) NO STOP ORDER, ETC. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus, and each Preliminary Prospectus, at the time of filing thereof, fully complied in all material respects with the provisions of the Securities Act and the Rules under the Securities Act and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to the information contained in or omitted from any Preliminary Prospectus in reliance 3 4 upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representative specifically for use in connection with the preparation of such Preliminary Prospectus. (d) ACCOUNTANTS. BDO Seidman, LLP has audited the audited financial statements filed as part of the Registration Statement and those included in the Prospectus, to the extent set forth in their reports in the Registration Statement and Prospectus, and are independent public accountants as required by the Securities Act and the Rules under the Securities Act. (e) FINANCIAL STATEMENTS. The consolidated financial statements included in the Registration Statement and Prospectus comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Rules under the Securities Act. The consolidated financial statements present fairly the financial condition and results of operations and combined cash flows of the Company and its consolidated subsidiaries, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved and the pro forma financial information included in the Registration Statement and the Prospectus has been prepared in accordance with the applicable requirements of Item 310 of Regulation S-B of the Rules under the Securities Act and the assumptions used in the preparation thereof are, in the opinion of the Company, reasonable. The financial information set forth in the Prospectus under the headings "Summary Consolidated Financial Information" and "Selected Consolidated Financial Data" present fairly, on the basis stated in the Prospectus, the information set forth therein and has been derived from or compiled on a basis consistent with that of the audited consolidated financial statements included in the Prospectus. The Companies (as defined below) maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with the management's general or specific authorization; (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 the existing assets at reasonable intervals and appropriate action is taken with respect to any difference. (f) SUBSIDIARIES; COMMONLY CONTROLLED ENTITIES. The Company owns all of the outstanding shares of capital stock of Barringer Instruments, Inc., a _____________ corporation ("BII"), and of Barringer Research Ltd., a ________________ corporation ("BRL") and 26% of the capital stock of Barringer Laboratories, Inc., a corporation ("Labco") (collectively the "Subsidiaries"). All the outstanding shares of Capital Stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and all the shares of capital stock of BII and 4 5 BRL and 26% of such shares of Labco are owned beneficially by the Company, free and clear of any liens, encumbrances, security interests or other restrictions, and no rights exist, or with the passage of time or otherwise will exist, to acquire any of the capital stock of any of the Subsidiaries. Neither the Company, nor any of its Subsidiaries owns any securities of any corporation or has any equity interest in any firm, partnership, association or other entity. The Company and the Subsidiaries are hereinafter collectively referred to as the "Companies". (g) NO MATERIAL ADVERSE CHANGE. None of the Companies has sustained any material loss or interference with their respective businesses, financial condition or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree; and, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, none of the Companies has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, not in the ordinary course of business, and there has not been any material change in the capital stock (including any dividend or distribution of any kind declared, paid, or made on any class of capital stock of any of the Companies) or long-term debt or obligations under capital leases of any of the Companies, or any material adverse change; and there is no present intention by any of the Companies to terminate any material supplier relationship or knowledge by any of them of any such supplier's present intention to terminate any supplier relationship with any of the Companies, nor any development involving a prospective material adverse change in their respective businesses, financial conditions or properties, including any proposed legislation or regulations which, if enacted or adopted, could have a material adverse change, in the condition (financial or otherwise), or in the earnings, business affairs or business prospects of the any of the Companies other than those reflected in the Registration Statement and the Prospectus. (h) CAPITALIZATION; DESCRIPTIONS OF SECURITIES. (i) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under "Capitalization"; the issued and outstanding shares of Common Stock and Preferred Stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the Warrant Shares, when issued and delivered by the Company pursuant to this agreement, will be validly issued, fully paid and non-assessable. The shares of Common Stock and Preferred Stock of the Company conform to the descriptions of them contained in the Prospectus, and the descriptions of the Common Stock and Preferred Stock conform to the rights set forth in the Company's Certificate of Incorporation, as amended, defining the same. No rights exist, or with the passage of time, or otherwise will exist, to acquire any of the capital stock of the Company, except as set forth in the Registration Statement. The issuance of the Firm Shares and the Additional Shares is not subject to, or in violation of, any preemptive or other similar rights. 5 6 (ii) The Warrants have been duly authorized and, when delivered and paid for in accordance with the Agreement will be validly issued and will constitute valid and binding obligations of the Company in accordance with, and will be exercisable in accordance with, their terms; the shares of Common Stock issuable on exercise of the Warrants have been duly and validly reserved for issuance pursuant to the terms of the Warrants and, when delivered and paid for pursuant to the terms of such Warrants, will be duly authorized, validly issued, fully paid and nonassessable, and the holders will not be subject to personal liability by reason of being such holders, and such shares will not be subject to the preemptive rights of any stockholder of the Company. (iii) The Warrants and the Warrant Shares conform in all material respects to the descriptions thereof contained in the Prospectus, and such descriptions conform to the rights set forth in the instruments defining the same. (i) ORGANIZATION, QUALIFICATION, ETC. The Company is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware with corporate power and authority to own and lease its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this agreement, BII is a duly organized and validly existing corporation in good standing under the laws of the State of New Jersey, BRL is a duly organized and validly existing corporation in good standing under the laws of __________, and Labco is a duly organized and validly existing corporation in good standing under the laws of the State of __________, each with corporate power to own and lease its properties and to conduct its business as described in the Prospectus, and each is duly qualified to do business and in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not have a material adverse change in its condition, financial or otherwise, or on its earnings, business affairs or business prospects. (j) REGULATORY COMPLIANCE. Each of the Companies holds all material licenses, certificates, permits and other evidence of regulatory compliance issued by appropriate federal, state or local or foreign governmental agencies or bodies necessary for the conduct of its business as described in the Prospectus, and none of the Companies has received any notice of proceedings relating to the revocation or modification of any such license, certificate, permit or other evidence of compliance which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect its condition, financial or otherwise, or the earnings, business affairs or business prospects. (k) AUTHORITY. The Company has full power and lawful authority, and has taken all corporate action necessary, to enter into this agreement and to authorize, issue and sell the Securities on the terms and conditions set forth in this agreement, and this agreement has been duly authorized, executed and delivered by the 6 7 Company and constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. (l) COMPLIANCE WITH OTHER INSTRUMENTS; CONSENTS. None of the Companies is in violation of its charter or bylaws or in default in the performance or observation of any obligation, agreement, covenant or condition contained in any distribution agreement, indenture, mortgage, deed of trust, note, bank loan or credit agreement, or any other material agreement or instrument to which any of the Companies is a party or by which it is bound, or to which any of its properties or assets are subject, which default or defaults, singly or in the aggregate, are material to its condition, financial or otherwise, or its earnings, business affairs or business prospects, and each such distribution agreement, indenture, mortgage, deed of trust, note, bank loan or credit agreement, and other material agreement or instrument, is in full force and effect and is the legal, valid and binding obligation of, and is enforceable as to, each of the Companies, as the case may be, in accordance with its terms. The execution, delivery and performance of this agreement by the Company and the consummation by the Company of the transactions contemplated herein will not (i) conflict with, result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give rise to the rights of termination under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Companies pursuant to, any distribution agreement, indenture, mortgage, deed of trust, note, bank loan or credit agreement or any other material agreement or instrument to which any of the Companies is a party or by which any of their respective properties or assets are bound, nor will such action result in any violation of the provisions of the charter or bylaws of any of the Companies, or any material law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over any of the Companies, or their respective properties or operations, or (ii) require the consent, approval, authorization or order of any court or governmental agency or body for the consummation by the Company of any of the transactions contemplated hereby, except such as have been obtained and such as may be required under the Acts, and under state securities or "Blue Sky" laws in connection with the issuance and distribution of the Securities. There are no contracts or documents of the Companies that are required to be filed as exhibits to the Registration Statement under the Securities Act or the Rules that have not been so filed. (m) LITIGATION. Except as set forth in the Prospectus, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending or, to the knowledge of the Company, threatened, against or affecting any of the Companies, that is required to be disclosed in the Registration Statement (other than as disclosed therein), or that might result in a material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of any of the Companies or that might materially and adversely affect the properties or assets thereof or that might materially or adversely affect the consummation of this agreement; all pending legal or governmental proceedings to 7 8 which any of the Companies is a party or of which any of their respective properties or assets are the subject, that are not described in the Registration Statement, including ordinary routine litigation incidental to the business of the Companies, are not material. (n) PAYMENT OF TAXES. Each of the Companies has filed all United States federal, state and local tax returns which are required to be filed and all such filed returns are complete and accurate. All taxes and all assessments to the extent that they have become due have been paid in full, and each of them has made adequate accruals for all taxes which may be owed but have not been paid. There is no audit, examination, deficiency, or refund litigation pending or threatened, with respect to any Taxes of the Companies that would individually or in the aggregate have a material adverse effect on any or all of the Companies. All Taxes, interest, additions, and penalties due with respect to completed and settled examinations or concluded litigation relating to it have been paid in full. None of the Companies has executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax that is currently in effect. No rulings have been issued by or agreements entered into with any Tax Authority (as defined below) with respect to the Company or any subsidiary or affiliate. For purposes of this paragraph, "Taxes" shall mean all taxes, charges, fees, liens, duties or other assessments, however denominated, including any interest or penalties that may become payable in respect thereof, imposed by the United States government, any state, local or foreign government or any agency or political subdivision of any such government (a "Taxing Authority"), which taxes shall include, without limiting the generality of the foregoing, all income taxes, payroll and employee withholding taxes, unemployment insurance, social security, sales and use taxes, excise taxes, capital taxes, franchise taxes, gross receipt taxes, occupation taxes, real or personal property taxes, value added taxes, stamp taxes, transfer taxes, workers' compensation taxes, and other obligations of the same or of a similar nature. (o) The Securities shall have been qualified for listing on The NASDAQ National Market System. (p) None of the Companies are an "investment company" or an "affiliated person" of, or promoter, or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940. (q) REAL AND PERSONAL PROPERTY. Except as disclosed in the Prospectus, each of the Companies owns outright, in fee simple, title to the real and personal property purported to be owned by it, free and clear of all liens, mortgages, charges or encumbrances of any nature, except those which do not materially diminish the value of the property subject to them or interfere with or impair the present and continued use of that property in the usual and normal conduct of its business. All of the leases under which each of the Companies holds properties or assets as lessee are, in all material respects, as described in the Prospectus and are valid and in full 8 9 force and effect and enforceable as to the Companies in accordance with their terms, and none of the Companies is in default in any respect under any of the terms or provisions of any such leases, except for any default which would not have a material adverse change on its business, and no claim has been asserted by anyone adverse to the rights of the Companies as lessee under any of the leases mentioned above, or affecting or questioning the right of any of the Companies to continued possession of the leased premises or assets under any such lease. (r) INTELLECTUAL PROPERTY. Each of the Companies owns or possesses adequate licenses or other rights to use all patents, trade secrets, trademarks, trade names and copyrights necessary to enable it to conduct its business as now operated (the "Intellectual Property") and such Intellectual Property (other than Intellectual Property rights acquired as licensee) is owned free and clear of any liens, security interests, mortgages, charges, encumbrances and adverse rights of every kind, nature and description; and none of the Companies has any knowledge of any claim or received any notice of infringement of or conflict with asserted rights of others or have knowledge of infringement by others of its rights with respect to any of the foregoing which, singly or in the aggregate, could result in a material adverse change in its condition, financial or otherwise, or in its earnings, business affairs or business prospects. Except for the rights of customers under license agreements, the Intellectual Property is not subject to any licenses, sublicenses, royalty arrangements, or disputes, and except for such rights, each of the Companies has the exclusive right to make, copy, sell, exploit and provide to others the use of the Intellectual Property pertinent to it and all derivative works thereof free and clear of any liens, security interests, mortgages, charges, encumbrances and adverse rights of every kind, nature and description. There are no defects in the Intellectual Property, which defects would in any material and adverse respect affect the functioning thereof in accordance with the specifications therefor, or the use or exploitation thereof. No agreement exists which would preclude any desired change to the Intellectual Property. Each of the Companies has taken or is taking all actions necessary in its reasonable judgment to protect the Intellectual Property pertinent to it. No third party has any interest in, or right to compensation from any of the Companies by reason of the use, exploitation or sale of the Intellectual Property, and none of the Companies has received notice or knowledge of any complaint, assertion, threat or allegation that would contradict the foregoing. (s) INSURANCE. Each of the Companies has its property adequately insured against loss or damage by fire, maintains adequate insurance against liability for negligence, and maintains such other insurance in such nature and amounts of coverage as is usually maintained by companies engaged in the same or similar business. (t) NO STABILIZATION OR MANIPULATION OF PRICE. Neither the Company nor any officer or director of the Company has taken, and the Company and each officer and director of the Company have agreed not to take, directly or indirectly, any 9 10 action designed to stabilize or manipulate the price of any security of the Company, or which has constituted or which might in the future reasonably be expected to constitute stabilization or manipulation of the price of the Offered Securities in connection with the offering contemplated by the Registration Statement. (u) RELATED TRANSACTIONS. There are no business relationships or related-party transactions of the nature described in Item 404 of Regulation S-B involving any of the Companies and any other persons referred to in said Item 404 that are required to be described in the Prospectus and which have not been so disclosed. (v) NO REGISTRATION RIGHTS. Except as set forth in the Prospectus, no person or entity has the right (which has not been waived) to require registration of Common Stock or other securities of the Company because of the filing or effectiveness of the Registration Statement or otherwise. (w) LOCK-UP AGREEMENTS. The Company has obtained and delivered to the Underwriters a written agreement, in form satisfactory to Rosenman & Colin LLP, counsel for the Underwriters, by each officer and director of the Company as of the Effective Date not to, directly or indirectly, sell, offer to sell or agree to sell or otherwise dispose of any Common Stock of the Company for a period of 180 days from the Effective Date without the prior written consent of the Representative, other than pursuant to the Registration Statement, and relating also to the manner of sale of such shares in the two-year period following such 180-day period. (x) NO BROKER OR FINDER ENGAGED BY THE COMPANY. The Company has not incurred any liability for any finder's fees or similar payments in connection with any of the transactions herein contemplated. (y) LABOR RELATIONS. None of the Companies is involved in any labor dispute which might be expected to result in a material adverse effect on its condition, financial or otherwise, or on its earnings, business affairs or business prospects, and no such dispute is pending, or, to the knowledge of the Companies, threatened. (z) DEALINGS. None of the Companies nor any of their respective officers, directors, employees, agents or any other person acting on their behalf has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or an agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder their respective businesses (or assist in connection with any actual or proposed transaction) which (a) might subject any of them to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (b) if not given in the past, might have had a materially adverse effect on the assets, business or operations of any of them as reflected in any of the combined financial statements contained in the Prospectus, 10 11 or (c) if not continued in the future, might adversely affect the assets, business, operations or prospects of any of them. Each of the Companies' internal accounting controls and procedures are sufficient to cause it to comply with the Foreign Corrupt Practices Act of 1977, as amended. (aa) PRIOR TRANSACTIONS. Except as set forth in the Registration Statement, the Company has not issued, sold or offered for sale within the last three years any of its equity securities. 2. PURCHASE AND SALE OF SHARES. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby agrees to issue and sell to the Underwriters, severally and not jointly,the number of Firm Securities to be sold by the Company set forth opposite the name of each Underwriter on Schedule I, and each Underwriter, severally and not jointly, hereby agrees to purchase from the Company the number of Firm Securities set forth opposite the name of such Underwriter in Schedule I hereto, at a purchase price of $______ per Firm Share and $_______ per Firm Warrant. 3. DELIVERY AND PAYMENT. The Company shall deliver the Firm Securities at the office of Janney Montgomery Scott Inc., 26 Broadway, New York, New York, on ________________, 1996 at 10:00 A.M., New York City time, the date and time of such delivery being hereinafter called the "Closing Date." On the Closing Date, delivery of the Firm Securities shall be made to you, for the respective accounts of the several Underwriters, against payment by the several Underwriters through you of the purchase price for the Firm Securities. The purchase price for the Firm Securities will be paid to or upon the order of the Company, in bank checks in New York Clearing House funds. Certificates for the Firm Securities shall be made available to you for inspection, checking and packaging at the office of Janney Montgomery Scott Inc., 26 Broadway, New York, New York, not less than one full business day prior to the Closing Date. Time shall be of the essence and delivery at the time and place specified in this agreement is a further condition to the obligations of each Underwriter. In the event the Underwriters exercise the option granted in Section 4(a) hereof to purchase all or any portion of the Additional Securities, the Company shall deliver the Additional Securities at the office of Janney Montgomery Scott Inc., 26 Broadway, New York, New York, at 10:00 A.M., New York City time on the Option Closing Date (as hereinafter defined). On the Option Closing Date, delivery of the Additional Securities shall be made to you, for the respective accounts of the several Underwriters, against payment by the several Underwriters through you of the purchase price for the Additional Securities. The purchase price for the Additional Securities will be paid to or upon the order of the Company, in bank checks in New York Clearing House funds. Certificates for the Additional Securities shall be made available to you for inspection, checking and packaging at the office of Janney Montgomery Scott Inc., 26 Broadway, New York, New York, not less than one full business day prior to the Option Closing Date. Time shall be of the essence and delivery at the time and place specified in this agreement is a further condition to the obligations of each Underwriter. 11 12 4. OPTION TO PURCHASE ADDITIONAL SHARES. (a) For the purpose of covering any over-allotments in connection with the distribution and sale of the Firm Securities as contemplated by the Prospectus, the Company hereby grants an option to the Underwriters to purchase 150,000 Additional Shares and 150,000 Additional Warrants from the Company, in each case at a price identical to the price per Firm Share and Firm Warrant set forth in Section 2 of this Agreement. The option hereby granted may be exercised by the Underwriters as to all or any part of the Additional Securities at any time, but only once prior to the end of the close of business on the thirtieth day following the Closing Date; provided, however, that Additional Securities may only be purchased on the basis of one additional Warrant for each Additional Share purchased. Subject to such adjustments to eliminate fractional Additional Securities as you, as the Representative of the Underwriters, may determine, the number of Additional Securities to be purchased by each Underwriter shall bear the same relation to the total number of Additional Securities to be sold as the total number of Firm Securities to be purchased by such Underwriter bears to the total number of Firm Securities purchased by the Underwriters. (b) The option granted hereby may be exercised by you, as the Representative of the Underwriters, by giving written notice to the Company setting forth the number of Additional Securities to be purchased, the date and time for delivery of payment for the Additional Securities, and stating that the Additional Securities being purchased are to be used for the purpose of covering over-allotments in connection with the distribution and sale of the Firm Securities. If the notice is given prior to the Closing Date, the date for delivery and payment shall not be earlier than the later of two (2) full business days after the notice is given or the Closing Date. If the notice is given on or after the Closing Date, the date for delivery and payment shall not be earlier than five full business days after the day on which the notice is given. In either event, the date shall not be more than fifteen (15) full business days after the day on which the notice is given. The date and time for delivery and payment is called the "Option Closing Date." Upon exercise of the option, the Company shall become obligated to sell to the Underwriters and, subject to the terms and conditions set forth in Section 4(c) of this Agreement, the Underwriters shall become obligated, severally and not jointly to purchase the number of Additional Shares described in Section 4(a) above. On the Option Closing Date, delivery of the Additional Securities shall be made against payment of the purchase price to the Company by bank check or checks payable in New York Clearing House funds. (c) The obligation of the Underwriters to purchase and pay for any of the Additional Securities is subject to the accuracy as of the date of this Agreement, the Closing Date and the Option Closing Date of, and the compliance by the Company in all material respects with, its representations and warranties in this Agreement, to the accuracy of the statements of the officers of the Company made pursuant to this Agreement, to the performance in all material respects by the Company of its obligations under this Agreement, to the satisfaction by the Company as of the Option Closing Date of the conditions set forth in Section 11 of this Agreement, and to the delivery to you of opinions, certificates, and letters addressed to you and dated the Option Closing Date substantially similar in scope to those specified in Section 11 of this Agreement, but with each reference 12 13 to "Firm Securities" to be to the Additional Securities being sold, and "Closing Date" to be to the "Option Closing Date." 5. OFFERING BY UNDERWRITERS. After the Registration Statement becomes effective, the Underwriters propose to offer for sale to the public the Firm Securities and any Additional Securities which may be sold at the price and upon the terms set forth in the Prospectus. The Representative represents and warrants that it has not incurred any liability for finder's fees or similar payments in connection with the transactions herein contemplated. 6. REPRESENTATIVE'S WARRANTS. At the Closing, the Company shall sell to the Representative, for a nominal consideration, five-year warrants entitling the holder to purchase up to 100,000 shares of Common Stock and three-year warrants entitling the holder to purchase up to 100,000 warrants identical in form and substance to the Firm Warrants (the warrants to be issued to the Representative to purchase shares of Common Stock and warrants are referred to herein as the "Representative's Warrants" and the warrants purchasable on exercise of the Representative's Warrants are referred to herein as the "Included Warrants"). The Representative's Warrants to purchase shares of Common Stock shall be initially exercisable for a period of four years commencing one year after the effective date of the Prospectus and the Representative's Warrants to purchase warrants shall be initially exercisable for a period of two years commencing one year after the effective date of the Prospectus, in each case at a price or prices conforming to the requirements of the National Association of Securities Dealers Inc. and shall contain the registration rights and other terms and conditions set forth in the related Exhibit to the Registration Statement. As used herein, "Representative's Securities" shall mean the Representative's Warrants, the Included Warrants and the shares of Common Stock issuable on exercise of all such Warrants. 7. EXPENSES. The Company will pay all fees, taxes and expenses incident to the performance of the obligations of the Company under this Agreement and under any other agreement in connection with the offer, sale and issuance of the Firm Securities and Additional Securities, and any fees, taxes and expenses, including transfer taxes incident to the issuance and delivery of the Firm Securities and Additional Securities to the Underwriters as may be required by this agreement, including, without limitation, accounting, legal (other than the fees and disbursements of the Underwriters' counsel, except as provided below), printing, any state or local transfer or other taxes advertising and other costs incurred in connection with the preparation, printing, filing and delivery to the Representative of the Registration Statement, the Preliminary Prospectus, the Prospectus, and all amendments or supplements to them, preliminary and final Blue Sky Memoranda, this Agreement, the Agreement Among Underwriters and Selected Dealer Agreement, Underwriters' Questionnaires, powers of attorney, the listing of the Securities on The Nasdaq National Market System and any other agreements or similar items of expense, including postage, printing, advertising costs, the costs of "road shows" and other marketing expenses reasonably incurred by you or reasonably required or desirable in connection with the offering and sale of the Firm Securities and Additional Securities, and in connection with furnishing copies of the 13 14 Preliminary Prospectus, the Prospectus and all supplements and amendments to them to the several Underwriters and all filing fees to the Commission and the National Association of Securities Dealers, Inc. ("NASD") payable in connection with this offering. The Company will pay all legal fees (including the reasonable fees of Rosenman and Colin LLP, Blue Sky counsel to the Company), disbursements, filing fees and other costs of compliance with or registration and qualification under applicable state securities or Blue Sky laws and all reasonable expenses incident thereto. The Company shall also pay the fees and expenses of the transfer agent and Custodian. At the Closing, the Company shall pay to the Representative a non-accountable expense allowance of 2% of the gross proceeds of the offering of the Firm Securities, of which the Representative acknowledges having received a non-refundable advance of $20,000, and at any Option Closing shall pay to the Representative a further non-accountable expense allowance of 2% of the gross proceeds of the offering of Additional Securities. 8. FURTHER COVENANTS OF THE COMPANY. In further consideration of the agreements of the Underwriters contained in this Agreement, the Company covenants and agrees with each of the several Underwriters as follows: (a) The Company will not at any time submit or make any amendment or supplement to the Prospectus or Registration Statement which shall not have been submitted to you within a reasonable time prior to the proposed submission thereof, or to which you shall reasonably object in writing, or which is not in compliance with the Acts. (b) The Company will use its best efforts to cause the Registration Statement and any post-effective amendments thereto to comply with the requirements of the Securities Act and the Rules under the Securities Act and to become effective, and will promptly advise you and confirm in writing (i) when the Registration Statement and any amendment thereto shall become effective, (ii) when any post-effective amendment to the Registration Statement becomes effective, (iii) of the receipt of any comments from the Commission, (iv) when the Commission shall request any amendment to the Registration Statement or Prospectus, or request any additional information, (v) of the necessity of amending or supplementing the Registration Statement or any post-effective amendment in order to then meet the requirements of the Securities Act and the Rules under the Securities Act, and (vi) of the issuance by the Commission, any "Blue Sky" authority or any other governmental agency with jurisdiction over the Company or its securities, of any stop order or similar order with regard to the Registration Statement or the Prospectus, or any order preventing or suspending the use of any Preliminary Prospectus or the Registration Statement or Prospectus, or of the suspension of the qualification of the Securities for offer or sale in any jurisdiction, or of the institution of any proceedings for any such purpose. The Company will use its best efforts to prevent the issuance of any stop order or of any order preventing or suspending such use and if such an order shall be issued, the Company will use its best efforts to obtain its withdrawal as soon as possible. 14 15 (c) The Company will prepare and file with the Commission, upon your reasonable request, any amendments or supplements to the Registration Statement or Prospectus, in form and substance reasonably satisfactory to counsel for the Company, as in the opinion of Rosenman & Colin LLP, counsel for the Underwriters, may be necessary or advisable in connection with the distribution of the Offered Securities and the exercise of the Warrants included therein, and will use its best efforts to cause the same to become effective as promptly as possible and to remain effective for the term of the Warrants included in the Offered Securities. (d) The Company consents to the use of any Preliminary Prospectus by the several Underwriters and by dealers for the purposes contemplated by this agreement and in accordance with the Acts. The Company will deliver to you, at or before the Closing Date, three executed copies of the Registration Statement and all amendments thereto, including all financial statements and exhibits filed with it, and copies of all written communications between the Company, its representatives and agents and the Commission, and will deliver to you such number of copies of the Registration Statement, including such financial statements, but without exhibits, and all amendments thereto as you may reasonably request. The Company will deliver or mail to you and, upon your request, to the Underwriters, from time to time, during the period when delivery of the Prospectus relating to the Offered Securities shall be required under the Acts, as many copies of the Prospectus (as amended or supplemented) as you may reasonably request. (e) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the Rules under the Securities Act, then, immediately thereafter, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) of the Rules under the Securities Act copies of the amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus) containing all information so omitted. (f) The Company will comply with the requirements of the Acts and any other applicable rules and regulations of any governmental authority having jurisdiction over this offering so as to permit the continuance of sales or dealing in the Offered Securities. Subject to the provisions of Subsection (a) of this Section 8, if, at any time when a Prospectus is required to be delivered under the Acts, (i) an event relating to or affecting the Company shall have occurred which, in the judgment of the Company and its counsel, or in the opinion of counsel for the Underwriters, would cause the Registration Statement as then in effect to include an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or in order to make the Registration Statement comply with the Acts and the Rules under the Securities Act, or (ii) it is necessary to amend or supplement the Registration Statement or Prospectus, the Company will promptly notify you of the occurrence and will promptly prepare, file and deliver to you without charge such number of copies of the amended or supplemented Registration Statement or 15 16 Prospectus as you shall reasonably request, and will use its best efforts to cause the Commission and appropriate "Blue Sky" authorities to take all required action with regard to any such amendment as may be necessary to permit the lawful use of the Registration Statement and Prospectus in connection with the distribution of the Offered Securities. (g) The Company will supply all necessary documents, exhibits and information and execute all applications, instruments and papers as may be necessary or desirable in the opinion of Rosenman & Colin LLP, Blue Sky counsel, and as requested by you, to qualify the Offered Securities for sale under the Blue Sky or other securities laws in such jurisdictions as the Underwriters may reasonably request, provided the Company shall not have to qualify as a foreign corporation and shall not be required to consent to service of process generally. The Company will take any reasonable measures requested by you and such action, if any, which is necessary under such laws in order to qualify the Offered Securities for sale and to continue such registration or qualification so long as necessary to permit the continuance of sales or dealings therein with respect to such Securities. (h) The Company will make generally available to its security holders as soon as practicable after the expiration of one year after the date the Registration Statement becomes effective, and in all events not later than ___________, 1997, an earnings statement of the Company (which will be in such detail and form as you may reasonably request and which need not be audited) covering a period of at least 12 months beginning not later than the first day of the Company's fiscal quarter next following the date the Registration Statement becomes effective, which earnings statement shall satisfy the provision of Section 11(a) of the Securities Act. (i) So long as the Company shall be subject to the reporting requirements of the Exchange Act, the Company shall mail to its stockholders and warrantholders annual reports containing financial statements of the Company audited by its independent certified public accountants and quarterly reports for the first three quarters of its fiscal year containing financial information which may be unaudited. (j) The Company will, from time to time, after the date the Registration Statement becomes effective, file with the Commission such reports as are required by the Acts and with state securities commissions in states where the Offered Securities have been sold by the Representative (as the Representative shall have advised the Company in writing) such reports as are required to be filed by the securities acts and the regulations of those states. (k) The Company will apply the net proceeds from the sale of the Offered Securities for the purposes set forth under "Use of Proceeds" in the Prospectus. (l) The Company shall furnish to you as early as practicable prior to the Closing Date, but no later than three (3) full business days prior thereto, a copy of the latest available unaudited interim financial statements of the Company which 16 17 have been read by the Company's independent certified public accountants, as stated in their letters to be furnished pursuant to Section 11(i) of this agreement. (m) During the period of five (5) years from the date the Registration Statement becomes effective, the Company will furnish to the Representative copies of all reports and other communications (financial or other) furnished by the Company to its shareholders and, as soon as reasonably practicable, copies of any reports or financial statements furnished or filed by the Company to or with the Commission, NASDAQ, or any national exchange on which any class of securities of the Company may be listed. (n) During a period of 180 days after the date the Registration Statement becomes effective, the Company will not, directly or indirectly, without the prior written consent of the Representative, offer, sell, grant any option to purchase or otherwise dispose of any Common Stock or any securities convertible into or exchangeable for Common Stock except pursuant to this Agreement, and except (i) in connection with a merger or asset acquisition, or (ii) upon exercise or conversion of securities (including stock options) of the Company outstanding prior to the effective date of the Registration Statement or granted under the Company stock option plans under which ___________ shares of Common Stock are reserved for issuance upon exercise of stock options granted thereunder. (o) The Company will reasonably enforce, for your benefit, the written agreements (copies of which have been furnished to you) by all of the officers, directors and shareholders of the Company pursuant to Section 1(w) hereof. (p) At the request of the Representative, the Company, at its expense, for a period of three years following the Closing Date shall provide the Representative with copies of the daily transfer sheets for the Company's Common Stock. (q) The Company will cause the officers, directors and principal shareholders of the Company (enumerate) to enter into an agreement with the Representative to the effect that, for a period of 180 days from the date hereof, he or she will not, without the prior consent of the Representative, directly or indirectly, offer, sell, offer to sell, grant any option to purchase or otherwise sell or dispose of any shares of the Common Stock of the Company or any securities convertible into or exercisable or exchangeable therefor or with respect to which such person has the power of disposition. 9. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless, and, subject to Section 9(c) to indemnify and hold harmless, each Underwriter (including specifically each person who may be substituted for an Underwriter as provided in Section 13 of this Agreement) 17 18 and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Act, state securities laws or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse each of the Underwriters and each such controlling person, if any, for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any claim or action whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, in any Preliminary Prospectus or in the Prospectus (or the Registration Statement or Prospectus as from time to time amended or supplemented by the Company) or in any application or other document (hereinafter "Application") executed by the Company or based upon written information furnished by or on behalf of the Company, filed in any jurisdiction in order to qualify the Securities under the securities laws of that jurisdiction, or which arise out of or are based upon the omission or alleged omission to state in any of the foregoing any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the indemnity agreement contained in this Subsection shall not apply to any loss, claim, damage, expense or liability to the extent arising out of any untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, Preliminary Prospectus or Prospectus (or the Registration Statement or Prospectus as from time to time amended or supplemented by the Company) or, Application in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by the Representative or any Underwriter directly or through you expressly for use therein; provided, further that the indemnity agreement contained in this Subsection is subject to the condition that, insofar as it relates to any such untrue statement or alleged untrue statement or omission or alleged omission in any Preliminary Prospectus but eliminated or remedied in the Prospectus, such indemnity agreement shall not inure to the benefit of any Underwriter or any person controlling such Underwriter from whom the person asserting any such loss, claim, damage, expense, liability or action purchased the Securities if (i) prior to the time such Prospectus was required under the Securities Act to be furnished to such person the Company had furnished copies of the properly corrected or supplemental Prospectus to such Underwriter, (ii) a copy of such Prospectus, as then corrected or supplemented, was not furnished to such person at or prior to the time required under the Securities Act, and (iii) the delivery of such Prospectus would have constituted a complete defense to the claim asserted by such person. Promptly after receipt by any Underwriter or any person controlling such Underwriter of notice of the commencement of any action in respect of which indemnity may be sought against the Company under this Subsection (a), such Underwriter or controlling person shall notify the Company in writing of the commencement of the action and, subject to the provisions hereinafter stated, the Company shall assume the defense of that action (including the employment of counsel who shall be reasonably satisfactory to the Representative) and the payment of expenses insofar as such action shall relate to any alleged liability in respect of which indemnity may be sought against the Company. Any Underwriter or any such controlling person shall have the right to employ separate counsel in any such action and participate in the defense, but the fees and expenses of such counsel shall not be at the expense of the Company unless the 18 19 employment of such counsel has been specifically authorized by the Company or unless the indemnified party or parties reasonably conclude there may be defenses available to it or them which were not available to the Company (in which case the Company will not have the right to direct the defense of the action on behalf of the indemnified parties), in which event the reasonable expenses of one additional counsel for the Underwriters will be borne by the Company. The Company shall not be liable to indemnify any person for any settlement of any such action effected without the written consent of the Company. The obligations of the Company under the indemnity agreement set forth in this Subsection (a) shall be in addition to any liability the Company may otherwise have under this Agreement. (b) Each Underwriter (including specifically each person who may be substituted for an Underwriter as provided in Section 13 of this Agreement) severally agrees to indemnify and hold harmless the Company, each of its directors, each of its officers and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, from and against any and all losses, claims, damages, expenses, or liabilities, joint or several, to which they or any of them may become subject under the Acts or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the Company and each such director, officer or controlling person for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any claim or action whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, in any Preliminary Prospectus or in the Prospectus (or the Registration Statement or Prospectus as from time to time amended or supplemented) or in any Application, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by the Representative or such Underwriter directly or through the Representative expressly for use therein. Promptly after receipt of notice of the commencement of any action in respect of which indemnity may be sought against one or more Underwriters under this Subsection (b), the indemnified party shall notify all Underwriters in writing of the commencement of the action and the Underwriter or Underwriters against whom indemnity may be sought shall, subject to the provisions hereinafter stated, assume the defense of such action (including the employment of counsel who shall be reasonably satisfactory to the Company , and the payment of expenses) insofar as such action shall relate to an alleged liability in respect of which indemnity may be sought against such Underwriter or Underwriters. The Company and each such director, officer or controlling person shall have the right to employ separate counsel in any such action and participate in the defense, but the fees and expenses of such counsel shall not be at the expense of any Underwriter unless the employment of such counsel has been specifically authorized by the Underwriters obligated to defend such action, unless the indemnified party or parties reasonably conclude there may be defenses available to it or them which are not available to the Underwriters against whom indemnification is sought (in which case those Underwriters will not have the right to direct the defense of the action on behalf of the indemnified party or parties), in which event the reasonable expenses of one additional counsel for all the indemnified 19 20 parties will be borne by the indemnifying Underwriters. The Underwriter against whom indemnity may be sought shall not be liable to indemnify any person for any settlement of any action effected without such Underwriter's written consent. The obligations of each Underwriter under the indemnity agreement set forth in this Subsection (b) shall be in addition to any liability each of them may otherwise have under this Agreement. 10. CONTRIBUTION. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 9 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by said indemnity agreement incurred by the Company, and one or more of the Underwriters, as incurred, in such proportions that the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the public offering price appearing thereon, and the Company shall be responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 10, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Firm Securities and Additional Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages of the kind described in Section 9(a) which such Underwriter has otherwise paid in respect of such losses, claims, damages, liabilities and expenses. For purposes of this Section , each person, if any, who controls an Underwriter within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as the Company. 11. CONDITIONS OF OBLIGATIONS OF UNDERWRITERS. The obligations of the Underwriters to purchase and pay for the Firm Securities and Additional Securities are subject (as of the date hereof and the Closing Date) to the accuracy of the representations and warranties of the Company , the accuracy of the statements of officers and directors of the Company made pursuant to the provisions of this Agreement, the performance by the Company of its obligations under this Agreement and to the following additional conditions: (a) The Registration Statement shall become effective with the Commission no later than 10:00 A.M., New York City time, on the day following the date of this Agreement, or such later time and date as shall have been consented to by the Underwriters (including you) who are obligated to purchase a majority of the Firm Securities to be purchased by all of the Underwriters pursuant to this Agreement; the Commission shall have taken all required action, if any, with regard to the Registration Statement, and, prior to the Closing Date, no stop order or similar order with regard to the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or, to the knowledge of the Underwriters or the Company, shall be contemplated by the 20 21 Commission or by any securities, Blue Sky or other regulatory authority of any jurisdiction, and any request on the part of the Commission or such other securities, Blue Sky or regulatory authorities for additional information shall have been complied with to the satisfaction of Rosenman & Colin LLP, counsel for the Underwriters. (b) Prior to the date of this Agreement, the issuance and sale of the Securities shall have been approved by all requisite corporate action of the Company. (c) The NASD shall have indicated that it had no objection to the underwriting arrangements pertaining to the sale of the Firm Securities and the Additional Securities and the participation by the Underwriters in the sale thereof. (d) No action shall have been taken by the Commission or the NASD the effect of which would make it improper, at any time prior to the Closing Date, for members of the NASD to execute transactions (as principal or agent) in any of the Securities, and no proceedings for the taking of such action shall have been instituted or shall be pending or, to the knowledge of the Underwriters or the Company, shall be contemplated by the Commission or the NASD. The Company represents that at the date hereof it has no knowledge that any such action is in fact contemplated by the Commission or the NASD. (e) Between the date of this Agreement and the Closing Date, none of the Companies shall have sustained any material loss outside the ordinary course of its business or of such character as would materially adversely affect its business or property, whether or not that loss is covered by insurance. (f) Between the date of this Agreement and the Closing Date, each of the Companies shall have conducted its business in the usual and ordinary manner, and, except as disclosed in the Prospectus or except in the ordinary course of its business, shall not have incurred any material liabilities or obligations, direct or contingent, or altered in any material respect any material supplier relationship, or disposed of a material amount of its assets, or entered into any material transactions, and shall not have suffered or experienced any substantial adverse change in its condition, financial or otherwise. At the Closing Date, the capital stock of the Company shall be substantially as set forth in the Registration Statement, except with respect to the Firm Securities to be sold by the Company. (g) At the Closing Date, there shall have been delivered to you a signed opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. addressed to the Underwriters, dated as of the Closing Date, in form and substance satisfactory to Rosenman & Colin LLP, counsel for the Underwriters, together with a signed or photostatic copy of that opinion for each of the other Underwriters, substantially to the effect that: (i) Each of the Companies has been duly incorporated and is validly existing and in good standing under the laws of its jurisdiction of incorpora- 21 22 tion and has full corporate power and authority to own and lease its properties and to conduct its business as described in the Registration Statement and Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where, to such counsel's knowledge, it owns or leases properties and where the failure to so qualify would have a material adverse effect on its earnings, business affairs or business prospects. (ii) This Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent enforceability may be limited by bankruptcy or other laws relating to or affecting creditors' rights generally or equitable principles and by limitations on the enforceability of the indemnification and contribution provisions under federal or state securities laws or public policy. All corporate action required to be taken by the Board of Directors of the Company and all action required to be taken by the stockholders of the Company in connection with the authorization, issuance and sale of the Securities to be sold by the Company as contemplated in the Registration Statement and the Prospectus have been duly taken. The Company has the requisite corporate power and authority to enter into and consummate this Agreement. (iii) Neither the issuance by the Company of the Securities to be sold by it under this Agreement, the execution and delivery of this Agreement, the undertakings contained in the Registration Statement or the Prospectus, the consummation of the transactions contemplated in this Agreement or the compliance with the terms of this Agreement, will conflict with or result in a breach of any of the terms or provisions of the Certificate of Incorporation, as amended, or the By-laws of any of the Companies, or any indenture, mortgage, deed of trust, note, bank loan or credit agreement or any other agreement or instrument of which such counsel is aware to which any of the Companies is a party or by which its respective properties or assets are bound or any applicable law (other than Blue Sky laws), rule or regulation, or (without search of any court dockets) any judgment, order or decree of any government, governmental agency or instrumentality or court, domestic or foreign, having jurisdiction over any of the Companies or their respective properties or assets, of which such counsel is aware. (iv) The are no contracts, indentures, mortgages, notes, leases or other instruments or agreements required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed as exhibits thereto; the descriptions thereof or references thereto are correct in all material respects, and no default exists in the due performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, 22 23 mortgage, note, lease or other instrument or agreement so described, referred to or filed. (v) To such counsel's knowledge, the Company has no subsidiaries other than as set forth in Section 1(f) hereof. All of the outstanding shares of capital stock of each such subsidiary has been duly authorized and validly issued, are fully paid and non-assessable and as of the Closing Date are owned beneficially by the Company, free and clear of any liens, encumbrances, security interests or other restrictions, except that the Company owns only a 26% interest in Labco, and no person, firm or corporation has the right, upon the passage of time or otherwise, to acquire any of the stock of any such Subsidiary. (vi) Except as described in the Prospectus, each of the Companies holds all material licenses, certificates, permits and other evidence of regulatory compliance issued by appropriate federal, state or local governmental agencies or bodies necessary for the conduct of its business as described in the Prospectus. (vii) The Company's authorized capital stock consists of 7,000,000 shares of Common Stock, par value $.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. (viii) The outstanding stock options and warrants relating to the Common Stock have been duly authorized and validly issued and the descriptions thereof contained in the Registration Statement and the Prospectus are true and accurate in all respects. (ix) The certificates for the Securities are in proper form and comply with Delaware law. (x) The Firm Shares and Additional Shares to be sold by the Company as contemplated by this Agreement have been duly authorized, and, when issued as provided in this Agreement will be, and the presently outstanding shares of Common Stock are, validly issued, fully paid and non-assessable. The holders of the outstanding shares of Common Stock are not, and the holders of any of the Firm Shares and Additional Shares when issued as contemplated pursuant to this Agreement will not be, subject to personal liability solely by reason of being such holders, and, to such counsel's knowledge, there is no preemptive right of any holder of any securities of the Company applicable to any outstanding shares of Common Stock. No preemptive right will be applicable to any of the Firm Shares and Additional Shares to be sold by the Company under this Agreement when issued and sold as contemplated in this Agreement and in the Registration Statement and the Prospectus. 23 24 (xi) The Warrants have been duly authorized and, when delivered and paid for in accordance with the Agreement will be validly issued and will constitute valid and binding obligations of the Company in accordance with, and will be exercisable in accordance with, their terms; the shares of Common Stock issuable on exercise of the Warrants have been duly and validly reserved for issuance pursuant to the terms of the Warrants and when delivered and paid for pursuant to the terms of such Warrants will be duly authorized, validly issued, fully paid and nonassessable, and the holders will not be subject to personal liability by reason of being such holders, and such shares will not be subject to the preemptive rights of any stockholder of the Company. (xii) Except for registration or qualification under the Securities Act or under state securities or Blue Sky laws, no authorization, approval, consent or license of any regulatory body or authority is required for the valid authorization, issuance, sale and delivery of any of the Securities, or, if required, all such authorizations, approvals, consents and licenses have been obtained and are in force and effect. (xiii) The Registration Statement has become effective, and, to such counsel's knowledge, no stop order or similar order has been issued with regard to the Registration Statement or the Prospectus, and no proceedings for that purpose have been instituted or are pending and such counsel has not been notified that any such proceedings are contemplated under the Acts or under any Blue Sky or other securities laws of any jurisdiction. (xiv) At the time of effectiveness and as of the Closing Date and the Option Closing Date, if applicable, the Registration Statement, the Prospectus and each post-effective amendment or supplement thereto complies as to form in all material respects with the requirements of the Acts (except that no opinion shall be expressed as to the financial statements, notes related thereto, and other financial statistical data included therein and information supplied by you), and, to such counsel's knowledge, all contracts or other documents of a character required by the Securities Act and the Rules under the Securities Act to be summarized or disclosed in the Prospectus or filed as exhibits to the Registration Statement have been so summarized, disclosed or filed. (xv) Such counsel has acted as counsel for the Company and has participated in the preparation of the Registration Statement and Prospectus and any post-effective amendments or supplements thereto to the date of such opinion, and no facts have come to the attention of such counsel which would lead such counsel to believe that either the Registration Statement or the Prospectus or any post-effective amendment thereto contains any untrue statement of a material fact or omits 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 (except no 24 25 opinions need be expressed as to the financial statements and other financial or statistical data included therein and information supplied by you as set forth in Section 1(b) hereof). (xvi) To such counsel's knowledge, all statutes or regulations or legal or governmental proceedings required to be described in the Registration Statement or Prospectus are described therein as required, and all such descriptions in the Registration Statement or Prospectus are accurate in all material respects and present fairly the information purported to be shown. (xvii) To such counsel's knowledge, none of the Companies has any outstanding options, warrants or other rights to purchase or acquire any shares of capital stock of any of them except as set forth in the Registration Statement or the Prospectus. (xviii) The Common Stock conforms as to legal matters in all material respects with the statements concerning such shares made in the Registration Statement and the Prospectus under the section entitled "Description of Capital Stock", and such statements present fairly the matters respecting such shares required to be set forth in the Registration Statement or the Prospectus. (xix) The Warrants conform as to legal matters in all material respects with the statements concerning such Warrants made in the Registration Statement and the Prospectus under the section entitled "Description of Common Stock Purchase Warrants", and such statements present fairly the matters respecting such Warrants required to be set forth in the Registration Statement or the Prospectus. (xx) Except as set forth in the Registration Statement and Prospectus, to such counsel's knowledge, there is no pending or threatened action, suit or proceeding before any court or before or by any governmental agency or body to which any of the Companies is a party, or of which any of their respective properties or assets are the subject, which is required to be disclosed in the Registration Statement or Prospectus or which would have a material adverse effect on any of the Companies. (xxi) The contracts filed as Exhibit Nos. 10.1 through ________ to the Registration Statement have been duly authorized, executed and delivered by the Company, and such counsel has not been advised of any assertion that such contracts do not constitute the valid and binding obligation of the other parties thereto. (xxii) The Underwriting Agreement has been duly authorized, executed and delivered by the Company and constitutes the valid and binding agreement of the Company, and is enforceable against the Company in accordance with its terms except insofar as rights to indemnity and/or 25 26 contribution may be limited by the laws of the United States or the public policy underlying such laws and except as enforcement (A) may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally, and (B) is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (xxiii) The Company owns all of such shares of capital stock BII and BRL and 26% of the capital stock of Labco free and clear of any liens, encumbrances, security interests or other restrictions, and to the knowledge of such counsel, no rights exist, or with the passage of time or otherwise will exist, to acquire any of the capital stock of them. (xxiv) Such other legal matters relating to this Agreement, the Companies and the Securities as you and such counsel shall reasonably agree upon. In rendering such opinion, such counsel may rely (a) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to counsel for Underwriters) of other counsel reasonably acceptable to counsel for the Underwriters, familiar with the applicable laws; and (b) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Companies, provided that copies of any such statements or certificates shall be delivered to counsel for the Underwriters, and on the representations and warranties of the Company contained in this Agreement. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel, and, in their opinion, you and they are justified in relying thereon. (h) At the Closing Date, you shall have received a Certificate signed by the President and the Vice President-Finance of the Company, dated as of the Closing Date, to the effect that: (i) Each officer signing the Certificate has carefully examined the Registration Statement and the Prospectus, and, in his opinion, as of the date of the Prospectus, and as of the date of the Certificate, neither the Registration Statement nor the Prospectus, nor any amendment or supplement, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and, since the date of the Prospectus, no event has occurred which should have been set forth in an amendment or a supplement to the Registration Statement or Prospectus which has not been so set forth, and, since the respective dates as of which information is given 26 27 in the Registration Statement and the Prospectus, there has not been any material adverse change in the condition of any of the Companies, financial or otherwise, or, as compared with the comparable period in the prior fiscal year, in the earnings of any of the Companies from that set forth in the Registration Statement, whether or not arising in the ordinary course of business. (ii) No stop order or similar order with regard to the Registration Statement or Prospectus has been issued and no proceedings for that purpose have been taken or are, to the knowledge of such officer, contemplated by the Commission or any other agency having jurisdiction with respect to the issuance, sale or distribution of the Offered Securities. (iii) The Company has complied in all material respects with its obligations under this Agreement, and the representations and warranties set forth in Section 1 of this Agreement are true and correct as of the date of the Certificate with the same force and effect as though made on that date. (i) On the date of this Agreement, you shall have received letters addressed to the Underwriters, with a signed or photostatic copy for each of the several Underwriters, dated the date it is delivered, in form and substance satisfactory to you and Rosenman & Colin LLP (and substantially in the form of the drafts dated ____________, 1996, previously submitted to Rosenman & Colin LLP), from BDO Seidman, LLP concerning their examination and review of financial statements and various other data contained in the Registration Statement. At the Closing Date, you shall have received a letter addressed to you, dated as of the Closing Date, with a signed or photostatic copy for each of the several Underwriters from BDO Seidman, LLP confirming, as of the Closing Date, the statements made in the letters furnished by them at the date of this Agreement and advising that as of a date no earlier than three business days prior to the Closing Date they have no reason to believe that there has been any change in the matters described in the prior letters. (j) At the Closing Date there shall have been delivered to you, with a photostatic copy for each of the several Underwriters, a signed opinion of Rosenman & Colin LLP, counsel for the Underwriters, dated as of the Closing Date, with respect to the sufficiency of corporate proceedings and other legal matters in connection with this Agreement, the Securities, Registration Statement, Prospectus and related matters as the Representative may request, and the Company shall have furnished to such counsel all documents such counsel may have requested for the purpose of enabling them to pass upon those matters. In rendering such opinion, Rosenman & Colin LLP may rely, as to incorporation of the Company and all matters of law governed by the laws of states other than New York and Delaware, and as to factual matters, upon the opinion referred to in (g) above. (k) The Representative shall have received the Representative's Warrants described in Section 6 hereof and the Company shall have paid to the Representative 27 28 a non-accountable expense allowance of 2% of the gross proceeds of the offering of the Firm Securities pursuant to Section 7 hereof, less the sum of $20,000 heretofore advanced to the Representative pursuant to such Section 7. (l) In the event the Underwriters exercise the option granted in Section 4(a) hereof to purchase all or any portion of the Additional Securities, the representations and warranties of the Companies contained in Section 11(a) - (f) herein and the Statements in any certificates furnished by the Companies shall be true and correct as of the Option Closing Date and the Representative shall have received: (i) A certificate, dated the Option Closing date, of the Chairman or President of the Company and of the chief financial or chief accounting officer of the Company confirming that the Certificate delivered on the Closing Date pursuant to Section 11(h) remains true as of the Option Closing Date; (ii) The favorable opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., counsel for the Company, dated the Option Closing Date, relating to the Additional Securities and otherwise to the same effect as the opinion required by Section 11(g), to the extent applicable; (iii) The favorable opinion of Rosenman & Colin LLP, counsel to the Underwriters, dated the Option Closing Date, relating to the Additional Securities and otherwise to the same effect as the opinion required by Section 11(j), to the extent applicable; (iv) A letter from BDO Seidman, LLP, in form and substance satisfaction to the Underwriters and dated the Option Closing Date, substantially the same in scope and substance as the letter furnished to the Representative pursuant to Section 11(i), dated not more than five days prior to the Option Closing Date; and (v) A non-accountable expense allowance of 2% of the gross proceeds of the Additional Securities pursuant to Section 7 hereof. (m) All proceedings in connection with the authorization, issuance and sale of the Securities on the Closing Date and the Option Closing Date shall be reasonably satisfactory in form and substance to you and to your counsel, and your counsel shall have been furnished with all documents, certificates and opinions, including resolutions of the Board of Directors of the Company and minutes of any stockholders' meetings, as may have been reasonably requested in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company and the performance of any of the covenants of the Company or the compliance with any of the conditions contained in this Agreement. 28 29 12. CONDITIONS OF OBLIGATIONS OF COMPANY. The obligations of the Company to sell and deliver the Firm Securities to the several Underwriters is subject to the condition that the Registration Statement shall become effective with the Commission not later than 10:00 A.M., New York City time, on the day following the date of this Agreement, or such later date as shall have been consented to by the Underwriters (including you) who are obligated to purchase a majority of the Firm Securities to be purchased by all of the Underwriters pursuant to this Agreement, and that prior to the Closing Date (and, with respect to the Additional Securities, prior the Option Closing Date), no stop order or similar order with regard to the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending, or, to your knowledge or to the knowledge of the Company, shall be contemplated by the Commission or any other regulatory agency having jurisdiction with respect to the offer and sales of the Offered Securities. 13. SUBSTITUTION OF UNDERWRITERS. (a) If one or more Underwriters default in its or their obligations to purchase and pay for Firm Securities under this Agreement and if the aggregate amount of the Firm Securities which all Underwriters so defaulting shall have agreed to purchase does not exceed 10% of the Firm Securities, each nondefaulting Underwriter shall have the right and is obligated, severally, to purchase and pay for (in addition to the number of Firm Securities set forth opposite its name in Schedule I) that proportion of the Firm Securities agreed to be purchased by all the defaulting Underwriters which the percentage of Firm Securities set forth opposite its name in Schedule I bears to the aggregate of the percentage of Firm Securities set forth opposite the names of all the nondefaulting Underwriters. In that event, the Representative, for the accounts of the several nondefaulting Underwriters, may take up and pay for all or any part of the Additional Securities to be purchased by each nondefaulting Underwriter under this Subsection (a), and may postpone the Closing Date to a time not exceeding three full business days after the Closing Date determined as provided in Section 3 of this Agreement; or (b) If one or more Underwriters default in its or their obligations to purchase and pay for Firm Securities under this Agreement and if the aggregate amount of the Firm Securities which all Underwriters so defaulting shall have agreed to purchase exceeds 10% of the Firm Securities, or if one or more Underwriters for any reason permitted under this Agreement cancel its or their obligations to purchase and pay for Firm Securities under this Agreement, the noncancelling and nondefaulting Underwriters (hereinafter called the "Remaining Underwriters") shall have the right to purchase such Firm Securities on the Closing Date in the proportion as may be agreed among them. If the Remaining Underwriters do not purchase and pay for all such Firm Securities at the Closing Date, the Closing Date shall be postponed by two business days and the Remaining Underwriters shall have the right to purchase the Firm Securities, or to substitute another person or persons to purchase them, or both, at the postponed Closing Date. If purchasers are not found for such Firm Securities by the postponed Closing Date, the Closing Date shall be postponed for a further five business days and the Company shall have the right to substitute another person or persons, satisfactory to the Representative, to purchase those Firm Securities at the second postponed Closing Date. If the Company does not find the purchasers for those 29 30 Firm Securities by the second postponed Closing Date, then this Agreement shall automatically terminate and neither the Company nor the Remaining Underwriters shall be under any obligation under this Agreement (except that the Company shall remain liable to the extent provided in Sections 7 and 9(a) and the Underwriters shall remain liable to the extent provided in Section 9(b)). As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section 13. Nothing in this Section will relieve a defaulting Underwriter from liability for its default or obligate any Underwriter to purchase or find purchasers for any Firm Securities in excess of those agreed to be purchased by the Underwriter in Sections 2 and 13(a) of this Agreement. If the Representative is the defaulting Underwriter, the right of first refusal set forth in Section 16 hereof shall terminate. 14. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective at whichever of the following times shall first occur: (i) at 10:00 A.M., New York City time, on the next full business day following the date on which the Registration Statement becomes effective or (ii) at such time after the Registration Statement has become effective and the Underwriters shall release the Firm Securities for sale to the public; provided, however, that the provisions of Sections 7, 9, 10, 14 and 19 hereof shall at all times be effective. For purposes of this Section 14, the Firm Securities shall be deemed to have been so released upon the release by the Underwriters for publication, at any time after the Registration Statement has become effective, of any newspaper advertisement relating to the Firm Securities or upon the release by the Underwriters of telegrams offering the Firm Securities for sale to securities dealers, whichever may occur first. 15. TERMINATION OF AGREEMENT. (a) This Agreement may be terminated at any time prior to the Closing Date by you by giving written notice to the Company upon the occurrence of any of the following events: (i) any of the Companies shall have sustained a loss, by reason of fire, flood, accident or other calamity, which in your reasonable judgment, materially affects the aggregate value of the property owned or leased by such one of the Companies or which materially interferes with the operation of the business of any of the Companies, regardless of whether or not that loss shall have been insured; (ii) any of the Companies has encountered or been threatened with a strike (including but not limited to strikes of stevedores and other transporters of goods) or other labor dispute or been subjected to governmental action or fluctuations in currency or major political upheaval which materially affects the aggregate value of the property owned or leased or which materially interferes with the operation of its business or which in your reasonable judgment makes it impracticable or inadvisable to offer for sale or to enforce contracts made by the Underwriters for the resale of the Firm Securities; (iii) except as set forth in the Prospectus, there shall be pending or threatened against any of the Companies or notification has been received by any of 30 31 the Companies of the threat of any material legal or governmental proceeding or action relating generally to the business or prospects such one of the Companies which could materially adversely affect such one of the Companies (including action with respect to credit or interest rates) or which in your reasonable opinion makes it impracticable or inadvisable to proceed with the offering; (iv) any of the certificates, opinions or other documents to be delivered on the date of this Agreement or at the Closing Date are not in form reasonably satisfactory to counsel to the Underwriters; (v) any conditions set forth in Section 11 of this Agreement shall not have been satisfied; (vi) the Company is merged or consolidated or all or substantially all of the capital stock or assets of the Company are acquired by another company or group, or there exists a binding legal commitment for the foregoing or any other material change of ownership or control occurs; (vii) if there has occurred any outbreak of hostilities or escalation of any existing hostilities or other calamity or crisis, the effect of which on the financial markets of the United States is such as to make it impracticable, in the Representative's reasonable judgment, to market any of the Firm Securities or the Additional Securities or to enforce contracts for the sale of any of the Firm Securities or the Additional Securities; (viii) a banking moratorium shall have been declared by either federal or state authorities; (ix) if trading generally on the American Stock Exchange, the New York Stock Exchange or NASDAQ has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said Exchanges or the NASD or by order of the Commission or any other governmental authority; (x) there shall have been a change in the general market, political or economic conditions in the United States, such that in any such case, in the Representative's reasonable judgment, it would be inadvisable to proceed with the offering of the Firm Securities; or (xi) any law shall be enacted or any regulation promulgated relating to the business of any of the Companies which could materially adversely affect any of the Companies. (b) This Agreement may be terminated by the Company by giving written notice to you (i) at any time before this Agreement becomes effective in accordance with Section 14 hereof, or (ii) prior to the Closing Date if the conditions set forth in Section 12 shall not have been satisfied at or prior to such date. 31 32 (c) If this Agreement shall be terminated by the Company pursuant to preceding clause (b)(i) because (x) the Company has made, or proposes to make, a private placement which will provide it with substantial alternative funding through another investment banking agent, the Representative shall be entitled to a cash fee equal to 2% of the gross amount of such funding, whether effectuated by the Company before or after such termination of this Agreement or (y) because the Company is to be sold, whether by merger, sale of stock, sale of assets or otherwise, the Representative shall be paid a cash fee of $200,000 should the acquisition or merger close; provided, however, that if in such event the Company shall choose the Representative as its investment banker in connection therewith, such $200,000 shall be a credit against any services rendered by the Representative in such transaction. (d) If this Agreement shall be terminated pursuant to this Section 15 other than by reason of the fault of the Representative, the Company, in addition to the advance provided for in Section 7 hereof, shall pay to you your accountable expenses, including the fees and expenses of your counsel, in an amount not to exceed $30,000. 16. RIGHT OF FIRST REFUSAL. Until January 1, 1998, the Company shall notify you in writing at least thirty (30) days before a proposed offering by the Company of any of its securities (other than bank debt or similar financing), securities offered solely to Company employees or securities issuable in transactions enumerated in Rule 145(a) under the Securities Act so that you, or, at your option, together with a group of investment bankers associated with you, shall have the right of first refusal to effect the offering on terms at least as favorable to the Company as those set forth in such notice (which notice will specify the price to the underwriter or other method of determining the underwriting discount or fee). You will notify the Company if you intend to exercise your right of first refusal within thirty (30) days of receipt by you of such notice from the Company. If you fail to exercise the right of first refusal within the thirty (30) day period and the terms of the proposed subsequent financing thereafter are altered in any material respect less favorable to the Company, the Company shall again offer to you the right of first refusal to effect a subsequent financing upon such terms and you shall have ten (10) days from the date of receipt of such notice to notify the Company of your acceptance. 17. NOTICES. All communications under this Agreement shall be in writing and, except as otherwise provided shall be delivered at or mailed, registered or certified, return receipt requested, or telegraphed to the following addresses: If to you or any other Underwriter: Janney Montgomery Scott Inc. Attention: Ann Green 26 Broadway New York, New York 10004 32 33 Copies to: Janney Montgomery Scott Inc. As Representative of the Several Underwriters Attention: Richard A. Thompson 1801 Market Street 20th Floor Philadelphia, Pennsylvania 19103 and Arthur M. Borden, Esq. Rosenman & Colin LLP 575 Madison Avenue New York, New York 10022 If to the Company: Barringer Technologies Inc. Attention: Stanley S. Binder, President 219 South Street New Providence, N. J. 07974 Copy to: John D. Hogoboom, Esq. Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. 65 Livingston Avenue Roseland, New Jersey 07068-1791 Any party may change its address by giving notice in accordance with this Section . 18. PARTIES IN INTEREST. This Agreement is made solely for the benefit of the Underwriters, the Company, directors and officers of the Company, and their respective executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successor" and "successor and assigns" shall not include any purchaser from the Company or any of the several Underwriters of the Firm Securities or the Additional Securities. All of the obligations of the Underwriters under this Agreement are several and not joint. 19. SURVIVAL CLAUSE. The representations, warranties, indemnities, agreements and other statements of the Underwriters and the Company and its officers set forth in this Agreement and made pursuant to this Agreement will remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or controlling person thereof or by or on behalf of the Company or any of its officers and directors or (ii) any termination of this Agreement and (iii) delivery of and payment for the Firm Securities and the Additional Securities. 33 34 20. REPRESENTATION OF UNDERWRITERS. You will act for the several Underwriters in connection with this financing, and any action under or in respect of this Agreement taken by you as Representative on behalf of the Underwriters will be binding upon all of the Underwriters. 21. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the principles of conflicts of law. 22. COUNTERPARTS. This Agreement may be signed in one or more counterparts and shall be deemed effective when each party hereto has signed a counterpart. If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company the enclosed duplicate hereof, whereupon it will become a binding agreement among the Company and the Underwriters in accordance with its terms. Very truly yours, BARRINGER TECHNOLOGIES INC. By:_____________________________ The foregoing agreement is hereby confirmed and delivered as of the date first above written. JANNEY MONTGOMERY SCOTT INC. By:____________________________ (Authorized Signature) Acting on their own behalf and as Representative of the several Underwriters named in Schedule I attached hereto. 34 35 SCHEDULE I LIST OF UNDERWRITERS Number of Underwriters Firm Securities ------------ --------------- EX-10.4 3 CONSULTING AGREEMENT DATED JANUARY 1, 1991 1 EXHIBIT 10.4 CONSULTING AGREEMENT -------------------- Agreement dated as of the 1st day of January 1991 between Barringer Resources Inc. and John J. Harte (the Consultant). WITNESSETH ---------- 1. Employment -- The company hereby employs consultant, and consultant hereby accepts employment, as a consultant to the company upon the terms and conditions set forth in this agreement. This agreement replaces all previous consulting agreements between the parties. 2. Duties -- Consultant shall serve the company as a consultant and perform tasks as directed by the company including serving on the board of any subsidiary if so requested. Consultant shall devote as much time as is required to complete tasks assigned and will be available seven days a week if so required but not more than twenty four days in a twelve month period. 3. Terms of Employment Basic Term -- The consulting period will be January 1, 1991 to December 31, 1993 which is a three year term. The agreement will automatically renew on an annual basis after December 31, 1993 unless notice of cancellation in writing six months prior to December 31. 4. Compensation -- As compensation for performance of his duties and obligations hereunder, the company shall pay to consultant a consulting fee of $2,000.00 per month commencing on January 1, 1991 and on the first day of each month thereafter. 5. Additional Compensation -- In addition to the compensation provided for in section the company will issue stock options to the consultant as a board member of either the parent company of any of its subsidiaries in the same proportion as issued to other outside board members in the ordinary course of affairs. 6. Expenses -- Consultant will be reimbursed for all reasonable travel expenses incurred in connection with the companies business. All such expenses will be approved in advance by the company unless mandatory travel to board meetings. 7. Office Support -- Consultant will be reimbursed for reasonable office and telephone expenses not to exceed three hundred dollars per month. 8. Notice -- Any notice required or permitted to be given hereunder shall be in writing by first class mail, postage prepaid, addressed to the party of whom intended at the address set forth below or any such other address as to either party as such party shall specify by like notice to the other. 9. Successors and Assigns -- This Agreement shall be binding upon, and inure to the benefit of, any company which shall require all or substantially all of the assets of, or shall succeed by merger to, the company. Consultant may not assign this Agreement, in whole or in part. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the fifth day of December, 1990. BARRINGER RESOURCES INC. By: /s/ Stanley S. Binder ---------------------------------- Stanley S. Binder, President 89 Headquarters Plaza Morristown, N.J. 07960 /s/ John J. Harte ---------------------------------- John J. Harte, Consultant 1029 W. Adams Chicago, Il. 60607 EX-10.6 4 FORM OF 1995 NONQUALIFIED STOCK OPTION GRANT 1 EXHIBIT 10.6 BARRINGER TECHNOLOGIES INC. NON-QUALIFIED STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT made on March 10, 1995 between BARRINGER TECHNOLOGIES INC., a Delaware corporation, with its principal office at 219 South Street, New Providence, New Jersey 07974 (hereinafter called the "Company") and _______________________________ residing at _____________________ __________________________________ (hereinafter called the "Optionee"), who is an employee or Director of the Company or one or more of the Company's subsidiaries. WITNESSETH THAT: 1. Shares Subject to Option. The Company hereby grants to the Optionee an option to purchase up to ( ) shares of Common Stock ($.01 par value) of the Company (hereinafter called the "Optioned Shares") at a price of US$.50 per share (the "Option Price"), which represents the fair market value of a share of common stock on the date hereof, in accordance with such authority and subject to the terms and conditions and within the period of time hereinafter set forth. 2. Terms and Exercise of Option. The Option hereby granted (the "Option") may be exercised by the Optionee as to forty percent (40%) of the Optioned Shares caused hereby after March 9, 1996; sixty percent (60%) of the Optioned Shares caused hereby after March 9, 1997; eighty percent (80%) of the Optioned Shares caused hereby after March 9, 1998 and one hundred percent (100%) after March 9, 1999 (subject to the conditions set forth in Clause 3 1 2 below). The Option will expire on March 10, 2000. The option may be exercised only by written notice to the Company specifying the number of shares of Common Stock in respect of which the Option is being exercised and by payment to the Company in cash or in shares of Common Stock (which shares shall be valued at their then fair market value) of the full purchase price for the shares. 3. Conditions to Exercise. Exercise of the Option as hereinabove provided shall be subject to the following express conditions precedent: The Optionee shall have remained in the continuous employ or Directorship of the Company or a subsidiary of the Company from the date of grant of the Option until the date of exercise thereof except that: (i) in the event of the death of the Optionee then the Option shall terminate as to any unvested portion hereof immediately upon the termination of employment or Directorship. The Optionee's executor or administrator or person or persons to whom the Optionee's rights under the Option shall pass by will or the laws of descent and distribution shall be entitled at any time within twelve (12) months after the death of the Optionee to exercise the Option with respect to any unexercised portion of the Option that was exercisable at the time of the Optionee's death and (ii) in the event of the disability of the Optionee, then the Option shall terminate as to any unvested portion hereof 2 3 immediately upon termination of employment or Directorship. The Optionee or the Optionee's legal representative may exercise any unexercised portion of the Option that was exercisable at the time of termination of employment or Directorship within a period of three (3) months following such and (iii) Upon termination of the Optionee's employment or Directorship with the Company for any reason except disability or death, whether termination by the Optionee or the Company, the Option shall terminate as to any portion of the Option that was not exercisable at the time of termination of employment or Directorship, immediately upon termination of such employment or Directorship. The Optionee may exercise any unexercised portion of the Option that was exercisable at the time of termination of employment or Directorship within a period of three (3) months following such termination and (iv) in the event of the purchase of more than 50% of the then outstanding shares of Common Stock of the Company by an entity or related group, signifying a change in control, or a more than fifty percent (50%) change in the current members of the Board of Directors, the Optioned Shares will vest one hundred percent (100%). 4. Option Non-Transferable. This Option may not be assignable or transferable in whole or in part by the Optionee otherwise than by Will or the laws of descent and distribution and shall be exercisable during the Optionee's lifetime only 3 4 by the Optionee or, in the event of the Optionee's disability, by the Optionee's legal representative. 5. Continuation of Employment. This Agreement shall not be construed as giving the Optionee any right to be retained in the employment or Directorship of the Company or any of its subsidiary companies or to affect or limit in any way the right of the Company or of any of its subsidiary companies to terminate the employment of the Optionee at any time with or without cause. This Option hereby granted shall not be exercisable if such exercise would involve a violation of any applicable law or regulation by any governmental authority. The Company agrees to make such reasonable efforts to comply with any applicable state or federal securities law or regulations as it may in its sole discretion determine are reasonably necessary and will not subject the Company to unreasonable expenses or hardships. 6. Subdivision, Combination or Reclassification. In the event of any reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation or other similar change in the corporate structure or capitalization of the of the Company or in its Common Stock, the number of Optioned Shares and the Option and the Option Price per share shall be appropriately adjusted; but no such adjustment in the Option Price shall be made which would reduce the Option Price per share to less than the par value thereof. 4 5 7. Anti-Dilution. In the event that the Company shall, at any time or from time to time after the date hereof, issue any shares of Common Stock or options, warrants, convertible securities or other rights to acquire common Stock other than pursuant to (i) the exercise of options, warrants, convertible securities or other rights to acquire Common Stock outstanding on the date hereof, (ii) a merger, subdivision, dividend or other distribution on any class of stock, consolidation or reclassification of shares of Common Stock under paragraph 6 hereof, or (iii) employee or Director stock options outstanding on the date hereof or issued hereafter pursuant to stock option plans of the Company or stock purchase warrants outstanding on the date hereof, without consideration or for a consideration per share less than the lesser of (x) the Option Price in effect immediately prior to such issuance, or (y) the then-fair market value per share of the Common Stock (as determined in good faith by the Board of Directors of the Company or their designee), then, and thereafter successively upon each such issuance, the Option Price in effect immediately prior to the issuance of such shares shall forthwith be reduced to a price (calculated to the nearest full cent) determined by dividing (a) an amount equal to (i) the total number of shares of Common Stock outstanding immediately prior to such issuance multiplied by the Option Price in effect immediately prior to such issuance, plus (ii) the consideration, if any, received by the Company upon such 5 6 issuance by (b) the total number of shares of Common Stock outstanding immediately after such issuance. Upon any such adjustment of the Stock Option Price as provided above, this Option shall evidence the right to purchase the number of shares of Common Stock (rounded to the nearest whole share) obtained by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment upon exercise of this Option by the Option Price in effect immediately prior to such adjustment and dividing the product so obtained by the Option Price in effect immediately after such adjustment. 1. In case of the issuance of shares of Common Stock or other securities of the Company for cash, the consideration received by the Company therefor shall be deemed to be the cash proceeds received by the Company therefor less any commissions or other expenses paid or incurred by the Company for any underwriting of, or otherwise in connection with, the issuance thereof. 2. In case of the issuance of shares of Common Stock or other securities of the Company for a consideration other than cash, or a consideration a part of which shall be other than cash, the amount of the consideration received by the Company 6 7 therefor shall be deemed to be the cash proceeds, if any, received by the Company plus the fair value of the consideration other than cash, as determined by the Board of Directors of the Company or their designee, less any commissions or other expenses paid or incurred by the Company for any underwriting of, or otherwise in connection with, such issuance, provided however that the amount of such consideration other than cash shall in no event exceed the cost thereof as recorded on the books of the Company. 3. In the case of the issuance by the Company of (a) any security that is convertible into or exchangeable for shares of Common Stock or (b) any rights, warrants or options to purchase shares of Common Stock, the Company shall be deemed to have issued the maximum number of shares of Common Stock into which such convertible or exchangeable securities may be converted or exchanged or the maximum number of shares of Common Stock deliverable upon the exercise of such rights, warrants or options, as the case may be, for the consideration (determined as provided in subparagraphs 1 and 2 above) received by the Company for such convertible or exchangeable securities or for such rights or options, as the 7 8 case may be, plus the minimum aggregate price at which shares of Common Stock are to be delivered upon the exercise of such rights, warrants or options, as the case may be. On the expiration of such rights, warrants or options or the termination of such right to convert or exchange, the Option Price hereunder shall be readjusted to such Option Price as would have been obtained had the adjustments made upon the issuance of such rights, warrant or options, or convertible or exchangeable securities, been made upon the basis of the delivery of, and receipt of the consideration or adjustment payment, if any, actually paid for, only the number of shares of Common Stock actually delivered upon the exercise of such rights, warrants or options or upon the conversion or exchange of such securities. Except as provided in subparagraph 4, no further adjustment of the Stock Option Exercise Price shall be made as a result of the actual issuance of shares of Common Stock referred to in this subparagraph 3. 4. The consideration for any securities issued as a stock dividend shall be deemed to be zero. 5. Irrespective of any adjustment or change in the Stock Option Price or the number of shares of Common Stock actually purchasable under this or any 8 9 other Option of, like tenor, the Options theretofore and thereafter issued may continue to express the Stock Option Price per share and the number of shares purchasable thereunder as the Stock Option Price per share and the number of shares purchasable that were expressed upon the Stock Option when initially issued. OPTIONEE: BARRINGER TECHNOLOGIES INC. By: - ------------------------------ -------------------------- Optionee President - ------------------------------ Witness 9 EX-10.7 5 FORM OF 1996 NONQUALIFIED STOCK OPTION GRANT 1 EXHIBIT 10.7 NON-QUALIFIED STOCK OPTION AGREEMENT (INCLUDING RESTRICTIVE COVENANT) This agreement, made as of the th day of , 1996, by and between Barringer Technologies Inc., a Delaware corporation (the "Company" and ("Optionee"). ARTICLE 1. RECITALS a) Barringer Technologies Inc. from time to time will award Non-Qualified Stock Options (the "Option") to acquire shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), to selected directors, officers and other key employees of the Company and its direct and indirect present and future subsidiaries (the "Subsidiaries") who are most responsible for future growth. The Options are designed to help attract and retain superior personnel for positions of substantial responsibility with the Company and the Subsidiaries and to provide key employees with an additional incentive to contribute to the success of the Company and the Subsidiaries through the benefits arising from ownership of the Company's common stock. b) The Options are awarded by the Board of Directors of the Company or any duly created committee appointed by the Board of Directors ( collectively the "Administrator"). c) The Administrator shall have the authority: (a) to construe and interpret this agreement (the "Agreement"); b) to define the terms used herein; c) to prescribe, amend and rescind rules and regulations relating to the Agreement; d) to determine the employees and directors of the Company and Subsidiaries to whom Options shall be granted; e) to determine the time or times at which Options shall be granted; f) to determine the number of shares subject to any Option as well as the Option price and any terms and conditions of Options; and g) to make any other determinations necessary or advisable for the administration of the Options. All decisions, determinations and interpretations made by the Administrator shall be binding and conclusive on all Optionees and on their legal representatives, heirs and beneficiaries. ARTICLE 2. ELIGIBILITY AND PARTICIPATION Key employees of the Company and the Subsidiaries, including officers and directors, shall be eligible for selection by the Administrator. ARTICLE 3. GRANT OF OPTION a) The Administrator hereby grants the Optionee the right, privilege and Option to purchase from the Company shares of Common Stock, in the manner and subject to the terms and conditions provided in this Agreement. 1 2 b) The Option Price shall be $1.00 per share of Common Stock. ARTICLE 4. TIME OF EXERCISE Subject to the terms of this Agreement, the Option shall be exercisable in installments as follows: 25%, exercisable immediately upon grant 50%, exercisable first day of second year 75%, exercisable first day of third year 100%, exercisable first day of fourth year. ARTICLE 5. METHOD OF EXERCISE The Option may be exercised by written notice to the Chief Financial Officer of the Company identifying the Option (name of Optionee and date of grant), specifying the number of shares of Common Stock for which the Option is exercised and: a) enclosing a certified or bank cashier's check payable to the order of the Company, in an amount equal to the Option Price for said shares of Common Stock; b) enclosing certificates for shares of Common Stock currently owned by Optionee to be surrendered in satisfaction of the Option Price for said shares of Common Stock with stock powers duly executed; c) enclosing certificates for shares of Common Stock currently owned by Optionee to be surrendered in satisfaction of some portion of the Option Price for said shares of Common Stock with stock powers duly executed and enclosing a certified or bank cashier's check, payable to the order of the Company, in an amount equal to the remainder of the Option Price for said shares of Common Stock; or d) a written request to exercise pursuant to the terms of the Company's Stock Option Exercise Program. ARTICLE 6. TERMINATION OF THE OPTION a) The Option, to the extent not theretofore exercised, shall terminate five (5) years from the date of grant of the Option; b) If an Optionee ceases to be employed by the Corporation or any Subsidiaries for any reason other than death or disability, then, unless any other provision of the Agreement provides for earlier termination all Options shall terminate immediately in the event the Optionee's employment is terminated for cause and in all other circumstances may be exercised, to the extent exercisable on the date of termination of employment, until 30 days after the date of termination of employment; 2 3 provided however, the Administrator may, in its discretion, allow such Options to be exercised (to the extent exercisable on the date of termination of employment) at any time within three (3) months after the date of termination of employment; c) If an Optionee becomes disabled within the meaning of Section 22(e)(3) of the Code while employed by the Company or any Subsidiaries, then unless any other provision of the Agreement provides for earlier termination all Options may be exercised, to the extent exercisable on the date of termination of employment, at any time within six (6) months after the date of termination of employment due to disability. d) If an Optionee dies while employed by the Company or Subsidiaries, then, unless any other provision of the Agreement provides for earlier termination all Options may be exercised, to the extent exercisable on the date of death, by the person to whom the Optionee's rights shall pass by will or by laws of descent and distribution, within one (1) year after the date of death. ARTICLE 7. CHANGE IN CONTROL All Options shall become fully exercisable upon the occurrence of a Change in Control Event. As used in the Agreement, a "Change in Control Event" shall be deemed to have occurred if: a) any person, firm or corporation acquires directly or indirectly the Beneficial Ownership (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of any voting security of the Company and immediately after such acquisition, the acquirer has Beneficial Ownership of voting securities representing 50% or more of the total voting power of all the then-outstanding voting securities of the Company; b) the individuals (A) who, as of the date of this Option constitute the Board (the "Original Directors") or (B) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least 2/3 of the Original Directors then still in office (such Directors being called "Additional Original Directors") or (C) who are elected to the Board and whose election or nomination for election to the Board was approved by a vote of at least 2/3 of the Original Directors and Additional Original Directors then still in office, cease for any reason to constitute at least 3 of the members of the Board; c) the stockholders of the Company shall approve a merger, consolidation, recapitalization or reorganization of the Company or consummation of any such transaction if stockholder approval is not sought or obtained, other than any such transaction which would result in at least 75% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being Beneficially Owned by holders of the outstanding voting securities of the Company immediately prior to the transaction, with the voting power of each such continuing holder relative to such other continuing holder being not altered substantially in the transaction; or 3 4 d) the stockholders of the Company shall approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or a substantial portion of the Company's assets (ie. 50% or more in value of the total assets of the Company). ARTICLE 8. MANDATORY EXERCISE Upon the occurrence of or in anticipation of a contemplated Change in Control Event, the Company may give the Optionee written notice requiring such Optionee either (a) to exercise within a reasonable period of time established by the Administrator after receipt of the notice each Option to the fullest extent exercisable at the end of that period or (b) to surrender such Option or any unexercised portion thereof. Any portion of such Option which shall not have been exercised in accordance with the provisions of the Agreement by the end of such period shall automatically lapse irrevocably and Optionee shall have no further rights thereunder. ARTICLE 9. ADJUSTMENTS Subject to the provisions of Articles 7 and 8, in the event the outstanding shares of Common Stock of the Company are hereafter increased, decreased, changed into or exchanged for a different number or kind of shares or securities through merger, consolidation, combination, exchange of shares, other reorganization, recapitalization, reclassification, stock dividend, stock split or reverse split, an appropriate adjustment shall be made by the Administrator in the number or kind of shares allocated to unexercised options, which shall have been granted prior to any such change. Any such adjustment in outstanding options shall be made without change in the aggregate purchase price applicable to the unexercised portion of the Option but with a corresponding adjustment in the price for each share covered by the Option. In making any adjustment pursuant to this Article 9, any fractional shares shall be disregarded. ARTICLE 10. PRIVILEGES OF STOCK OWNERSHIP Notwithstanding the exercise of any options granted by the Administrator, no Optionee shall have any rights or privileges of a stockholder of the Company in respect of any shares of stock issuable upon the exercise of his or her Option until certificates representing the shares have been issued and delivered. No adjustment shall be made for dividends or any other distribution for which the record date is prior to the date on which any stock certificate is issued pursuant to the Agreement. ARTICLE 11. RESERVATION OF SHARES OF COMMON STOCK The Company will at all times reserve and keep available such number of shares of its Common Stock as shall be sufficient to satisfy the requirements of this Option. ARTICLE 12. TAX WITHHOLDING The exercise of any option under this Agreement is subject to the condition that, if at any time 4 5 the Company shall determine, in its discretion, that the satisfaction of withholding tax or other withholding liabilities under any state, federal or international tax treaties is necessary or desirable as a condition of, or in any connection with, such exercise or the delivery or purchase of shares pursuant thereto; then, in such event, the exercise of the Option shall not be effective unless such withholding tax or other withholding liabilities shall have been satisfied in a manner acceptable to the Company. ARTICLE 13. EMPLOYMENT Nothing in this Agreement gives to any Optionee any right to continued employment by the Company or the Subsidiaries or limits in any way the right of the Company or the Subsidiaries at any time to terminate or alter the terms of that employment. ARTICLE 14. RESTRICTIONS IN DISPOSITION All shares of Common Stock acquired by Optionee pursuant to this Agreement shall be subject to the restrictions on sale, encumbrance and other disposition provided by Federal or State law. All shares of Common Stock issued to Optionee pursuant to this Agreement shall bear a restrictive legend summarizing the restrictions on transferability applicable thereto including those imposed by Federal and state securities laws. ARTICLE 15. NON-TRANSFERABILITY Options granted hereunder may not be sold, pledged, assigned or transferred in any manner by the Optionee otherwise than by will or by laws of descent and distribution and shall be exercisable (a) during the Optionee's lifetime only by the Optionee and (b) after the Optionee's death only by the Optionee's executor, administrator or personal representative. ARTICLE 16. CONFIDENTIALITY; COVENANT AGAINST COMPETITION AS A CONDITION TO THE GRANT OF THIS OPTION, the Optionee agrees as follows: a) The Optionee recognizes and acknowledges that all information pertaining to the affairs, business, clients, or customers of the Company or the Subsidiaries or affiliates (hereinafter collectively referred to as the "Business"), as such information may exist from time to time, other than information that the Company has previously made publicly available, is confidential information and is a unique and valuable asset of the Business, access to and knowledge of which will be essential to the performance of the Optionee's duties under this Agreement. In consideration of the Option granted to him hereunder, the Optionee shall not, except to the extent reasonably necessary in the performance of his duties, divulge to any person, firm, association, corporation, or governmental agency, any information concerning the affairs, businesses, clients, or customers of the Business (except such information as is required by law to be divulged to a government agency or pursuant to lawful process), or make use of any such information for his own purposes or for the benefit of any person, firm, association or corporation (except the Business) and shall use his reasonable best efforts 5 6 to prevent the disclosure of any such information by others. All records, memoranda, letters, books, papers, reports, accountings, experience or other data, and other records and documents relating to the Business, whether made by the Optionee or otherwise coming into his possession, are confidential information and are, shall be, and shall remain the property of the Business. No copies thereof shall be made which are not retained by the Business, and the Optionee agrees, on termination of his employment or on demand of the Company, to deliver the same to the Company or as the Company may direct. b) In consideration of the Option granted to him hereunder, during the one-year period commencing on the effective date of the termination of his employment, the Optionee shall not, without express prior written approval of the Administrator, directly or indirectly, own or hold any proprietary interest in, or be employed by or receive remuneration from, any corporation, partnership, sole proprietorship or other entity engaged in competition with the Business (a "Competitor"), other than severance-type or retirement-type benefits from entities constituting prior employers of the Optionee. The Optionee also agrees that during such one-year period he will not solicit for the account of any Competitor, any customer or client of the Business, or in the event of the Optionee's termination of his employment, any entity or individual that was such a customer or client during the twelve (12) month period immediately preceding the Optionee's termination of employment. The Optionee also agrees not to act on behalf of any Competitor to interfere with the relationship between the Business and their employees. The Optionee also agrees not to hire any employee of the Business or to solicit or induce any such employee to leave the employment of the Company. For purposes of the preceding paragraph, (i) the term "proprietary interest" means legal or equitable ownership, whether through stockholding or otherwise, of an entity interest in a business, firm or entity other than ownership of less than 1 percent of any class of equity interest in a publicly held business, firm or entity and (ii) an entity shall be considered to be "engaged in competition" if such entity is, or is a holding company for, a company engaged in competition with the Company. c) The Optionee acknowledges the reasonableness of the restrictions contained in this Article 16. The Optionee acknowledges that the Company and its successors and assigns would be irreparably injured in a manner not adequately compensated by money damages by a breach or violation (or threatened breach or violation) of the provisions of this Article 16 by the Optionee. Therefore, in the event of any such breach or violation (or threatened breach or violation), in addition to all other rights and remedies which the Company may have, whether at law or in equity, the Company and its successors and assigns shall be entitled to obtain injunctive or other equitable relief against the Optionee without the need to post bond or other security in connection therewith and the Optionee hereby consents to the entry of an order for such injunctive or other equitable relief. d) The obligation of the Company to provide for any benefits under this Agreement shall cease upon a violation of the preceding provisions of this Article. The Optionee's agreement as set forth in this Article 16 shall survive the expiration of the term of the Option and the Optionee's termination of his employment with the Company. 6 7 e) If any court determines that the provisions of this Article 16, or any part hereof, is unenforceable because of the duration or geographic scope of such provisions, such court shall have the power to reduce the duration or scope of such provisions, as the case may be, so that, as so reduced, such provisions are then enforceable to the maximum extent permitted by applicable law. ARTICLE 17 ADDITIONAL DOCUMENTS Optionee hereby agrees to execute and deliver such further documents and instruments as may be necessary or as may be requested in order to effectuate fully the purposes, terms and conditions of this Agreement, whether before, at, or after the exercise of the Option. ARTICLE 18 SEVERABILITY The invalidity of any one or more provisions hereof or of any other agreement or instrument given pursuant to or in connection with this Agreement shall not affect the remaining portions of this Agreement or any such other agreement or instrument or any part thereof; and if one or more provisions contained herein or therein should be invalid, or should operate to render this Agreement or any such other agreement or instrument invalid, this Agreement and such other agreements and instruments shall be construed as if such invalid provisions had not been inserted. ARTICLE 19 SURVIVAL It is the express intention and agreement of the parties hereof that all covenants and agreements made in this Agreement shall survive the execution and delivery of this Agreement and the exercise (if any) of the Option. ARTICLE 20 WAIVERS Neither the waiver by a party of a breach of or a default under any of the provisions of this Agreement, nor the failure of a party, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right, remedy, or privilege hereunder shall thereafter be construed as a waiver of any subsequent breach or default of a similar nature, or as a waiver of any such provisions, rights, remedies, or privileges hereunder. ARTICLE 21 BINDING EFFECT Subject to any provisions hereof restricting transfer, encumbrance and assignment, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns. ARTICLE 22 LIMITATIONS ON THE BENEFIT OF THIS AGREEMENT It is the explicit intention of the parties hereto that no person or entity other than the parties 7 8 hereof is or shall be entitled to bring any action to enforce any provisions of this Agreement against any parties hereto, and that the covenants, undertakings, and agreements set forth in the Agreement shall be solely for the benefit of, and shall be enforceable only by, the parties hereto and their respective heirs, personal representatives, successors and assigns as permitted hereunder. ARTICLE 23 ENTIRE AGREEMENT This Agreement and subsequent amendments and interpretations, contains the entire agreement among the parties with respect to subject matter hereof, and supersedes all prior oral or written agreements, commitments, or understandings with respect to the matters provided for herein and therein. ARTICLE 24 HEADINGS Article and subarticle headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed to be part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof. ARTICLE 25 GOVERNING LAW This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the internal laws of the State of Delaware, except that Article 16 shall be governed by New Jersey law, in each case exclusive of laws regarding choice of laws. ARTICLE 26 NOTICES All notices, demands, requests, or other communications that may be or are required to be given, served, or sent by a party pursuant to this Agreement shall be in writing and shall be (i) personally delivered, (ii) mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or (iii) sent by over-night carrier, addressed as follows: (a) If to the Company: Barringer Technologies Inc. 219 South Street New Providence, NJ 07974 Att: Chief Financial Officer (b) If to the Optionee: The Last Known Residence or Mailing Address of Optionee 8 9 Reflected in the Records of the Corporation Each party may designate by notice in writing in the manner described above a new address to which any notice, demand, request, or communication required or permitted by this Agreement may be sent. Any notice, demand, request, or communication that shall be delivered, mailed, or transmitted in the manner described above shall be deemed given, served, sent or received for all purposes when it is delivered to the addressee. An affidavit of personal delivery, the return receipt, or the delivery receipt shall be deemed conclusive, not exclusive, evidence of such delivery or when delivery is refused by the addressee upon presentation. ARTICLE 27 COUNSEL THE OPTIONEE REPRESENTS THAT HE HAS HAD THE OPPORTUNITY TO REVIEW THIS AGREEMENT, INCLUDING THE COVENANT AGAINST COMPETITION, AND/OR HIS OTHER PROFESSIONAL ADVISORS. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. COMPANY Barringer Technologies Inc. By: ------------------------------------------ Stanley S. Binder, Chief Executive Officer Witness: OPTIONEE - -------------------- --------------------------------------------- 9 EX-10.8 6 DESCRIPTION OF 1991 WARRANT PLAN 1 EXHIBIT 10.8 DESCRIPTION OF 1991 WARRANT PLAN On December 13, 1990, the Board of Directors of the Company adopted the 1991 Directors' Warrant Plan (the "1991 Warrant Plan"), pursuant to which each non-employee director, upon election or appointment to the Board, will be offered 3,750 five-year warrants, at $.40 per warrant (the "Directors' Warrants"), each to purchase one share of Common Stock at an exercise price to be determined by the Board at the time the Directors' Warrants are issued, which exercise price shall not be less than the then current market price for the shares of Common Stock underlying the Directors' Warrants, and which provides that each new director shall use the first quarterly director's fee to pay the purchase price for the Director's Warrants. EX-10.9 7 DESCRIPTION OF EXERCISE PLAN 1 EXHIBIT 10.9 DESCRIPTION OF EXERCISE PLAN The Board of Directors of the Company has adopted the Stock Option Exercise Program (the "Exercise Program"), pursuant to which all employees of the Company and its subsidiaries who are granted stock options (pursuant to either qualified or non-qualified plans) are permitted to finance the exercise price of such options by causing the Company to issue the shares of Common Stock 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, which is secured by the underlying shares of Common Stock and which is interest-free for one year from the date on which the employee exercises his or her option, after which interest accrues at a rate per annum equivalent to 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. EX-10.10 8 LICENSE AGREEMENT DATED FEB. 27, 1989 1 EXHIBIT 10.10 435-9172-1 THIS AGREEMENT made in duplicate as of the 27th day of February, 1989 BETWEEN: CANADIAN PATENTS AND DEVELOPMENT LIMITED-SOCIETE CANADIENNE DES BREVETS ET D'EXPLOITATION LIMITEE, a Corporation to which the Government Companies Operation Act applies, having its Head Office at the City of Ottawa in the Province of Ontario (hereinafter called "the Licensor") OF THE ONE PART -and- Barringer Instruments Limited, a duly incorporated Company, having a place of business at the City of Rexdale in the Province of Ontario (hereinafter called "the Licensee") OF THE OTHER PART WITNESSETH THAT: WHEREAS the Licensor is an agency Corporation wholly owned by Her Majesty the Queen in right of Canada, reporting to Parliament through the Minister of Regional Industrial Expansion; and WHEREAS in consequence of scientific research conducted through Department of Supply and Services of the Government of Canada Contracts Serial Nos. T 8200-5-5570, 21ST-32032-4-033M, 19SR-32032-5-3080, 41ST-32032-6-3402 and 25ST-32032-7-3271, under the auspices of, the Department of Transport of the Government of Canada, there has been developed an invention commonly designated "Sample Handling System for Molecular Analyser" - Case Number 9172, and the 2 Department of National Revenue of the Government of Canada there has been developed an invention commonly designated "Narcotic Detector Using Ion Mobility Spectrometer" Case 9281; and WHEREAS the Licensor has made certain applications for patents in respect of the said Inventions; and WHEREAS the Licensor represents that it has full authority to license the Invention and the Patent Rights and enter into this agreement; and WHEREAS the Licensee and the Licensor are desirous of entering into a license agreement on the terms and conditions hereinafter set forth. NOW THEREFORE in consideration of the premises and of the mutual covenants and agreements hereinafter contained, the parties hereto agree each with the other as follows: SECTION 1 - Definitions A. "Departments" means the Department of Transport and the Department of National Revenue of the Government of Canada; B. "Invoice Price" means the genuine net selling price of Licensed Products (before cash discounts, freight allowances, advertising allowances or similar deductions are made, but excluding customs, excise and sales taxes, if any) established in a normal bona fide arm's length transaction between parties not subject to common control, direction or restraint, nor affiliated in any way. C. "Invention" means the inventions commonly designated "Sample Handling System for Molecular Analyser" - Case 9172 and "Narcotic Detector Using Ion Mobility Spectrometer" Case Number 9281, which have been developed in consequence of scientific research conducted under the auspices of the Departments. 2 3 D. "Know-how" means the technical knowledge and techniques relating generally to the Inventions supplied to the Licensee by either the Licensor or the Departments. E. "Licensed Process" means the series of actions or operations carried out in accordance with the method Inventions covered by the Patent Rights and/or Know-how. F. "Licensed Product" means a complete detection system or any part thereof made in accordance with the Inventions covered by the Patent Rights and/or Know-how. F. "Patent Rights" means any patent application, continuation-in-part or divisional thereof, and any patent which has issued or may issue thereon including any re-issue thereof in respect of the Inventions, as more particularly shown in Schedule "A" hereto annexed. G. "Records" means accounts, invoices, receipts, vouchers and like documents relating to the sales of Licensed Products. SECTION 2 - Grant A. The Licensor hereby grants to the Licensee an exclusive right and license in Canada to make, and have made, Licensed Products, with the right and license throughout the world to use and sell Licensed Products and use the Licensed Process including the right to grant sublicenses thereof to purchasers of Licensed Products. Such exclusive right and license shall be for the period from the date of this Agreement until the 31st day of March 1999; it being understood and agreed that, after the expiry of the aforesaid period, the right and license granted herein shall be non-exclusive for the remainder of the life of this agreement. B. Notwithstanding anything contained in this agreement, in respect of the license granted herein, there is hereby reserved to Her Majesty the Queen in right of 3 4 Canada, the right to practice, and have practiced, the subject matter of said license and to dispose of, in any manner whatsoever, any products derived from such practice. C. If the Licensee is in default with respect to any obligation contained in this agreement, the Licensor may, at its discretion, in lieu of giving notice of termination for such default, by notice in writing to the Licensee, reduce to non-exclusive the license granted herein and may, after the date of such notice, grant to third parties licenses in respect to the subject matter of this agreement. D. The Licensee may grant sublicenses of the license granted herein on terms and conditions similar to those hereof and the Licensee agrees that it will submit such sublicense agreements to the Licensor for ratification within ninety (90) days after execution thereof and such ratification, which shall not be unreasonably withheld, shall be a condition precedent to the validity of any such sublicense. SECTION 3 - Royalties A. The Licensee agrees to pay to the Licensor during the life of this agreement, royalties at the rate of Two Percent (2.0%) of the Invoice Price, on all Licensed Products produced and sold by the Licensee and any of its sublicensees. In the calculation of royalties appropriate amounts may be deducted for all cancellations of orders and accepted return of Licensed Products. B. For the purpose of this agreement, Licensed Products shall be considered sold when billed out, or if not billed out, when delivered or shipped. C. The Licensee agrees to pay to the Licensor as partial consideration for the license granted herein, the sum of Five Thousand Dollars ($5,000.00), in the following 4 5 manner: One Thousand Dollars ($1,000.00) earnest money, the receipt at which is hereby acknowledged, and One Thousand Dollars ($1,000.00) to be paid upon execution of these presents, and Three Thousand Dollars ($3,000.00) on the 1st day of October 1989. D. The Licensee agrees to pay in advance to the Licensor minimum annual royalties in the amounts and on the dates as follows: Five Thousand Dollars ($5,000.00) on the 1st day of April 1990, Seven Thousand Five Hundred Dollars ($7,500.00) on the 1st day of April 1991, Ten Thousand Dollars ($10,000.00) on the 1st day at April 1992 and on the 1st of April of each and every year thereafter during the life of this agreement; such minimum annual royalty shall constitute a credit against royalties accruing to the Licensor pursuant to this agreement for the period for which such minimum annual royalty is paid. E. It is mutually understood and agreed that there shall be no carrying forward as a credit against future royalties nor refunding of any balance of a minimum annual royalty remaining at termination or at March 31 of any period for which such minimum annual royalty shall have been paid. F. The Licensee shall also pay to the Licensor as partial consideration for each sublicense granted, One-Third (1/3) of all considerations, other than royalties stipulated in subsection A above, due to the Licensee in respect of the sublicense granted pursuant to Section 2 hereof, and any such payment shall not constitute a credit against the minimum annual royalty payable under subsection 5 6 D above. SECTION 4 - Reports and Payments A. The Licensee covenants and agrees to report to the Licensor within thirty (30) days after each calendar quarter ending the last day of March, June, September and December in each year during the life of this agreement, as to whether or not royalties under this agreement are due to the Licensor. B. Nil reports of royalties may be made by simple letter. Reports of royalties due shall be in the form of statements and in compliance with the following: (1) record the total quantity of Licensed Products sold by the Licensee and its sublicensees up to and including the last day of the quarter. (2) include a calculation of the amount due to the Licensor for the royalties stipulated herein; (3) be certified as correct by the Treasurer or some other senior officer of the Licensee; and (4) be accompanied by a remittance to the Licensor of the amount of the royalties so shown to be payable. C. All payments to be made by the Licensee hereunder shall be paid in Canadian funds payable at par at Ottawa, Ontario, Canada. D. It is mutually understood and agreed that all overdue accounts shall bear interest at the rates set from time to time by the Licensor. E. Any considerations payable to the Licensor under Section 3(F) shall be paid to the Licensor by the Licensee within thirty (30) days after the calendar quarter ending the last day of March, June, September and December in which the consideration is due to the Licensee. 6 7 SECTION 5 - Accounts A. The Licensee shall: (1) keep proper and detailed Records in respect of sales of the Licensed products and it sublicenses; (2) make the Records available during business hours and permit the authorized representatives of the Licensor to audit and inspect the Records, including Records relating to sales of Licensed products by sublicensees, and to take extracts from, and make copies of, the Records; and (3) afford all facilities for such audits and inspections and furnish representatives with information requisite to the understanding of the Records. B. The Licensee shall also preserve the Records during the life of this agreement and for a period of one year thereafter. Provided that the Licensee may, after giving the Licensor ninety (90) days notice, dispose of any or all Records. C. It is mutually understood and agreed that, at its discretion, but not more frequently than once per agreement year, the Licensor may, in addition to, or in lieu of, audits and inspections of the Records stipulated in A above, request the Licensee to provide to the Licensor, at no cost to the Licensor, an audited statement of such Records. SECTION 6 - Due Diligence The Licensee covenants to use all reasonable endeavours to exploit commercially with due diligence, the subject matter of this agreement. The Licensor reserves the right to terminate this agreement if the Licensee is not using 7 8 all reasonable endeavours to exploit said subject matter commercially. Such termination shall be effective ninety (90) days after notice thereof in writing by the Licensor to the Licensee if within such period the licensee has not shown to the reasonable satisfaction of the Licensor that it has used all reasonable endeavours as aforesaid. Provided that, for the purposes of this agreement failure of the Licensee to meet the market demand for reasonably priced Licensed Products shall be deemed to be non-compliance with the obligations of the Licensee under this Section 6. SECTION 7 -- Improvements and Additions A. The Licensee covenants and agrees to inform the Licensor from time to time of any improvements and/or additions made by the Licensee, during the life of this agreement, to the subject matter hereof. Where such improvements and/or additions are: (1) Developed, in whole or in part, by the Licensee with funding from the Government of Canada, or any agency thereof, and except where such right and interest is vested in Her Majesty, or an agency of Her Majesty, under any funding contract, or other arrangement, all right and interest in and to any such improvements and/or additions, whether patentable or unpatentable, shall be vested in the Licensor; the Licensor may, if practicable, seek such proprietary protection for any such improvement and/or addition, as the Licensor deems necessary or appropriate, and shall include all such improvements and/or additions in the license granted hereunder without alteration of the terms hereof, including the royalty rate. Provided that, if such funding is less than fifty percent (50%) of the cost of the overall development 8 9 of the said improvements and/or addition such inclusion in the said license shall be for the life of any proprietary protection obtained therefor, and shall, unless the said license is already exclusive, be exclusive to the Licensee in respect of the said improvements and/or additions for a period not less than seven (7) years in duration commencing the date of said funding contract, or other arrangement, as may be agreed upon by the parties; in respect of unpatentable improvements and/or additions so developed, the inclusion in the license shall be for a minimum period of ten (10) years commencing the date of said funding contract, or other arrangement; or (2) Developed by the Licensee at its own expense, upon termination of this agreement prior to the expiration of the term herein set out, for any reason whatsoever, the Licensee shall grant to the Licensor a nonexclusive, unconditional, irrevocable, royalty-free, right and license to make, use or sell such improvements and/or additions, whether patentable or unpatentable, with the right to grant royalty bearing sublicenses therefor, for a term not exceeding the life of any patent issued in respect thereof, or a minimum of ten (10) years, as may be applicable. B. Notification of improvements and/or additions shall be sent to the Licensor within a reasonable time, not more than six (6) months, after they have been made. SECTION 8 Technical Assistance A. The Licensor undertakes to supply to the Licensee such technical information and Know-how within the possession of each. of the Departments as, in the opinion of 9 10 each of the Departments, may be necessary to enable the Licensee to manufacture the Licensed Product and use the Licensed Process. B. All confidential information made available under this agreement shall be maintained confidential by the Licensee and may only be disclosed with the written consent of the Licensor. SECTION 9 - Financial Assistance The Licensee covenants and agrees to notify the Licensor immediately if the Licensee intends to seek from the Government of Canada or any agency thereof, financial or other assistance by way of contract or otherwise for the development of the Licensed Product. SECTION 10 - Patents and Costs A. The filing and prosecution of the patent applications in the countries listed in Part I of Schedule "A" shall be the responsibility of the Licensor and all costs connected therewith shall be assumed by the Licensor. B. Upon a request prior to the 1st day of October 1989 by the Licensee and at the expense of the Licensee, the Licensor will file and prosecute additional patent applications in such countries, where it is possible to do so, as the Licensee may designate in writing and such additional applications shall be listed in Part II of Schedule "A". Any request shall be accompanied by a payment in the amount of One Thousand Dollars ($1,000.00), for each additional country in which an additional patent application is to be filed and prosecuted, which shall be applied to the costs of the filing and prosecution of the patent application. For the additional applications filed at the request of the Licensee, the Licensor agrees to use, if necessary, Patent Agents in the countries where the 10 11 applications are filed which are acceptable to the Licensee for the filing and prosecution of the applications. The Licensee agrees that, upon the receipt of notice from the Licensor, the Licensee will reimburse the Licensor for all costs, including but not limited to, patent officers' time, disbursements, and overhead involved in the filing and prosecution of the patent applications requested by the Licensee. The patents which issue on the applications shall vest in the licensor and such patents will then be deemed to be included in the Patent Rights without alteration of the royalty rate. C. The Licensor agrees that the Licensee may, at any time notify the Licensor requesting discontinuance of the prosecution of any patent application filed at the Licensee's expense and the Licensor may then withdraw such applications from the Patent Rights. The Licensee covenants and agrees to reimburse the Licensor, as provided for herein, for all costs incurred or authorized in prosecution of such application up to the time of receipt of such notice. D. The Licensee agrees that, upon receipt of notice from the Licensor, the Licensee will reimburse the Licensor for all renewal fees and incidental costs related to any of the Patent Rights licensed herein. D. The Licensee may at any time prior to ninety (90) days before the due date for payment of such renewal fees, notify the Licensor that it does not desire to have a patent continued in force in any particular country and after receipt of such notice by the Licensor the said patent may be withdrawn from the Patent Rights. E. The Licensor agrees to notify the Licensee within a reasonable time of any final refusal to grant a patent in respect of any patent application included in the Patent Rights. 11 12 F. It is understood and agreed that in the event that no patent issues in respect of any of the Patent Rights or should any of the Patent Rights be held invalid by any Court of competent jurisdiction, from which no appeal can be, or is taken, or should any of the Patent Rights expire, royalties in respect thereof shall cease to be payable, provided that royalties shall be payable on all Licensed Products produced or sold under the existing Patent Rights and/or Know-how. G. It is further understood and agreed that in the event that no patents issues in respect of the Patent Rights, the royalty stipulated to be paid under the provisions of Section 3 A shall be reduced to One Percent (1.0%) as of the date the last application in the Patent Rights is irrevocably abandoned and the date of the expiry of the agreement set forth in Section 13 shall be the 31st day of March 1999. SECTION 11 - Termination A. This agreement, at the option of the Licensor, may be terminated forthwith by the Licensor if: (1) The Licensee fails to make any payment provided for herein and such payment remains in arrears and unpaid for a period of ninety (90) days; or (2) The Licensee commits or permits a breach of any of the other covenants and terms herein contained and does not remedy such breach within ninety (90) days after being required in writing to do so by the Licensor, or (3) The Licensee becomes bankrupt, or insolvent, or has a receiving order made against it or has a receiver appointed to continue its operations, or passes a resolution for winding up, or takes the benefit of any statute for the time being in force relating to 12 13 bankrupt or insolvent debtors or the orderly payment of debts; or (4) The Licensee alters, or is required to alter, its management or financial control in any manner whatsoever, and such alteration may in the sole opinion of the Licensor be deemed to be detrimental to the interest of the Licensor. (5) The Licensee assigns this agreement in any manner and for any purpose whatsoever except as provided for herein without the prior written consent of the Licensor. Such termination shall be effected by a notice which shall, as of the date of such notice, determine the license herein granted, together with all rights of the Licensee hereunder, without prejudice to the right of the Licensor to sue for and recover any royalties or other sums due to the Licensor and without prejudice to the remedy of either party in respect of any previous breach of this agreement. B. The Licensee may at its option terminate this agreement by giving the Licensor at least ninety (90) days notice prior to the 31st day of March in any year, provided that the Licensee shall pay to the Licensor all royalties or other sums due hereunder up to the date of such termination. C. Failure on the part of the Licensor to notify the Licensee of a breach of this agreement, or to terminate the license granted hereunder because of such breach, shall not constitute a condonation of the breach or a waiver of the right of the Licensor to terminate the agreement in accordance with the provisions herein contained. D. The Licensor agrees that the Licensee and its sublicensees may sell all stocks of Licensed Products produced during the currency of this agreement and which remain unsold at the date of expiration or sooner 13 14 determination provided that within thirty (30) days after such date the Licensee pays to the Licensor royalties in respect thereof as stipulated herein. SECTION 12 - Notice A. Any notice under this agreement shall be in writing and in the case of the Licensor shall be addressed to: Canadian Patents and Development Limited, 275 Slater Street, Ottawa, Ontario K1A 0R3 and in the case of the Licensee to: Barringer Instruments Limited 304 Carlingview Drive Rexdale, Ontario M9W 5G2 or to such other address as either party may in future designate by notice to the other. All notices so addressed, if sent by registered mail, shall be deemed to have been received ten (10) days after dispatch. B. The Licensee covenants and agrees to notify the Licensor, and supply full particulars, immediately upon: a) effecting a change in its corporate name; b) merging with another entity; c) altering its management; d) altering its financial control; e) filing for bankruptcy; f) involving itself in any insolvency proceedings; or g) taking advantage of any statute then in being relating to the orderly payment of debts. SECTION 13 - Term Subject to the provisions of Section 10 (G) and, unless sooner terminated pursuant to the other provisions hereof, this agreement shall remain in force until the last to expire of the Patent Rights licensed hereunder shall 14 15 have expired. SECTION 14 - Validity of Patent Rights A. The Licensor does not warrant the validity of the Patent rights licensed to the Licensee by this agreement and has not made, and does not make, any representations to the Licensee as to the scope of the Patent Rights and that such Patent Rights and/or the Know-how may be exploited without the infringement of any rights of others. B. The Licensee hereby recognizes and acknowledges the validity of the Patent Rights other than any United states of America patent licensed hereunder and agrees not to contest, during the life of this agreement, such validity, either directly or indirectly, by assisting other parties. SECTION 15 - Infringement In the event that either the Licensee or the Licensor considers that there exists a situation of infringement of the Patent Rights licensed hereunder for which a suit for infringement should be brought, the one party will promptly give to the other, free of any charge, all the available details regarding the situation and the parties will jointly decide on the steps to be taken. SECTION 16 - Litigation A. In the event of any threatened or actual suit against the Licensee or its sublicensees, in consequence of the exercise of the right and license granted herein, the Licensee will promptly inform the Licensor and the parties will jointly decide on the steps to be taken in the circumstances. B. It is understood and agreed that, with regard to threatened litigation or litigation arising from the license granted herein, or infringement of the licensed rights by others, the parties hereto will at all times 15 16 consult each other and give to one another free of any charge information or advice which may be helpful for such purpose. However, neither party shall bind or commit the other party to any course of action which involves liability for legal costs, expenses or damages, but should the parties fail to agree, within a reasonable time, as to any course of action jointly to be taken, either party shall be at liberty to take or defend any proceedings alone at its own expense on indemnifying the other party and shall be entitled to retain anything awarded to it by a court. SECTION 17 - Assignment A. This agreement and everything herein contained shall enure to the benefit of and be binding upon the successors and assigns of the parties hereto, but shall not be assigned, transferred, conveyed, or encumbered by the Licensee except upon the written consent of the Licensor and any assignment by the Licensee without such consent shall be of no effect. B. The Licensee agrees that the Licensor may, subject to the license granted herein, assign or set over its entire right, title and interest in and to any patent or patent application included in the Patent Rights and upon receipt of notification from the Licensor that the obligations of the Licensor under this agreement in respect of such patent or patent applications have been assumed by an assignee, the Licensor shall be released from the obligations so assumed. SECTION 18 - Publication A. In the promotion of the subject matter of this agreement the Licensee agrees that it shall use the words "Produced under license from Canadian Patents and 16 17 Development Limited", but it shall not, in any manner whatsoever, use the name of any department or other agency of the Government of Canada, without the prior written permission of the Licensor. B. The Licensee shall, at the request of the Licensor, within thirty days after March 31 of each year throughout the life of this agreement, send to the Licensor two copies of each piece of then current sales or product promotion literature being used by the Licensee concerning the Licensed Product. SECTION 19 - Compliance with Law A. The Licensee covenants and agrees that it will comply with the Patent Law regarding the affixing by means of a plate, label or other device to the Licensed Product the number and date of issue of the patent or patents under which such Licensed Product is produced. B. The Licensee covenants and agrees to comply, at all times, with the orders, regulations and statutes in force in the places where the right and license granted herein are exercised. SECTION 20 - Interpretation A. For the purpose of this agreement, where applicable, words of the feminine gender shall include the masculine, the singular shall include the plural, and vice versa, and all sentences so affected herein shall be construed as being grammatically correct. B. This agreement shall be interpreted according to the laws of the Province of Ontario, Canada. 17 18 SECTION 21 - Entire Agreement This agreement constitutes the entire agreement between the parties hereto relating to the subject matter hereof and supersedes any prior agreements. There are no terms, obligations, covenants, representations, statements or conditions other than those contained herein. No variation or modification of this agreement nor waiver of any of the terms and provisions hereof shall be deemed valid unless in writing signed by both parties hereto. IN WITNESS WHEREOF the parties hereto have caused these presents to be executed under seal by their proper officers duly authorized in that behalf. SIGNED, SEALED AND DELIVERED by: CANADIAN PATENTS AND DEVELOPMENT LIMITED-SOCIETE CANADIENNE DES BREVETS ET D'EXPLOITATION LIMITEE Per:/s/ ----------------------------------------- Vice President Per:/s/ ----------------------------------------- Secretary - Treasurer BARRINGER INSTRUMENTS LIMITED Per:/s/ J. Davies (President) ----------------------------------------- Per: ----------------------------------------- 18 19 SCHEDULE "A" PART I
Country Appl. No. Date Patent No. Issued Expires Case 9172 Canada United States Case 9281 Canada United States
PART II
Country Appl. No. Date Patent No. Issued Expires Case 9172 Case 9281
19 20 435-9172-1 SUPPLEMENT NUMBER 1 TO THE AGREEMENT DATED AS OF THE 21ST DAY OF FEBRUARY 1989 THIS AGREEMENT made in duplicate as of the 4th day of March, 1991. BETWEEN: CANADIAN PATENTS AND DEVELOPMENT LIMITED-SOCIETE CANADIENNE DES BREVETS ET D'EXPLOITATION LIMITEE, a Corporation to which the Government Corporations Operation Act applies, having its Head Office at the City of Ottawa in the Province of Ontario (hereinafter called "the Licensor") OF THE ONE PART -and- BARRINGER INSTRUMENTS LIMITED, a duly incorporated Company, having a place of business at the City of Rexdale, in the Province of Ontario (hereinafter called "the Licensee") OF THE OTHER PART WITNESSETH THAT: WHEREAS the parties hereto entered into an Agreement dated as of the 27th day of February, 1989, (hereinafter called "the Original Agreement"), wherein the Licensor granted to the Licensee a license in respect of inventions commonly referred to 21 as "Sample Handling System for Molecular Analyser" - Case Number 9172 and "Narcotic Detector Using Ion Mobility Spectrometer" - Case Number 9281; and WHEREAS the parties are desirous of amending the Original Agreement on the basis herein set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter contained, the parties hereto agree each with the other as follows: SECTION 1 1. Subsection A of Section 2 of the Original Agreement is deleted and the following substituted therefor: "A. The Licensor hereby grants to the Licensee an exclusive right and license in Canada and the United States to make, and have made, Licensed Products, with the right and license throughout the world to use and sell Licensed Products and use the Licensed Process including the right to grant sublicenses thereof to purchasers of Licensed Products; provided however, if the market demand for Licensed Products can only justify one production/assembly facility, the Licensed Products must be produced and assembled in Canada. Such exclusive right and license shall be for the period from the date of this Agreement until the 31st day of March 1999; it being understood and agreed that, after the expiry of the aforesaid period, the right and license granted herein shall be non-exclusive for the remainder of the life of this Agreement." SECTION 2 Subsection D of Section 2 of the original Agreement is 2 22 deleted and the following substituted therefor: "D. The Licensee may grant sublicenses of the license granted herein on terms and conditions similar to those hereof and the Licensee agrees that it will submit such sublicense agreements to the Licensor for ratification within ninety (90) days after execution thereof and such ratification, which shall not be unreasonably withheld, shall be a condition precedent to the validity of any such sublicense; provided however, that the only sublicense granted to make and have made Licensed Products in the United States shall be to Barringer Instruments Inc. of New Jersey and not less than Fifty Percent (50%) of the factory cost value of the Licensed Products assembled by Barringer Instruments Inc. shall be of content obtained from Canada, as measured by the same cost accounting standards as used by the Licensee in establishing its factory costs. Under the provision of the said sublicense, Barringer Instruments Inc. shall only have the right to sell Licensed Products made in the United States or to United States' companies or agencies for their own use in its off-shore operations. In order to allow the Licensee to comply with the provisions of Section 7 of the Agreement, any manufacturing method improvements, assemble and test improvements or other improvements relating to the assembly, calibration, test, manufacturability and reliability of the Licensed Products made by Barringer Instruments Inc. shall be made available to the Licensor for its own use, and shall be provided at no cost to the Licensor." 3 23 SECTION 3 This Agreement shall be designated as Supplement No. 1 to the Original Agreement and, except as varied by terms of this Supplement No. 1, the terms of the Original Agreement are hereby confirmed. IN WITNESS WHEREOF the parties hereto have caused these presents to be executed under seal by their proper officers duly authorized in that behalf. SIGNED, SEALED AND DELIVERED by: CANADIAN PATENTS AND DEVELOPMENT LIMITED-SOCIETE CANADIENNE DES BREVETS ET D'EXPLOITATION LIMITEE Per:/s/ ---------------------------- President Per:/s/ ---------------------------- Vice President BARRINGER INSTRUMENTS LIMITED Per:/s/ J. DAVIES ---------------------------- President Per:/s/ ---------------------------- Vice President Operations 4 24 ASSIGNMENT OF AGREEMENT THIS AGREEMENT made in triplicate as of the 2nd day of January 1992. BETWEEN: BARRINGER INSTRUMENTS LIMITED, a duly incorporated Company, having a place of business at the City of Rexdale in the Province of Ontario (hereinafter called "BIL") OF THE FIRST PART - and - CANADIAN PATENTS AND DEVELOPMENT LIMITED - SOCIETE CANADIENNE DES BREVETS ET D'EXPLOITATION LIMITEE, a Corporation to which the Government Corporations Operation Act applies, having its Head Office at the City of Ottawa in the Province of Ontario (hereinafter called "CPDL") OF THE SECOND PART - and - HER MAJESTY THE QUEEN IN RIGHT OF CANADA, as represented by the MINISTER OF NATIONAL REVENUE, having a place of business at the City of Ottawa in the Province of Ontario (hereinafter called "the Department") OF THE THIRD PART WITNESSETH THAT: WHEREAS BIL and CPDL entered into an Agreement dated as of the 27th day of February, 1989 as amended by Supplement Number 1 dated the 4th day of March 1991, more particularly described in Schedule "A" hereto, with respect to Inventions commonly designated "Sample Handling System for Molecular Analyser" - Case Number 9172 and "Narcotic Detector Using Ion Mobility Spectrometer" - Case Number 9281, (hereinafter called "the Agreement"); and WHEREAS CPDL has agreed to assign all of its rights and 25 obligations under the Agreement to the Department; and WHEREAS the Department has agreed to assume and perform all of the rights and obligations created by the Agreement; and WHEREAS BIL agrees to consent to such assignment. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter contained, the parties hereto agree each with the other as follows: 1. CPDL assigns, transfers and sets over unto the Department absolutely the Agreement as of and from the date hereof and all right, title and interest of CPDL therein and thereto. 2. The Department accepts the assignment referred to in Section 1 hereof and hereby agrees with BIL and CPDL duly and faithfully to fulfill, observe, perform and comply with all of the terms, conditions and provisions of the Agreement and shall be entitled to all of the benefits of the Agreement as though originally named as a party therein and may amend the Agreement in its own name. 3. BIL hereby consents to the assignment by CPDL to the Department referred to in Section 1 hereof on the terms herein set out. 4. Notices pursuant to Section 12 of the Agreement shall now, in the case of the Licensor be addressed to: Director General Laboratory & Scientific Services Directorate Department of National Revenue 79 Bentley Avenue Ottawa, Ontario K1A 0L5 and in the case of the Licensee to: Barringer Instruments Limited 304 Carlingview Drive Rexdale, Ontario M9W 5G2 5. The Department hereby confirms, ratifies and adopts all the terms and conditions of the Agreement. 2 26 6. This Agreement shall be interpreted according to the laws of the Province of Ontario, Canada. 7. This Agreement constitutes the entire Agreement between the parties hereto relating to the subject matter hereof and supersedes any prior agreements. There are no terms, obligations, covenants , representations, statements or conditions other than those contained herein. No variation or modification of this Agreement nor waiver of any of the terms and provisions hereof shall be deemed valid unless in writing signed by all parties hereto. IN WITNESS WHEREOF the parties hereto have caused these presents to be executed under seal by their proper officers duly authorized in that behalf. SIGNED, SEALED AND DELIVERED BY: BARRINGER INSTRUMENTS LIMITED Per: /s/ J. DAVIES (President) ---------------------------------- Per: /s/ ---------------------------------- CANADIAN PATENTS AND DEVELOPMENT LIMITED -- SOCIETE CANADIENNE DES EREVETE ET D'EXPLOITATION LIMITIE Per: /s/ ---------------------------------- Per: /s/ ---------------------------------- HER MAJESTY THE QUEEN IN RIGHT OF CANADA as represented by the MINISTER OF NATIONAL REVENUE Per: /s/ ---------------------------------- Per: /s/ ---------------------------------- 3 27 SCHEDULE "A" DESCRIPTION OF AGREEMENT Date of Agreement: February 27, 1989 Date of Supplement No. 1: March 4, 1991 Re: License agreement in respect of "Sample Handling System for Molecular Analyser" - Case Number 9172 and "Narcotic Detector Using Ion Mobility Spectrometer" - Case Number 9281, including schedules, deletions and modifications 4 28 [BARRINGER LETTERHEAD] 7 October 1996 Mr. Wayne B. Morris Director General Laboratory and Scientific Services Directorate Revenue Canada Customs and Excise 79 Bentley Ave. Ottawa, Ontario K1A 0L5 Dear Mr. Morris: Further to your letter of 1 October 1996 following our request for an extension to the licence on a year-to-year basis to ten years starting 1 April 1999, with all other terms of the licence to remain the same as under the present licence, we accept the indemnification of the Crown, and by this letter incorporate that indemnification into the licence, as follows: Barringer shall indemnify and save Her Majesty in right of Canada harmless from and against all claims, demands, losses, costs, damages, actions, suits, or proceedings by whomever made, brought or prosecuted and in any manner based upon, arising out of, related to, occasioned by or attributable to any use made of the IMS/IONSCAN technology by Barringer or by any of its clients or customers including any infringement or alleged infringement of a patent or invention or any other kind of intellectual property. Therefore, please accept by your counter-signature hereto our acceptance to the extension of the licence, the details of the mechanics of the option to be covered at a time closer to the renewal time. Yours sincerely, BARRINGER RESEARCH LTD. /s/ J.H. Davies - ------------------------------ John H. Davies President Acceptance: /s/ W. Morris Date: Oct 7/ 96 ------------------- --------------- Name: W. Morris Director General Laboratory and Scientific Services Directorate EX-10.11 9 AGREEMENT BETWEEN THE COMPANY AND LABCO OF 10/7/96 1 EXHIBIT 10.11 TERMINATION AGREEMENT THIS AGREEMENT is made and entered into this ____ day of October, 1996, by and among BARRINGER LABORATORIES, INC., a Delaware corporation ("Barringer"), and BARRINGER TECHNOLOGIES, INC., a Delaware corporation, ("BTI"). Barringer and BTI may be referred to herein collectively as "Parties." WHEREAS, pursuant to the Stock Purchase Agreement dated December 8, 1995 (the "1995 Agreement"), BTI sold, and Barringer purchased, 647,238 shares of Barringer Laboratories, Inc. common stock; and WHEREAS, under the terms of the 1995 Agreement, BTI granted Barringer a perfected security interest in 88,260 ("Collateral") of the 432,475 shares of the Barringer Laboratories, Inc. stock which it continued to hold (the "Remaining Shares"), to secure certain covenants and agreements of BTI under the 1995 Agreement; and WHEREAS, in order to maximize Barringer's ability to utilize its net operating loss carryforwards, BTI agreed in the 1995 Agreement to certain restrictions upon the further sale and transfer of the Remaining Shares, including the grant to Barringer of a right of first refusal with respect to the Remaining Shares; and WHEREAS, BTI now desires the removal and release of these restrictions on transferability in order to sell the Remaining Shares; and WHEREAS, in consideration of BTI's transfer and assignment of the Collateral to Barringer and of the other terms and conditions of this Agreement, Barringer will agree to the removal and release of these restrictions on transferability to the extent set forth herein and Barringer has filed a registration statement under form S-3 with the Securities and Exchange Commission to facilitate any desired sale of the Remaining Shares in compliance with the terms of this Agreement. NOW, THEREFORE, in consideration of these Recitals and the provisions and the respective agreements hereinafter set forth, the Parties hereto hereby agree as follows: 1. REMOVAL AND RELEASE OF PRIOR RESTRICTIONS. Upon the terms and subject to the conditions set forth in this Agreement, Barringer hereby: 1.1 Waives and releases the restrictions on transferability set forth in Section 4.4 of the 1995 Agreement respecting the 344,215 shares of the Barringer Laboratories, Inc. stock which BTI holds. Barringer agrees to take all action reasonably necessary to cause the reissuance of the stock certificate(s) evidencing such shares without the restrictive legend noting the existence of the restrictions set forth in the 1995 Agreement. 1.2 Waives and releases the right granted by BTI in Section 4.5 of the 1995 Agreement to Barringer of a first right to purchase any portion of the 432,475 shares of the Barringer Laboratories, Inc. stock owned by BTI upon the same terms and conditions of a bona fide offer received by BTI. 2 2. TRANSFER AND ASSIGNMENT OF COLLATERAL. Subject to the terms and conditions set forth herein, BTI hereby sells, assigns, and transfers to Barringer all of the 88,260 issued and outstanding shares of Barringer's common stock comprising the Collateral, free and clear of all liens, encumbrances and adverse claims of whatsoever kind or nature. BTI shall deliver to Rumler Law Corporation, PC, as set forth in Section 4, below, a stock assignment in form satisfactory to Barringer, with a medallion certified signature stamp, sufficient to transfer title to such shares (the Collateral) to Barringer. 3. RESTRICTIONS ON FUTURE SALE, ASSIGNMENT AND TRANSFER. The parties acknowledge and agree that it is their intention to maximize Barringer's ability to utilize its net operating loss carryforwards following the sale of all or any portion of the 432,475 shares (plus 5,000 additional shares purchased by BTI since the 1995 Agreement) of the Barringer Laboratories, Inc. stock which it continues to hold and which are not to be transferred to Barringer hereunder. Therefore, as a condition to the releases and waivers described in Section 1 above, BTI agrees that: 3.1 For a period of three (3) months following the date of this Agreement, and subject to the restriction set forth in Subsection 3.2, immediately below, BTI agrees that it shall not, nor shall it have any right to, knowingly sell, assign, transfer or otherwise dispose of more than 75,000 shares of the Barringer Laboratories, Inc. stock which it owns to any single purchaser or any affiliated purchasers, without the prior written consent of Barringer, which Barringer may grant or deny in its sole and absolute discretion. For purposes of this Agreement, "affiliated purchasers" shall mean purchasers who, directly or indirectly, influence, control, are controlled by or are under common control, management or ownership, with each other. Affiliated Purchasers shall include but not be limited to voting trusts, relatives of any purchasers, and any director or officer of a purchaser. 3.2 For a period of three (3) months following the date of this Agreement, and subject to the restriction set forth in Subsection 3.1, immediately above, BTI agrees (i) that it shall not, nor shall it have any right to, sell, assign, or transfer any such shares at a price less than One and 11/16 Dollars ($1.6875) per share; and (ii) that in the event it receives an offer to purchase such shares at a price equal to or higher than the price set forth in 3.2(i), above, BTI shall be required to sell, assign or transfer such shares, subject to the other restrictions set forth in this Agreement. Nothing contained herein shall limit BTI's right or ability to exercise those certain warrants to purchase additional shares of the common stock of Barringer according to the terms and conditions set forth in the "Warrants to Purchase Common Stock of Barringer Laboratories, Inc." dated August 29, 1996. BTI understands and agrees that the subsequent sale by BTI of the shares received upon the exercise of such warrants, if so exercised, shall be subject to the terms, conditions and restriction set forth in this Agreement, and shall be subject to such other restrictions as provided under applicable state and federal securities laws. Any sale, assignment, transfer or other disposition of shares of Barringer Laboratories, Inc. stock owned by BTI in contravention of the terms of this Agreement shall be null and void. 4. CONSUMMATION OF RELEASE AND TRANSFER. As provided in Section 2 above, BTI shall forward to Rumler Law Corporation, PC, the stock assignment in form satisfactory to Barringer, with a medallion certified signature stamp, sufficient to transfer title to the Collateral to Barringer. Upon the subsequent receipt by Rumler Law Corporation PC (i) of executed copies of this Agreement from each of the Parties; and (ii) of notice, in the form satisfactory to Rumler Law Corporation, PC., of the proper consent of the Board of Directors of Barringer, 2 3 herein shall become effective. Rumler Law Corporation PC shall then forward executed copies of this Agreement and the stock power to the proper parties. 5. Representations and Warranties of BTI. BTI represents and warrants to Barringer as follows: 5.1 EXISTENCE, GOOD STANDING, CORPORATE AUTHORITY, AND VALIDITY OF AGREEMENTS. BTI is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. BTI has all requisite corporate power and authority to own and transfer the Collateral pursuant to the terms and conditions of this Agreement. This Agreement constitutes, and all agreements and documents contemplated hereby when executed and delivered pursuant hereto for value received will constitute, the valid and legally binding obligations of BTI enforceable in accordance with their terms. The execution and delivery of this Agreement does not and the consummation of the transactions contemplated hereby will not (i) require the consent of any third party, or (ii) result in the breach of any term or provision of, or constitute a default under, any agreement. Upon transfer of the Collateral by BTI, Barringer will, as a result, receive good and marketable title to all of the Collateral, free and clear of all security interests, liens, encumbrances, charges, assessments, restrictions and adverse claims, except those granted by Barringer and, those created under applicable securities laws. 5.2 LITIGATION. There are no actions, suits or proceedings at law or in equity, or before or by any federal, state, municipal or other governmental agency which affect the Collateral or the BTI's ability to enter into or perform its obligations hereunder. There are no orders, judgments, injunctions or decrees of any court or governmental agency with respect to which BTI has been named or to which BTI is a party, which apply to or restrict BTI's performance of this Agreement and the transaction contemplated hereunder. 5.3 NO MISREPRESENTATION OR OMISSION. No representation or warranty by BTI in this Article 5 or in any other Article or Section of this Agreement, or in any certificate or other document furnished or, if to be furnished by BTI pursuant hereto upon delivery, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained therein not misleading or will omit to state a material fact. 6. Representations and Warranties of Barringer. Barringer represents and warrants to BTI as follows: 6.1 EXISTENCE, GOOD STANDING, CORPORATE AUTHORITY, AND VALIDITY OF AGREEMENTS. Barringer is a corporation duly incorporated, validly existing and in good standing under the laws if its jurisdiction of incorporation. Barringer has all requisite corporate power and authority to release and waive the restrictions and rights set forth herein pursuant to the terms and conditions of this Agreement. The execution and delivery of this Agreement does not and the consummation of the transactions contemplated hereby will not require the consent of any third party or violate or conflict with any provision of the by-laws or articles or certificate of incorporation of Barringer as amended to the date of this Agreement. 6.2 LITIGATION. There are no actions, suits or proceedings with respect to Barringer involving claims by or against Barringer which are pending or threatened against Barringer, at law or in equity, or before or by any federal, state, municipal or other governmental agency which affect Barringer's ability to enter into or perform its obligations 3 4 hereunder. There are no orders, judgments, injunctions or decrees of any court or governmental agency with respect to which Barringer has been named or to which Barringer is a party, which apply to or restrict Barringer's performance of this Agreement and the transaction contemplated hereunder. 6.3 NO MISREPRESENTATION OR OMISSION. No representation or warranty by Barringer in this Article 6 or in any other Article or Section of this Agreement, or in any certificate or other document furnished or, if to be furnished by Barringer pursuant hereto upon delivery, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained therein not misleading or will omit to state a material fact. 7. Other Covenants and Agreements. 7.1 INSURANCE MATTERS. The parties hereby agree to terminate any right: (i) of BTI to insure its employees under Barringer's group health insurance policy as provided in Section 4.2.1 of the 1995 Agreement; and (ii) of Barringer to be named an additional insured under BTI's property, casualty and D&O insurance policies as provided in Section 4.2.2 of the 1995 Agreement. 7.2 RESIGNATION OF DIRECTORS. Promptly after the sale, assignment, transfer or other conveyance by BTI of an aggregate of 250,000 shares or more of the issued and outstanding shares of the Barringer Laboratories, Inc. stock owned by BTI, Stanley S. Binder and John M. Harte shall each immediately resign as an officer, agent and/or director of Barringer Laboratories, Inc. and immediately cease to act for or on behalf of Barringer Laboratories, Inc. Barringer's timely receipt of these resignations shall be a condition subsequent to the releases and waivers set forth in Section 1 of this Agreement, and BTI's failure to timely deliver such resignations shall constitute a material breach of this Agreement. 7.3 INDEMNIFICATION BY BTI. BTI shall to indemnify and hold Barringer harmless against, and will reimburse Barringer on demand for, any payment, loss, cost or expense (including reasonable attorney's fees and reasonable costs of investigation incurred in defending against such payment, loss, cost or expense or claim therefor) made or incurred by or asserted against Barringer in respect of any omission, misrepresentation, breach of warranty, or nonfulfillment or breach of any term, provision, covenant or agreement on the part of BTI contained in this Agreement, or from any misrepresentation in, or omission from any document to be furnished to Barringer pursuant to this Agreement or from the failure of BTI to have and deliver good and marketable title to the Collateral. 7.4 INDEMNIFICATION BY BARRINGER. 7.4.1 INDEMNIFICATION. Barringer shall to indemnify and hold BTI harmless against, and will reimburse BTI on demand for, any payment, loss, cost or expense (including reasonable attorney's fees and reasonable costs of investigation incurred in defending against such payment, loss, cost or expense or claim therefor) made or incurred by or asserted against BTI in respect of (i) any omission, misrepresentation, breach of warranty, or nonfulfillment of any term, provision, covenant or agreement on the part of Barringer contained in this Agreement, and (ii) from any misrepresentation in, or omission from, any document to be furnished to BTI pursuant to this Agreement. 7.4.2 SECURITIES INDEMNIFICATION. Barringer shall indemnify and hold 4 5 harmless BTI against any and all loss, claim, damage or liability, joint or several, to which BTI may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, or liability (or action with respect thereto) arises out of or is based upon (a) any untrue statement or alleged untrue statement of a material fact contained (i) in the Registration Statement, the Effective Prospectus in respect of the Registration Statement; or (b) the omission or alleged omission to state in the Registration Statement, the Effective Prospectus or any amendment or supplement thereto of a material fact required to be stated therein or necessary to make the statements therein not misleading; and shall reimburse BTI for any legal or other reasonable expenses incurred by it in connection with investigating or defending against in connection with any such loss, claim, damage, liability or action, notwithstanding the possibility that payments for such expenses might later be held to be improper, in which case the person receiving them shall promptly refund them; except that the Barringer shall not be liable in any such case to the extent, but only to the extent, that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Barringer through BTI by or on behalf of BTI specifically for use in the preparation of the Registration Statement, the Effective Prospectus or any amendment or supplement thereto. 7.5 RIGHT TO PROVIDE DEFENSE. Promptly after receipt by an indemnified party under Section 7.3 and/or 7.4 above of written notice of the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such section, notify the indemnifying party in writing of the claim or the commencement of that action; the failure to notify the indemnifying party shall not relieve it of any liability which it may have to an indemnified party, except to the extent that the indemnifying party did not otherwise have knowledge of the commencement of the action and the indemnifying party's ability to defend against the action was prejudiced by such failure. Such failure shall not relieve the indemnifying party from any other liability which it may have to the indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under such section for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation. 7.6 CONTRIBUTION. If the indemnification provided for in Section 7.4.2 herein is unavailable or insufficient to hold harmless an indemnified party, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages, or liabilities referred to in Section 7.4.2 above (a) in such proportion as is appropriate to reflect the relative benefits received by the Barringer on one hand and BTI on the other from the offering of the securities; or (b) if the allocation provided by clause (a) above is not permitted by applicable law, in such proportion as is appropriate to reflect the relative benefits referred to in clause (a) above but also the relative fault of the Barringer on the one hand and BTI on the other in connection with the statements or omissions which resulted in such losses, claims, damages, or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Barringer and BTI shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Barringer bear to the total sales price and received by BTI. Relative fault shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Barringer or BTI and the parties' relative intent, knowledge, access to information, and opportunity to correct or 5 6 prevent such untrue statement or omission. For purposes of this Section 7.6, the term "damages" shall include any counsel fees or other expenses reasonably incurred by the Barringer or BTI in connection with investigating or defending any action or claim which is the subject of the contribution provisions of this Section 7.6. No person adjudged guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Each party entitled to contribution agrees that upon the service of a summons or other initial legal process upon it in any action instituted against it in respect of which contribution may be sought, it shall promptly give written notice of such service to the party or parties from whom contribution may be sought, but the omission so to notify such party or parties of any such service shall not relieve the party from whom contribution may be sought from any obligation it may have hereunder or otherwise (except as specifically provided in Section 7.6 hereof). 8. Miscellaneous. 8.1 NOTICE. Any notice required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Barringer: Barringer Laboratories, Inc. 15000 W. 6th Avenue, Suite 300 Golden, CO 80401 Attention: Chief Executive Officer Copy to: Paul E. Rumler, Esq. Rumler Law Corporation, P.C. 55 Madison Street, Suite 410 Denver, Colorado 80206 If to BTI: Barringer Technologies, Inc. 219 S. Street New Providence, NJ 07974 Attention: President (or to such other address as any party shall specify by written notice so given), and shall be deemed to have been delivered as of the date so personally delivered or mailed. 8.2 OTHER COSTS AND EXPENSES. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. 8.3 AUTHORITY TO EXECUTE AGREEMENT. By execution of this Agreement, each individual who signs this Agreement on behalf his respective principal individually represents and warrants that (i) he is a duly authorized officer or agent of his principal, (ii) the principal has taken all action necessary to approve the covenants, terms and agreements set forth herein, and (iii) the execution of this Agreement by the undersigned individual shall bind the principal to the terms and conditions set forth herein. 6 7 8.4 Execution of Additional Documents. The Parties hereto will at any time, and from time to time after the date of execution of this Agreement, upon request of the other party, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required to carry out the intent of this Agreement, and to transfer and vest title to any shares being transferred hereunder, and to protect the right, title and interest in and enjoyment of all of the shares sold, granted, assigned, transferred, delivered and conveyed pursuant to this Agreement; provided, however, that this Agreement shall be effective regardless of whether any such additional documents are executed. 8.5 Binding Effect: Benefits, Assignability. This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective heirs, successors, executors, administrators and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the Parties hereto or their respective heirs,, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. Neither this Agreement nor any of the Parties' rights hereunder shall be assignable by any party hereto without the prior written consent of the other Parties hereto. This Agreement and all agreements and documents contemplated hereby constitute one agreement and are interdependent upon each other in all respects. 8.6 Entire Agreement. This Agreement, together with the other documents contemplated hereby, constitute the final written expression of all of the agreements between the Parties, and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified herein. Any representations, promises, warranties or statements made by either party that differ in any way from the terms of this written Agreement and the other documents contemplated hereby, shall be given no force or effect. The Parties specifically represent, each to the other, that there are no additional or supplemental agreements between them related in any way to the matters herein contained unless specifically included or referred to herein. No addition to or modification of any provision of this Agreement shall be binding upon any party unless made in writing and signed by all Parties. 8.7 Governing Law. This Agreement and all matters and issues collateral thereto shall be construed according to the laws of the State of Colorado, except that issues governed by a state's corporate code, including without limitation matters of corporate governance, shall be governed by the laws of the Party's state of incorporation. 8.8 Mediation: Arbitration. Notwithstanding anything to the contrary herein provided, the Parties agree to submit disputes under this Agreement which they are unable to resolve to mediation under the Commercial Mediation Rules of the American Arbitration Association. Any dispute or controversy arising out of or relating to this Agreement which is not resolved through mediation shall be submitted and settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce (the "ICC") then in effect. There shall be one arbitrator, and such arbitrator shall be chosen by mutual agreement of the parties in accordance with ICC rules. The arbitration proceedings shall take place at such location as the Parties shall mutually agree upon, or if the Parties are unable to agree upon a location, then Chicago, Illinois. The arbitrator shall apply the laws of the applicable state to all issues in dispute, in accordance with Section 8.5 hereof. The findings of the arbitrator shall be final and binding on the parties, and may be enforced in any court of competent jurisdiction. 8.9 Survival and Severability. All of the terms, conditions, warranties and representations contained in this Agreement shall survive, in accordance with their terms, delivery by Barringer of the consideration to be given by it hereunder and delivery by BTI of 7 8 the consideration to be given by it hereunder, and shall survive the execution hereof for the period provided herein. If for any reason whatsoever, any one or more of the provisions of this Agreement shall be held or deemed to be inoperative, unenforceable or invalid as applied to any particular case or in all cases, such circumstances shall not have the effect of rendering such provision invalid in any other case or of rendering any of the other provisions of this Agreement inoperative, unenforceable or invalid. 8.10 WAIVERS. Either Barringer or BTI may, by written notice to the other, (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other contained in this Agreement or in any document delivered pursuant to this Agreement; (iii) waive compliance with any of the conditions or covenants of the other Party contained in this Agreement; or (iv) waive performance of any of the obligations of the other Party under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation any investigation by or on behalf of any Party, shall be deemed to constitute a waiver, by the Party taking such action, of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any Party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. 8.11 HEADINGS: INTERPRETATION OF AGREEMENT. Headings of the Articles and Sections of this Agreement are for the convenience of the Parties only, and shall be given no substantive or interpretive effect whatsoever. The Parties hereto each represent and acknowledge that they have reviewed this Agreement with the assistance of their respective counsel. The Parties further acknowledge that each shall bear co-extensive and identical responsibility for the language of this Agreement, and that any ambiguity which may exist or purportedly exist therein shall be attributed equally to the Parties. 8.12 ATTORNEY'S FEES. If any Party shall commence any action or proceeding against another Party in order to enforce the provisions hereof, or to recover damages as the result of the alleged breach of any of the provisions hereof, the prevailing Party therein shall be entitled to recover all reasonable costs incurred in connection therewith, including, but not limited to, reasonable attorneys' fees. 8.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. Evidence of the execution of this Agreement by any party may be provided by facsimile and if so provided shall be legal, valid and binding on any party executing in such manner. 8.14 APPROVAL OF BARRINGER'S BOARD OF DIRECTORS. This Agreement and the effectiveness and enforceability of the terms and provisions included herein is specifically contingent upon the approval, by the Board of Directors of Barringer, no later than October 18, 1996. In the event approval of the Board of Directors is not attained by such date, this agreement shall be null and void. 8 9 IN WITNESS WHEREOF, the Parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year hereinabove first set forth. BARRINGER TECHNOLOGIES, INC. By: -------------------------------- Its: BARRINGER LABORATORIES, INC. By: -------------------------------- Its: 9 10 RESIGNATION OF OFFICERS/DIRECTORS/AGENTS IN CONSIDERATION of the releases and waiver set forth in Section 1 of the Termination Agreement, dated October __, 1996, by and between Barringer and BTI, each of the undersigned hereby agree to resign as an officer, director and/or agent of Barringer Laboratories, Inc. effective at the time provided in Section 7.2 of such Agreement. ---------------------------------- Stanley S. Binder Date: -------------- ---------------------------------- John M. Harte Date: -------------- 10 EX-10.14 10 FORM OF SUBORDINATD DEBENTURE AGREEMENT OF 7/10/96 1 EXHIBIT 10.14 DEBENTURE PURCHASE AGREEMENT THIS AGREEMENT, dated as of July 10, 1996, by and between BARRINGER TECHNOLOGIES INC., a Delaware corporation (the "Company"), and _____________________ (the "Purchaser"). W I T N E S S E T H: WHEREAS, in reliance upon the respective representations, warranties, terms and conditions hereinafter set forth, the Purchaser desires to purchase from the Company, and the Company desires to sell to the Purchaser, an aggregate of $__________ in principal amount of the Company's 6% Convertible Subordinated Debentures due 1997 (the "Debentures"), convertible into shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), at an initial conversion rate of $2.75 per share, subject to adjustment in certain circumstances, as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and the respective covenants hereinafter set forth, the Company and the Purchaser hereby agree as follows: 1. Sale and Purchase of the Debentures. (a) Subject to the terms and conditions of this Agreement, the Company agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company at the Closing (as hereinafter defined), $______________ in aggregate principal amount of the Debentures at a total purchase price of $______________ (the "Purchase Price"). The Debentures shall be in denominations of $1,000 and integral multiples thereof and shall be in substantially the form of Exhibit A hereto. (b) The sale and purchase of the Debentures shall take place at the Company's offices at 219 South Street, New Providence, New Jersey 07974 at 10:00 a.m. on July 10, 1996, or at such other time and place as the Company and the Purchaser shall agree (the "Closing"). 2 2. Payment. At the Closing, the Purchaser shall make payment for the Debentures in next-day funds by check or wire transfer to an account previously designated by the Company. The Company shall deliver to the Purchaser executed Debentures in the principal amount purchased by the Purchaser at the Closing. 3. Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchaser as follows: (a) The Company has been duly organized, is validly existing and is in good standing under the laws of the State of Delaware. (b) The authorized capital of the Company consists of 7,000,000 shares of Common Stock, 1,000,000 shares of Convertible Preferred Stock, par value $1.25 per share ("Convertible Preferred Stock"), and 4,0000,000 shares of Preferred Stock, par value $2.00 per share, of which 270,000 shares are designated as Class A Convertible Preferred Stock ("Class A Preferred Stock") and 730,000 shares are designated as Class B Convertible Preferred Stock ("Class B Preferred Stock"). There are 3,497,961 shares of Common Stock, no shares of Convertible Preferred Stock, 74,008 shares of Class A Preferred Stock and 232,500 shares of Class B Preferred Stock presently outstanding. In addition, there are warrants outstanding to purchase an aggregate of 481,250 shares of Common Stock at exercise prices of between $2.00 and $14.23 per share, which warrants are exercisable at various dates through June 29, 2000. All of the issued and outstanding shares of the Company's capital stock are duly authorized, validly issued, fully paid and nonassessable. All of such shares were offered, issued, sold and delivered by the Company in compliance with all applicable state and federal laws concerning the issuance of securities. None of such shares were issued in violation of any pre-emptive or subscription rights of any person. (c) The Company has the full right, power and authority to enter into this Agreement and to perform the transactions contemplated herein. This Agreement has been duly executed by the Company and this Agreement and the transactions contemplated herein have been duly authorized by all necessary corporate action. This Agreement constitutes the legal, -2- 3 valid and binding obligation of the Company, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (d) The Debentures have been duly authorized and, when issued in accordance with the terms hereof, will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. The Company has sufficient authorized and unissued shares of Common Stock reserved for issuance upon the exercise of the Debentures in accordance with their terms (the "Shares"). Upon the due conversion of the Debentures, and the payment in full of the conversion price therefor, the Shares will be duly authorized, validly issued, fully paid and non-assessable. (e) The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations promulgated thereunder (the "Exchange Act") and, in accordance therewith, files, reports and other information with the Securities and Exchange Commission (the "Commission"). The Company has filed with the Commission on a current and timely basis all reports required to be filed by it under the Exchange Act, including the Annual Report on Form 10-K for the year ended December 31, 1995 and the Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996 (as such documents may be amended, modified or supplemented as of the date hereof, the "Disclosure Documents"). The information contained in the Disclosure Documents described in all material respects the business and financial condition of the Company as of their respective dates, and such documents did not, as of their respective dates, contain an 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 accuracy and completeness of the Disclosure Documents constitutes a material inducement to the Purchaser to purchase the Debentures. (f) There has been no material adverse change in the business, financial -3- 4 condition or earnings of the Company since December 31, 1995, except as described in the Disclosure Documents. (g) The Company will use the net proceeds of the sale of the Debentures to repay the principal of and interest accrued on the Company's existing 12-1/2% Convertible Subordinated Debentures due 1996 and for working capital purposes. 4. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company as follows: (a) If the Purchaser is a corporation, it has been duly incorporated, is validly existing and is in good standing under the laws of its jurisdiction of incorporation. If the Purchaser is a partnership, limited liability partnership, limited liability company or other non-corporate entity, it has been duly organized, is validly existing and is in good standing under the laws of the jurisdiction of its organization. (b) The Purchaser has the full right, power and authority to enter into this Agreement and to carry out and consummate the transactions contemplated herein. The Agreement has been duly executed by the Purchaser and this Agreement and the transactions contemplated herein have been duly authorized by all necessary corporate, partnership or other similar action. This Agreement constitutes the legal, valid and binding obligation of the Purchaser, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (c) The Purchaser acknowledges that it has received and reviewed the Disclosure Documents and has had an opportunity to meet with and ask questions of and receive answers from the management of the Company and its consultants, attorney and accountants regarding the business and affairs of the Company, its financial condition and prospects (financial and other) and the terms and conditions of the offering of the Debentures. (d) The Purchaser is an Accredited Investor within the meaning of Rule 501 of the rules and regulations of the Commission promulgated under the Securities Act of 1933, as -4- 5 amended (the "Securities Act"), has the financial ability to bear the economic risk of its investment, can afford to sustain a complete loss of such investment and has adequate means of providing for its current fiscal needs, has no need for liquidity in its investment in the Company, and the amount invested in the Company by the Purchaser does not constitute a substantial portion of its net worth. The Purchaser understands that in order to be treated as an accredited investor it must meet one of the tests described in Exhibit B to this Agreement, and the Purchaser represents and warrants to the Company that it meets one of the tests indicated on said Exhibit B. (e) The Purchaser is acquiring the Debentures for investment and not with a view to the sale or distribution thereof, is acquiring the Debentures for its own account and not on behalf of others and has not granted any other person any right or option or any participation or beneficial interest in any of the Debentures. The Purchaser acknowledges its understanding that the Debentures constitute restricted securities within the meaning of Rule 144 promulgated under the Securities Act, and that none of the Debentures may be sold except pursuant to an effective registration statement under the Securities Act or in a transaction exempt from registration under the Securities Act, and acknowledges that it understands the meaning and effect of such restriction. The Purchaser has sufficient knowledge and experience in financial and business affairs to evaluate the merits of the purchase of the Debentures. The Purchaser has completed and executed a Confidential Purchaser Questionnaire, a copy of which is attached hereto as Exhibit C, which Questionnaire is true and complete. THE PURCHASER UNDERSTANDS THAT AN INVESTMENT IN THE DEBENTURES BEING PURCHASED BY IT INVOLVES A HIGH DEGREE OF RISK, INCLUDING WITHOUT LIMITATION, RISKS RELATING TO THE COMPANY'S CONTINUING OPERATING LOSSES, THE COMPANY'S NEED FOR ADDITIONAL CAPITAL, THE COMPANY'S NEED FOR LIQUIDITY, THE EFFECTS OF THE FAILURE OF THE COMPANY TO COMPLY WITH THE TERMS OF ITS EXISTING CREDIT FACILITIES, THE EFFECTS OF COMPETITION, THE COMPANY'S RELIANCE ON KEY PERSONNEL, THE COMPANY'S DEPENDENCE ON TECHNOLOGY AND TECHNOLOGICAL -5- 6 INNOVATION, THE LONG LEAD-TIMES ASSOCIATED WITH THE PURCHASING PRACTICES OF GOVERNMENTAL AGENCIES WHICH ARE SUBSTANTIAL CUSTOMERS OF THE COMPANY, THE RESTRICTIONS ON TRANSFER OF THE DEBENTURES, AS WELL AS SIMILAR RESTRICTIONS ON TRANSFERS OF THE SHARES, POTENTIAL CONFLICTS OF INTEREST AND RELATED PARTY TRANSACTIONS INVOLVING THE COMPANY AND THE DIRECTORS AND OFFICERS OF THE COMPANY, AND THE SUCCESSFUL CONSUMMATION OF THE COMPANY'S BUSINESS AND OPERATING STRATEGY. (f) The Purchaser has not been furnished any offering literature, by the Company or otherwise, other than this Agreement and the Disclosure Documents. The Purchaser has relied only on the information contained in the Disclosure Documents and this Agreement in its decision to enter into this Agreement. The Purchaser acknowledges and represents that no representations or warranties have been made to it by the Company or its directors, officers or any agents or representatives with respect to the business of the Company, the financial condition or results of operations of the Company and/or the economic, tax or any-other aspects or consequences of the purchase of the Debentures, and the Purchaser has not relied upon any information concerning the Company, written or oral, other than that contained in the Disclosure Documents and this Agreement. (g) Each conversion of a Debenture by the Purchaser shall constitute an affirmation by the Purchaser that the representations and warranties contained herein are also true and correct with respect to the Shares to be acquired by it upon the conversion of the related Debenture. 5. Restrictions on Transferability; Compliance with Securities Act. (a) Transferability. The Debentures and the Shares issuable upon the exercise of the Debentures shall not be transferable except upon the conditions specified in this Paragraph 5, which conditions are intended to insure compliance with the provisions of the Securities Act in respect of the transfer of any of such securities. -6- 7 (b) Restrictive Legend. The Debentures and any certificates representing the Shares shall (unless otherwise permitted by the provisions of Paragraph 5(c) below) be stamped or otherwise imprinted with the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND CANNOT BE SOLD OR TRANSFERRED UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION UNDER SUCH ACT OR LAWS IS AVAILABLE. THE TRANSFERABILITY OF THESE SECURITIES IS FURTHER SUBJECT TO THE PROVISIONS OF A DEBENTURE PURCHASE AGREEMENT DATED AS OF JULY 10, 1996 BETWEEN THE COMPANY AND THE PURCHASER PARTY THERETO. For purposes of this Paragraph 5, any references to "Debentures" or "Shares" shall include any other securities issued in respect of any of such securities. (c) Restrictions on Transfer. The Debentures and the Shares shall not be transferred, and the Company shall not be required to register any transfer thereof on the books of the Company, unless such transfer is made pursuant to an effective registration statement, in compliance with Rule 144, or pursuant to another exemption under the Securities Act; provided, however, that the Company shall not be required to register any transfer in the event any securities are offered or sold otherwise than pursuant to an effective registration statement or pursuant to Rule 144 unless the Company shall have received an opinion of counsel to the Purchaser, satisfactory in form and substance to the Company in its sole discretion, that such transfer does not require registration under the Securities Act or applicable state securities laws. (d) The Company shall file a registration statement with the Commission under the Securities Act by September 8, 1996 covering the Shares, and use its best efforts to cause such registration statement to become effective and to keep such registration statement effective for a period of five years from the date it is declared effective by the -7- 8 Commission. The Company shall not be obligated to cause to become effective more than one registration statement pursuant to which the Shares may be sold under this Paragraph 5(d). At any time and from time to time, the Purchaser agrees, without further consideration, to take such actions and to execute and deliver such documents as may be reasonably requested by the Company in order to effectuate the purposes of this Paragraph 5, including, without limitation, supplying information with respect to the Purchaser that may be necessary or required for inclusion in the registration statement. In the event that such information or other material requested by the Company is not provided to the Company within a reasonable period of time following delivery of written notice requesting such information, then the Company's obligations under this Paragraph 5 shall be suspended until a reasonable period of time after the Purchaser complies with such request. (e) Additional Shares; Incidental Registration. The provisions of Paragraph 5(d) notwithstanding, if at any time following the issuance of the Debentures the Company proposes to register any of its equity securities under the Securities Act on Form S-1, S-2, S-3, S-18 or any other registration form at the time available on which the Shares could be registered for sale (other than a registration statement covering securities issuable pursuant to an employee benefit or dividend reinvestment plan and other than a registration statement covering securities issuable in a Rule 145 transaction), the Company shall give written notice to the Purchaser of its intention to do so. Such written notice shall be given as promptly as possible after the Company determines to file such a registration statement but in no event shall such notice be given less than four weeks prior to the date of the filing of such registration statement. Upon written request of the Purchaser given within 15 days after receipt of any such notice (which request shall state the intended method of disposition of the Shares by the Purchaser), the Company will use its best efforts to cause the Shares which the Purchaser has requested be registered, to be registered under the Securities Act and under the same registration statement proposed to be filed by the Company, all to the extent required to permit the sale or the disposition (in accordance with the written request of the Purchaser as aforesaid), by the -8- 9 Purchaser of the Shares so registered; provided, however, that no such notice shall be given and the Purchaser shall not be entitled to have the Shares included in such registration in the event that any underwriter with respect to the offering which is the subject of such registration statement determines, in its sole discretion, that the inclusion of the Shares in the registration will be detrimental to such offering. (f) The Company will pay all expenses incurred in complying with Paragraphs 5(d) and 5(e) hereof, including, without limitation, all registration and filing fees (including all expenses incident to filing with the National Association of Securities Dealers, Inc.), printing expenses, reasonable fees and disbursements of counsel to the Company, securities law and blue sky fees and expenses and the expenses of any regular and special audits incident to or required by any such registration. All underwriting discounts and selling commissions applicable to sales of the Shares, any state or federal transfer taxes payable with respect to sales of the Shares and all fees and disbursements of counsel for the Purchaser, if any, in each case arising in connection with registration or sale of the Shares under Paragraphs 5(d) and 5(e) hereof, shall be payable by the Purchaser. (g) Indemnification. (i) In the event of any registration under the Securities Act of the Shares pursuant to this Paragraph 5, the Company will indemnify and hold harmless the Purchaser from and against all losses, claims, damages, expenses or liabilities, joint or several, to which it may become subject under the Securities Act, the Exchange Act and state securities and blue sky laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement of any material fact or alleged untrue statement of a material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading; or any violation by the Company of the Securities Act, the Exchange Act or state securities or -9- 10 blue sky laws applicable to the Company and relating to action or inaction required of the Company in connection with such registration or qualification under such state securities or blue sky laws; and will reimburse the Purchaser for any legal or any other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim damage, liability or action; provided however, that the Company will not be liable in any such case to the Purchaser to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission made in such registration statement, said preliminary prospectus or said final prospectus or said amendment or supplement or any document incident thereto in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Purchaser. (ii) In the event of any registration of any of the Shares under the Securities Act pursuant to this Paragraph 5, the Purchaser will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, each officer of the Company who signs the registration statement and each director of the Company from and against any and all such losses, claims, damages or liabilities arising from any untrue statement in, or omission from, any such registration statement, preliminary or final prospectus, amendment or supplement or document incident thereto if the statement or omission in respect of which such loss, claim, damage or liability is asserted was made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Purchaser for use in connection with the preparation of such registration statement or prospectus or such amendment or supplement thereof. (iii) The reimbursements required by this Paragraph 5(g) shall be made by periodic payments during the course of the investigation or defense as and when bills are received or expenses incurred; provided, however, that to the extent that an indemnified party receives periodic payments for legal or other expenses during the course of an investigation or defense, and such party subsequently received payment for such expenses from any other parties to the proceeding, such payments shall be used by the indemnified party to reimburse the -10- 11 indemnifying party for such periodic payments. Any party which proposes to assert the right to be indemnified under this Paragraph 5(g) will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim is to be made against any indemnified party under this paragraph 5(g), notify each such indemnifying party of the commencement of such action, suit or proceeding, enclosing a copy of all papers served, but the failure to so notify such indemnifying party of any such action, suit or proceeding shall not relieve the indemnifying party from any obligation which it may have to any indemnified party hereunder unless and only to the extent that the indemnifying party is prejudiced by said lack of notice. In case any such action, suit or proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expense, other than reasonable costs of investigation subsequently incurred by such indemnified party in connection with the defense thereof. The indemnified party shall have the right to employ its own counsel in any such action, but the reasonable fees and expenses of such counsel shall be at the expense of such indemnified party, when and as incurred, unless (A) the employment of counsel by such indemnified party has been authorized by the indemnifying party, (B) the indemnified party has reasonably concluded (based on advice of counsel), that there may be legal defenses available to it that are different from or in addition to those available to the indemnifying party, (C) the indemnified party shall have reasonably concluded (based on advice of counsel) that there may be a conflict of interest between the indemnifying party and the indemnified party in the conduct of defense of such action (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party), or (D) the indemnifying party shall not in fact have employed counsel to assume the defense of such action. An indemnifying party shall not be liable for any -11- 12 settlement or any action or claim effected without its consent. (h) Contribution. (i) If the indemnification provided for in this Section 5 from the indemnifying party is unavailable to any indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 5(g), any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. (ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(h) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding any other provision hereof, in no event shall the contribution obligation of the Purchaser be greater in amount than the excess of (A) the dollar amount of the proceeds received by the Purchaser upon the sale of the securities giving rise to such contribution obligation over (B) the dollar amount of any damages that the Purchaser has otherwise been required to pay by reason of the untrue or alleged untrue statement or omission or alleged omission giving rise to such obligation. No Person guilty or fraudulent misrepresentation -12- 13 (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 6. Brokerage. The Company represents and warrants to the Purchaser that no broker, dealer or agent has been engaged in connection with the transactions contemplated by this Agreement and the Company will indemnify and save harmless the Purchaser from and against any and all claims, expenses, liabilities or obligations with respect to brokerage or finders' fees or commissions, or consulting fees in connection with the transactions contemplated by this Agreement, asserted by any person on the basis of any statement or representation alleged to have been made by the Company. 7. Notices. All notices provided for in this Agreement shall be in writing, signed by the party giving such notice, and delivered personally or sent by overnight courier or messenger against receipt thereof or sent by registered mail (air mail or overseas), return receipt requested, or by telex, facsimile transmission, telegram or similar means of communication. Notices shall be deemed to have been received on the date of personal delivery, or if sent by certified or registered mail, return receipt requested, shall be deemed to be delivered on the third business day after the date of mailing. Notices shall be sent to the following addresses: -13- 14 If the Company: Barringer Technologies Inc. 219 South Street New Providence, N.J. 07974 Attention: Mr. Stanley S. Binder with a copy to: Lowenstein, Sandler, Kohl, Fisher & Boylan 65 Livingston Avenue Roseland; N.J. 07068 Attention: John D. Hogoboom, Esq. If to the Purchasers: or to such other address as any party shall designate in the manner provided in this Paragraph 9. 8. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to its conflict of laws rules. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court -14- 15 has been brought in an inconvenient forum. (b) This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective heirs, executors, legal representatives, successors and permitted assigns. (c) This Agreement represents the entire agreement between the parties relating to the subject matter hereof, superseding any and all prior or contemporaneous oral and prior written agreements, understandings, term sheets and memoranda or letters of intent. This Agreement may not be modified or amended nor may any right be waived except by a writing which expressly refers to this Agreement, states that it is a modification, amendment or waiver and is signed by all parties with respect to a modification or amendment or the party granting the waiver with respect to a waiver. No course of conduct or dealing and no trade, custom or usage shall modify any provisions of this Agreement. (d) The captions and headings contained herein are solely for convenience of reference and do not constitute a part of this Agreement. (e) Unless the context otherwise requires, all references to any gender Shall be deemed to include the masculine, feminine or neuter gender, the singular shall include the plural and the plural shall include the singular. (f) In the event that any provision of this Agreement becomes or is declared a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided, however, that no such severability shall be effective if it materially changes the economic benefits of this Agreement to any party. -15- 16 (g) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instruction. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. BARRINGER TECHNOLOGIES INC. By: __________________________ Stanley S. Binder President [Name of Purchaser] By: __________________________ Name: Title: -16- 17 EXHIBIT A Form of Debenture THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND CANNOT BE SOLD OR TRANSFERRED UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION UNDER SUCH ACT OR LAWS IS AVAILABLE. THE TRANSFERABILITY OF THESE SECURITIES IS FURTHER SUBJECT TO THE PROVISIONS OF A DEBENTURE PURCHASE AGREEMENT DATED AS OF JULY 10, 1996 BETWEEN THE COMPANY AND THE PURCHASER PARTY THERETO. No. $__________ BARRINGER TECHNOLOGIES INC. promises to pay to or registered assigns the principal sum of _________________________ Dollars on July 9, 1997. 6% CONVERTIBLE SUBORDINATED DEBENTURES DUE 1997 INTEREST: Payment Dates: January 10 and July 9 Record Dates: December 31 and June 30 Dated: July 10, 1996 BARRINGER TECHNOLOGIES INC. (SEAL) Attest: By: - ----------------------------- -------------------------------- Secretary President 18 BARRINGER TECHNOLOGIES INC. 6% CONVERTIBLE SUBORDINATED DEBENTURES DUE 1997 1. Interest. Barringer Technologies Inc. (the "Company"), a Delaware corporation, promises to pay interest on the principal amount of this Debenture at the rate per annum shown above. The Company will pay interest semiannually on January 10 and July 9 of each year. Interest on the Debentures will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from July 10, 1996. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on this Debenture (except defaulted interest) to the person in whose names this Debenture is registered at the close of business on the December 31 or June 30 next preceding the interest payment date. The holder of this Debenture must surrender this Debenture to the Company, or a paying agent designated by the Company, to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by its check payable in such money. The Company may mail an interest check to the holder's registered address. 3. Paying Agent, Registrar, Conversion Agent. Initially, the Company will act as paying agent, conversion agent and registrar. The Company may change any paying agent, registrar, conversion agent or co-registrar without notice. Any of the Company's subsidiaries may act as paying agent, registrar, conversion agent or co-registrar. 4. Issuance of Debentures; Denominations. The Company has issued this Debenture pursuant to, and this Debenture is subject to, the terms of a Debenture Purchase Agreement (the "Agreement"), dated as of July 10, 1996. By accepting this Debenture, the holder hereof agrees to be subject to all of the terms and provisions of the Agreement. The Debentures are being issued without coupons in denominations of $1,000 and integral multiples of $1,000. 5. Conversion. -2- 19 (a) Right of Conversion. The holder of this Debenture shall have the right at any time prior to July 9, 1997, at his or her option, to convert, subject to the terms and provisions hereof, the principal of this Debenture (or any portion of the principal hereof which is $1,000 or an integral multiple of $1,000) into fully paid and non-assessable shares of Common Stock of the Company ("Common Stock") at the rate of 363.636 shares of Common Stock for each $1,000 principal amount of Debentures or, in case an adjustment therein has taken place pursuant to the provisions of subsection (d) hereof, then at the rate as so adjusted (except that with respect to this Debenture, or any such portion, which shall be designated for redemption by the Company such right shall terminate, except as provided in the last paragraph of subsection (b) below, at the close of business on the fifth Business Day prior to the Redemption Date for this Debenture or portion hereof). Such right shall be exercised by the surrender of this Debenture to the Company at any time during usual business hours at its principal offices, accompanied by a written notice substantially in the form of Annex A hereto, stating that the holder elects to convert this Debenture or any portion hereof and specifying the name or names (with address) in which a certificate or certificates for Common Stock are to be issued, and (if so required by the Company) by a written instrument or instruments of transfer in form satisfactory to the Company duly executed by the holder or his attorney duly authorized in writing and transfer tax stamps or funds therefor, if required pursuant to subsection (i) hereof. For convenience, the conversion of all or a portion, as the case may be, of the principal of this Debenture into the Common Stock of the Company is hereinafter sometimes referred to as the conversion of this Debenture. All Debentures surrendered for conversion shall be canceled, and, subject to the next succeeding sentence, no Debenture shall be issued in lieu thereof. In the event that this Debenture is converted in part only, upon such conversion the Company shall execute and deliver to the holder hereof a new Debenture or Debentures of authorized denominations in an aggregate principal amount equal to the unconverted portion of this Debenture. (b) Issuance of Common Stock; Time of Conversion. As promptly as practicable after the surrender, as herein provided, of this Debenture for conversion, the Company shall deliver or cause to be delivered to or upon the written order of the holder of this Debenture a certificate or certificates representing the number of fully paid and non-assessable shares of Common Stock of the Company into which this Debenture (or portion hereof) may be converted in accordance with the provisions of this -3- 20 Debenture. Subject to the following provisions of this paragraph and of subsection (d) hereof, such conversion shall be deemed to have been made immediately prior to the close of business on the date that this Debenture shall have been surrendered in satisfactory form for conversion, so that the rights of the holder as a holder shall cease with respect to this Debenture (or the portion hereof being converted) at such time, and the person or persons entitled to receive the shares of Common Stock deliverable upon conversion of this Debenture shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such time, and such conversion shall be at the conversion rate in effect at such time; provided, however, that no such surrender on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the person or persons entitled to receive the shares of Common Stock deliverable upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the person or persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes immediately prior to the close of business on the next succeeding day on which such stock transfer books are open, and such conversion shall be deemed to have been made at, and shall be made at the conversion rate in effect at, such time on such next succeeding day. If the last day for the exercise of the conversion right shall not be a Business Day then such conversion right may be exercised on the next succeeding Business Day. (c) No Adjustments in Respect Dividends. No payment or adjustment shall be made upon any conversion on account of any dividends or similar distributions on the shares of Common Stock issued upon conversion. (d) Adjustment of Conversion Rate. (i) In case the Company shall (aa) pay a dividend on Common Stock in Common Stock, (bb) subdivide its outstanding shares of Common Stock, or (cc) combine its outstanding shares of Common Stock into a smaller number of shares, the conversion rate in effect immediately prior thereto shall be adjusted retroactively as provided below so that the holder of this Debenture thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock of the Company which he or she would have owned or have been entitled to receive after the happening of any of the events described above had this Debenture been converted immediately prior to the happening of such -4- 21 event. An adjustment made pursuant to this subsection (i) shall become effective immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of a subdivision or combination. (ii) In case the Company shall issue (aa) shares of its Common Stock in a public offering at a price per share less than the current market price per share of Common Stock (as defined in subsection (iv) below) at the record date mentioned below, (bb) shares of its Common Stock in a non-public transaction, at a price per share of less than 75% less than the current market price per share of Common Stock (as defined in subsection (iv) below) at the record date mentioned below, or (cc) rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share of Common Stock (as defined in subsection (iv) below) at the record date mentioned below, the number of shares of Common Stock into which each $1,000 principal amount of this Debenture shall thereafter be convertible shall be determined by multiplying the number of shares of Common Stock into which $1,000 principal amount of this Debenture was theretofore convertible by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the record date mentioned below plus the number of additional shares of Common Stock offered for purchase or subscription, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at such current market price per share of Common Stock. Such adjustment shall be made whenever such shares of Common Stock, rights or warrants are issued, and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such shares of Common Stock, rights or warrants; provided, however, in the case of rights or warrants, in the event that all the shares of Common Stock offered for subscription or purchase are not delivered upon the exercise of such rights or warrants, upon the expiration of such rights or warrants the conversion rate shall be readjusted to the conversion rate which would have been in effect had the numerator and the denominator of the foregoing fraction and the resulting adjustment been made based upon the number of shares of Common Stock actually delivered -5- 22 upon the exercise of such rights or warrants rather than upon the number of shares of Common Stock offered for subscription or purchase. For the purposes of this subsection (ii), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. (iii) In case the Company shall distribute to all holders of its Common Stock shares of its capital stock (including shares of its Common Stock), evidences of its indebtedness or assets (excluding cash dividends paid out of the earned surplus of the Company) or rights or warrants to subscribe or purchase (excluding those referred to in Subsection (ii) above), then in each such case the number of shares of Common Stock into which each $1,000 principal amount of this Debenture shall thereafter be convertible shall be determined by multiplying the number of shares of Common Stock into which such principal amount of this Debenture was theretofore convertible by a fraction, of which the numerator shall be the current market price per share of Common Stock (as determined in accordance with the provisions of Subsection (iv) below) on the record date mentioned below and of which the denominator shall be such current market price per share of Common Stock, less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of that portion of the capital stock, assets or evidences of indebtedness so distributed or of such rights or warrants applicable to, one share of Common Stock. Such adjustments shall be made whenever any such distribution is made, and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such distribution. (iv) For the purpose of any computation under Subsection (ii) or (iii) above, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily closing prices for the 15 consecutive Business Days commencing 20 Business Days before the day in question. The closing price for each day shall be the reported last sale price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case as reported on the New York Stock Exchange, or, if at any time the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, on any trading market maintained by the National Association of Securities Dealers, Inc. or, if the Common -6- 23 Stock is not listed or admitted to trading on any national securities exchange or quoted on such trading market, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. For the purposes of this Section 5, the term "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded in such exchange or in such market. (v) No adjustment in the conversion rate shall be required unless such adjustment would require an increase or decrease of at least 1% in such rate; provided, however, that any adjustments which by reason of this Subsection (v) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section 5 notwithstanding, the Company shall be entitled to make such increases in the conversion rate, in addition to those required by this Section 5 as it in its discretion shall determine to be advisable in order that any stock dividend, subdivision or combination of shares, distribution of rights or warrants to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock, hereafter made by the Company to its stockholders shall not be taxable. (vi) Whenever the conversion rate is adjusted, as herein provided, the Company shall promptly prepare a notice of such adjustment of the conversion rate setting forth the adjusted conversion rate and the date on which such adjustment becomes effective and shall mail such notice to the holder of this Debenture at his or her last address appearing on the Company's books and records. Such notice shall be conclusive evidence of the correctness of such adjustment. (vii) In any case in which this Section 5 provides that an upward adjustment of the conversion rate shall become effective retroactively immediately after a record date or effective date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of this Debenture if converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the shares of Common Stock issuable upon such conversion before giving effect to such adjustment and -7- 24 (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to subsection (e), provided, however, that the Company shall deliver to any such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment. (e) No Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. If more than one Debenture shall be surrendered for conversion at one time by the same holder, the number of full shares issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Debentures so surrendered. If the conversion of this Debenture results in a fraction, an amount equal to such fraction multiplied by the closing price (determined as provided in the second sentence of subsection (iv) of Section (5)(d)) of the Common Stock on the Business Day (as defined in Section 5(d)) preceding the day of conversion shall be paid to such holder in cash by the Company. (f) Reclassifications, Mergers, Sales of Assets. In case of any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with and into another corporation or entity (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding shares of Common Stock), or in case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety, the Company, or such successor or purchasing corporation or entity, as the case may be, shall execute and deliver a certificate to the Company providing that the holder of this Debenture shall have the right thereafter to convert this Debenture into the kind and amount of shares of stock or other securities, cash or other property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock of the Company into which this Debenture could have been converted immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Such certificate shall provide for adjustments which shall be nearly equivalent as may be practicable to the adjustments provided for in this Debenture. The provisions of this subsection (f) shall similarly apply to successive reclassifications, changes, -8- 25 consolidations, mergers, sales or conveyances. Notice of the execution of such a certificate shall be given by the Company to the holder of this Debenture by mailing such notice to his or her last address appearing on the Company's books and records. When a successor or purchasing corporation or entity assumes all the obligations of its predecessor under the Debentures, the predecessor corporation will be released from those obligations. (g) Prior Notice of Certain Events. In case: (i) the Company shall declare a dividend (or any other distribution) on its Common Stock (other than cash dividends paid out of the earned surplus of the Company and dividends payable in Common Stock); or (ii) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or of any other rights or warrants; or (iii) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be mailed to the holder of this Debenture at his or her last address appearing on the Company's books and records, as promptly as possible but in any event at least ten days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. -9- 26 (h) Shares to Be Reserved. The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon conversion of this Debenture as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of this Debenture. The Company covenants that all shares of Common Stock which shall be so issuable shall, when issued, be duly and validly issued and fully paid and non-assessable. (i) Taxes and Charges. The issuance of certificates for shares of Common Stock upon the conversion of this Debenture shall be made without charge to the converting holder of the Debenture for such certificates or for any tax in respect of the issuance of such certificates or the securities represented thereby, and such certificates shall be issued in the respective names of, or in such names as may be directed by, the holder of this Debenture; provided, however, that the Company shall not be required to pay any tax which may be payable in respect to any transfer involved in the issuance and delivery of any such certificate in a name other than that of the holder of this Debenture, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 6. Subordination. (a) Debenture Subordinated to Senior Debt. This Debenture is subordinated to "Senior Debt," which is any Debt of the Company outstanding at any time except Debt which by its terms is not superior in right of payment to the Debentures. Debt means (i) all items of indebtedness or liability which in accordance with generally accepted accounting principles would be included as a liability on the balance sheet of the Company, (ii) indebtedness which is secured by any mortgage, pledge, lien or security interest existing on property owned by the Company, whether or not the indebtedness is assumed by the Company, and (iii) guarantees, endorsements and other contingent obligations (other than for purposes of collection in the ordinary course of business) involving the indebtedness of others. Any holder of this Debenture by accepting this Debenture agrees to the subordination and authorizes the Company to give it effect. -10- 27 (b) Company Not to Make Payments in Certain Circumstances. Upon the maturity of any Senior Debt by lapse of time, acceleration or otherwise, all principal thereof and interest thereon shall first be paid in full, or such payment duly provided for in cash or in a manner satisfactory to the holders of such Senior Debt, before any payment is made on account of the principal or interest on this Debenture or to prepay this Debenture. Upon the happening of an event of default (or if an event of default would result upon any payment with respect to the Debentures) with respect to any Senior Debt, as such event of default is defined therein or in the instrument under which it is outstanding, permitting the holders to accelerate the maturity thereof, and, if the default is other than default in payment of the principal, premium, if any, or interest on such Senior Debt, upon written notice thereof given to the Company by the holders of such Senior Debt or their representative, then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, no payment shall be made by the Company with respect to the principal or interest on this Debenture or to prepay this Debenture. (c) Subordination to Prior Payment of All Senior Debt on Dissolution, Liquidation or Reorganization. Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise): (i) the Company shall give prompt written notice to the holder of this Debenture of any dissolution, winding up, liquidation or reorganization of the Company; (ii) the holders of all Senior Debt shall first be entitled to receive payment in full of the principal and interest due thereon before the holder of this Debenture is entitled to receive any payment on account of the principal or interest on this Debenture; (iii) any payment or distributions of assets of the Company of any kind or character, whether in cash, property or securities, to which the holder of this Debenture would be entitled except for the provisions of this Section 6 shall be paid by the liquidating trustee or agent or other person making such payment or distribution directly to the holders of Senior Debt or their representative, or to the trustee under any indenture under which Senior Debt may have been issued, to the extent necessary to make payment in full of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or -11- 28 distribution or provision therefor to the holders of such Senior Debt; (iv) in the event that, notwithstanding the foregoing provisions of this Section 6, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the holder of this Debenture on account of principal or interest on this Debenture before all Senior Debt is paid in full, or effective provision made for its payment, such payment or distribution shall be received and held in trust for, and shall be paid over to, the holders of the Senior Debt remaining unpaid or unprovided for or their representative, or the trustee under any indenture under which Senior Debt may have been issued, for application to the payment of such Senior Debt until all such Senior Debt shall have been paid in full, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Debt; and (v) No right of any present or future holders of any Senior Debt to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Debenture, regardless of any knowledge thereof which any such holders may have or be otherwise charged with. 7. Debentureholder to be Subrogated to Right of Holders of Senior Debt. Subject to the payment in full of all Senior Debt, the holder of this Debenture (together with the holders of all other Debentures then outstanding) shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of assets of the Company applicable to the Senior Debt until all amounts owing on this Debenture shall be paid in full, and for the purpose of such subrogation no payments or distributions to the holders of Senior Debt by or on behalf of the Company or by or on behalf of the holders of the Debentures by virtue of this Debenture which otherwise would have been made to the holders of the Debentures shall, as between the Company and the holders of the Debentures, be deemed to be payment by the Company to or on account of the Senior Debt, it being understood that the provisions of this Section 8 are intended solely for the purpose of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of the Senior Debt, on the other hand. 8. Obligation of the Company Unconditional. Nothing contained in this Debenture is intended to or shall impair, as between the Company and the -12- 29 holder of this Debenture, the obligation of the Company, which is absolute and unconditional, to pay to the holder of this Debenture the principal and interest on this Debenture as and when the same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights of the holder of this Debenture and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the holder of this Debenture from exercising all remedies otherwise permitted by applicable law upon default, subject to the rights herein, if any, of the holders of Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any distribution of assets of the Company referred to herein, the holder of this Debenture shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other person making any distribution to the holder of this Debenture, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto. -13- 30 9. Failure to Make Payment Due to Subordination Provisions Not To Prevent An Event of Default. The failure to make a payment on account of principal or interest with respect to this Debenture by reason of any provision in Sections 6 and 7 shall not be construed as preventing the occurrence of an Event of Default under Section 13. 10. Persons Deemed Owners. The registered holder of this Debenture shall be treated as the owner of it for all purposes. 11. Redemption at Option of the Company. The Company may redeem all or any portion of this Debenture at any time without premium or penalty upon not less than 30 days' notice to the holder of this Debenture of such redemption, stating the principal amount of this Debenture to be redeemed, the redemption price and designation of the redemption date (the "Redemption Date"); provided, however, that the Company shall not have the right to redeem any Debentures unless a registration statement covering the shares of Common Stock issuable upon conversion of this Debenture is in effect. Notwithstanding such notice, the holder hereof shall be entitled to convert this Debenture in accordance with Section 5 hereof up until 5 Business Days prior to the Redemption Date. Once a notice of redemption for this Debenture is mailed, this Debenture becomes due and payable on the Redemption Date (unless previously converted in accordance with the provisions hereof). On and after such Redemption Date, interest on this Debenture or the applicable portion hereof, shall cease to accrue. All rights of the holder as a holder of this Debenture shall cease immediately prior to the close of business on the Redemption Date (except for the right of the holder to receive the redemption price and the accrued interest to the Redemption Date), whether or not this Debenture is timely surrendered to the Company, provided, that sufficient funds to pay the redemption price (and accrued interest to the Redemption Date) of this Debenture have been placed in a separate account for that purpose (which funds can be commingled with funds being used to redeem other Debentures issued pursuant to the Agreement). Promptly after surrender of this Debenture, or portion thereof, for redemption, the Company shall deliver or cause to be delivered to the holder of this Debenture at his or her last address appearing on the Company's books and records, the redemption price. Upon surrender of this Debenture, this Debenture or the redeemed portion hereof shall be canceled, provided that if this Debenture is -14- 31 redeemed in part, the Company shall issue a new Debenture equal in principal amount to the unredeemed portion of this Debenture surrendered for redemption. 12. Mandatory Redemption. Notwithstanding the other provisions hereof, this Debenture shall become due and payable 30 Business Days following the closing of either 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 Five Million Dollars ($5,000,000) (a "Qualified Offering"). The Company shall provide notice to the holder of this Debenture of the consummation of a Qualified Offering not less than 10 days after such consummation, which notice shall specify the date on which this Debenture will be redeemed (the "Mandatory Redemption Date") and the mandatory redemption price to be paid by the Company. All rights of the holder of this Debenture shall cease as of the Mandatory Redemption Date, whether or not the holder of this Debenture has surrendered this Debenture, provided, that the Company has placed sufficient funds to pay the mandatory redemption price of this Debenture into a separate account for that purpose (which funds can be commingled with the funds being used to mandatorily redeem the other Debentures issued pursuant to the Agreement). Promptly after surrender of this Debenture for mandatory redemption, the Company shall deliver, or shall cause to be delivered to the holder of this Debenture, at his or her last address appearing on the books and records of the Company, the mandatory redemption price. Upon surrender of this Debenture for mandatory redemption, this Debenture shall be canceled. 13. Defaults and Remedies. An Event of Default is: (i) default for 30 days in payment of interest on this Debenture; (ii) default in payment of principal or premium, if any, on this Debenture; (iii) the failure by the Company to pay when due any amount due and owing on any Senior Debt, any other default or event of default with respect to any Senior Debt shall have occurred and shall have continued beyond the expiration of any applicable grace period which in either case would permit the holder or holders thereof to accelerate the maturity thereof, or there shall have been an acceleration of the stated maturity of any such Senior Debt and such acceleration shall not have been rescinded or annulled, (iv) the consummation by the Company of (x) any consolidation or merger of the Company in which -15- 32 neither (A) the holders of voting stock of the Company immediately before the consolidation or merger will in the aggregate own 40% or more of the voting shares of the continuing or surviving corporation immediately after such consolidation or merger, nor (Y) persons serving as the directors of the Corporation immediately before the consolidation or merger will constitute a majority of the directors of the continuing or surviving corporation immediately after such consolidation or merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, (v) any person or group of persons becomes the beneficial owner of more than fifty percent (50%) of the Common Stock then outstanding, and (vi) the Company shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator, or other court-appointed fiduciary of all or a substantial part of its properties; or a custodian, receiver, trustee or liquidator or other court appointed fiduciary shall have been appointed with or without the consent of the Company; or the Company is generally not paying its debts as they become due by means of available assets or is insolvent, or has made a general assignment for the benefits of creditors; or the Company files a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any insolvency law, or an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding or has taken action for the purpose of effecting any of the foregoing; or if, within sixty (60) days after the commencement of any proceeding against the Company seeking any reorganization, rehabilitation, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Federal bankruptcy code or similar order under future similar legislation, the appointment of any trustee, receiver, custodian, liquidator, or other court-appointed fiduciary of the Company or of all or any substantial part of his properties, such order or appointment shall not have been vacated or stayed on appeal or otherwise or if, within sixty (60) days after the expiration of any such stay, such order or appointment shall not have been vacated. Upon the occurrence of any Event of Default, the holder may, at its option, declare all amounts due hereunder to be due and payable immediately and, upon any such declaration, the same shall become and be immediately due and payable. If an Event of Default specified in clause (vi) occurs, then all amounts due hereunder shall become immediately due and payable without any declaration or other act on the part of the holder. Upon the occurrence of any Event of Default, the holder may, in addition to declaring all amounts due hereunder to be immediately due and payable, pursue any available remedy, whether at law or in equity. -16- 33 14. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Debentures, or for any claim based on, in respect of or by reason of, such obligations or their creation. The holder of this Debenture by accepting this Debenture waives and releases all such liability. The waiver and release are part of the consideration for the issue of this Debenture. 15. Authentication. This Debenture shall not be valid until an authorized officer of the Company signs the Debenture in the appropriate space. 16. Headings; Governing Law. The headings used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Debenture. This Debenture shall be governed by and construed in accordance with, the laws of the State of New York, without references to the choice of law principles thereof. -17- 34 ANNEX A ------- - --------------------------------------------------------- ASSIGNMENT FORM If you the holder want to assign this Debenture, fill in the form below: I or we assign and transfer this Debenture to __________________________________ (Insert assignee's soc. sec. or tax ID no.) - ---------------------------------- - ---------------------------------- - ---------------------------------- - ---------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ______________ ______________________________agent to transfer this Debenture on the books of the Company. The agent may substitute another to act for him. - --------------------------------------------------------- - -------------------------------------------------------- CONVERSION NOTICE If you the holder want to convert this Debenture into Common Stock of the Company, check the box: / / If you want to convert only part of this Debenture, state the amount: - ---------------------------------- If you want the stock certificate made out in another person's name, fill in the form below: - ---------------------------------- (Insert other person's soc. sec. or tax ID no.) - ---------------------------------- - ---------------------------------- - ---------------------------------- - ---------------------------------- (Print or type other person's name, address and zip code) - -------------------------------------------------------- Date Your Signature: --------------------- ---------------------------- - ----------------------------------------------------------------------------- (Sign exactly as your name appears on the other side of this Debenture) -18- 35 EXHIBIT B Tests For Accredited Investor (a) The following are tests for an Accredited Investor who is an individual: Such investor has a net worth, or joint net worth with such investor's spouse, of at least $1,000,000. Such investor had individual income of more than $200,000 for the Past two years, and such Investor has a reasonable expectation of having income of at least $200,000 for the current year. Such investor and his/her spouse had joint income of more than $300,000 for the past two years, and has a reasonable expectation of having joint income of at least $300,000 for the current year. Such investor is an executive officer or director of the company. (b) The following are tests for any Accredited Investor who is not an individual: Any bank as defined in Section 3 (a) (2) of the Securities Act or any savings and loan association or other institution as defined in section 3 (a) (5) (A) of the Securities Act whether acting in its individual or fiduciary capacity. Any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934. Insurance company as defined in Section 2 (13) of the Securities Act. Investment company registered under the investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act. Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958. Employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in 36 excess of $5,000,000 or, if a self-directed plan, with in-vestment decisions made solely by persons that are accredited investors. Any private business development company as defined in Section 202 (a) (22) of the Investment Advisers Act of 1940. Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000, Any trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506 (b) (2) (ii) of the Commission under the Securities Act. Any entity in which all of the equity owners are Accredited Investors (i.e., all of the equity owners meet one of the tests for an accredited investor). -2- 37 EXHIBIT C Confidential Purchaser Questionnaire Name: ____________________________________________ Age: _____________ Residence Address:______________________________________________________ How Long?____________________________________________________________________ Residence Telephone Number: Occupation (e.g., Officer, Partner, Owner) and Name of Business: - ------------------------------------------------------------------------------ Corporation ____ Partnership ______ Proprietorship _______ Business Address: _____________________________ Business Telephone Number: _____________________ Your Social Security Number: _________________________________________________ Employer I.D. Number if the aforesaid business is owned or controlled by you: Describe nature of current employment and position(s) held: - -------------------------------------------------------------------------- How long? ---------------------------- ---------------------------- If you have been employed by your current employer for less than three years, list your employment and position for the past three years. - --------------------------------------------------------------- - --------------------------------------------------------------- Other business affiliations (service on Boards of Directors, etc.): Educational background (schools and degrees): Do you have a personal net worth or joint net worth with your spouse as of the date hereof in excess of $1,000,000? During each of the two most recent years, did either (i) you have income of more than $200,000 -1- 38 or (ii) you and your spouse have joint income of more than $300,000? During the current year, do you reasonably anticipate (i) that you will have income of more than $200,000 or (ii) you and your spouse will have joint income of more than $300,0 00? Are you an executive officer or director of Barringer Technologies Inc.? Do you have knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of various investments both public and private? If so, describe the basis of your knowledge and experience: If not, do you have an investment advisor? __________________________________ What is his name and address? _____________________________ ------------------------------------------------------------- Do you desire to have the person named above act as your representative with respect to investments? Yes _________________ No ____________________ Do you believe your representative has the ability to evaluate the merits and risks associated with various investments? Yes _________________ No ____________________ Are you an employee, officer, director, investor or shareholder of any NASD broker-dealer firm? If yes, supply name and address: ------------------------------------------- - ----------------------------------------------------------------------- Are you aware that an investment in the securities of Barringer Technologies Inc. is a high risk investment? Do you presently own securities or other types of investments? If so, please supply the approximate value thereof: -2- 39 Those of Business Yours Owned or Controlled by You Marketable Securities $ $ Restrictive Securities $ $ Real Estate $ $ Investment Partnerships $ $ Other Assets $ $ TOTAL $ $ Do you have adequate means of providing for your current needs and personal contingencies? The following are tests for an Accredited Investor who is an individual. Please indicate by a check mark which tests are applicable to you: _____ Such investor has a net worth, or joint net worth with such investor's spouse, of at least $1,000,000. _____ Such investor had individual income of more than $200,000 for the past two years, and such investor has a reasonable expectation of having income of at least $200,000 for the current year. _____ Such investor and his/her spouse had joint income of more than 300,000 for the past two years, and has a reasonable expectation of having joint income of at least $300,000 for the current year. ______ Such investor is an executive officer or director of the Company. The following are tests for an Accredited Investor who is not an individual. Please indicate by a check mark which tests are applicable to you: ______ Any bank as defined in section 3 (a) (2) of the Securities Act or any -3- 40 savings and loan association or other institution as defined in Section 3 (a) (5) (A) of the Securities Act whether acting in its individual or fiduciary capacity. ______ Any broker or dealer registered pursuant to Section 15 of the securities Exchange Act of 1934. _____ Insurance company as defined in Section 2 (13) of the Securities Act. _____ Investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act. _____ Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business investment Act of 1958. _____ Employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors. _____ Any private business development company as defined in Section 2(a)(22) of the Investment Advisers Act of 1940. _____ Any organization described in Section 501(c) (3) of the Internal-Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000. _____ Any trust, with total assets in excess of 45,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of the Commission under the Securities Act. ______ Any entity in which all of the equity owners are Accredited Investors (i.e., all of the equity owners meet one of the tests for an accredited investor). -4- 41 The undersigned represents the foregoing information to be true and correct and agrees that such information may be relied upon by the Company. ------------------------------ Name: Dated: -5- EX-10.17 11 LEASE BETWEEN THE COMPANY AND MURRAY HILL INN ASS. 1 EXHIBIT 10.17 ================================================================================ Murray Hill Inn Associates, A Limited Partnership By its General Partner The Boyle Group, A Limited Partnership By its General Partner, Murray Hill 91, Inc., By William A. Boyle III, President Landlord TO Barringer Technologies Inc. Tenant LEASE PREMISES 219 South Street, New Providence, New Jersey =============================================================================== 2 INDEX ARTICLE CAPTION PAGE 1. Demise, Premises, Term, Rents .................................. 2. Use ............................................................ 3. Preparation of the Demised Premises ............................ 4. When Demised Premises Ready for Occupancy ...................... 5. Adjustment of Rents ............................................ 6. Subordination, Notice to Lessors and Mortgagees .................................................... 7. Quiet Enjoyment ................................................ 8. Assignment, Mortgaging, Subletting ............................. 9. Compliance with Laws and Requirements of Public Authorities ............................................. 10. Insurance ...................................................... 11. Rules and Regulations .......................................... 12. Tenant's Changes ............................................... 13. Tenant's Property .............................................. 14. Repairs and Maintenance ........................................ 15. Electricity .................................................... 16. Heat, Ventilation and Air Conditioning ......................... 17. Landlord's Other Services ...................................... 18. Access, Changes in Building Facilities, Name ................... 19. Notices of Accidents, etc. ..................................... 20. Non-Liability and Indemnification .............................. 3 ARTICLE CAPTION PAGE 21. Destruction or Damage .......................................... 22. Eminent Domain ................................................. 23. Surrender ...................................................... 24. Conditions of Limitation ....................................... 25. Re-Entry By Landlord ........................................... 26. Damages ........................................................ 27. Waivers ........................................................ 28. No Other Waivers Or Modifications .............................. 29. Curing Tenant's Defaults, Additional Rent ...................... 30. Broker ......................................................... 31. Notices ........................................................ 32. Estoppel Certificate, Memorandum ............................... 33. Arbitration .................................................... 34. No Other Representations, Construction, Governing Law .......... 35. Security ....................................................... 36. Parties Bound .................................................. 37. Certain Definitions And Constructions .......................... Testimonium, Signatures and Seals .............................. Acknowledgments ................................................ Exhibit A - Description of Land B - Floor Plans C - Separate Work Letter D - Rules and Regulations E - Definitions 38. Representatives Authorized ..................................... 39. Option to Renew ............................................... 4 LEASE, dated February 17, 1993, between Murray Hill Inn Associates, A Limited Partnership by its General Partner The Boyle Company, A Limited Partnership By its General Partner, Murray Hill 91, Inc., By William A. Boyle III, President (hereinafter called "Landlord"), and Barringer Technologies, Inc. ,a Delaware corporation, having an office at (hereinafter called "Tenant"). W I T N E S S E T H: ARTICLE 1 DEMISE, PREMISES, TERM, RENTS 1.01. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the premises hereinafter described, in the building located at 219 South Street at the Murray Hill Inn and Office Park, New Providence, New Jersey (the "Building"), on the parcel of land more particularly described in Exhibit A (the "Land"), for the term hereinafter stated, for the rents hereinafter reserved and upon and subject to the conditions (including limitations, restrictions and reservations) and covenants hereinafter provided. Each party hereby expressly covenants and agrees to observe and perform all of the conditions and covenants herein contained on its part to be observed and performed. 1.02 The premises hereby leased to Tenant are Suite 200, northwest corner of the 2nd floors of the Building, as shown on the floor plan annexed hereto as Exhibit B, having a rentable area of 4064 square feet. Said premises together with all fixtures and equipment which at the commencement, or during the term, of this lease are thereto attached (except items not deemed to be included therein and removable by Tenant as provided in Article 14) constitute and are hereinafter called the "Demised Premises". 1.03 The term of this lease, for which the Demised Premises are hereby leased, shall commence on a date (herein called the "Commencement Date") which shall be (i) the day on which the 5 8/1/93 - 3/31/94 5,283.20 42,265.60 4/1/94 - 3/31/95 5,283.20 63,398.40 4/1/95 - 3/31/96 5,892.80 70,713.60 4/1/96 - 3/31/97 5,892.80 70,713.60 4/1/97 - 3/31/98 5,892.80 70,713.60
6 Demised Premises are ready for occupancy (as defined in Article 4) or (ii) the day Tenant, or anyone claiming under or through Tenant, first occupies the Demised Premises for business, whichever occurs earlier, and shall end at noon of the last day of the calendar month in which occurs the day preceding the fifth anniversary of the Commencement Date, which ending date is hereinafter called the "Expiration Date", or shall end on such earlier date upon which said term may expire or be canceled or terminated pursuant to any of the conditions or covenants of this lease or pursuant to law. Promptly following the Commencement Date the parties hereto (hereinafter sometimes referred to as the "Parties") shall enter into a supplementary agreement fixing the dates of the Commencement Date and the Expiration Date and if they cannot agree thereon within fifteen (15) days after Landlord's request therefor, such dates shall be determined by arbitration in the manner provided in Article 34. Target date for occupancy is anticipated to be April 1, 1993. The rents reserved under this lease, for the term thereof, shall be and consist of (a) Fixed rent of $42,265.00 for the first year; $63,398.40 for the second year; $70,713.60 for the third year; $70,713.60 for the fourth year; and $70,713.60 for the fifth year, Totaling $317,804.80 for the five-year term, which shall be payable in equal monthly installments commencing on the anniversary date of the 6th month of occupancy until the 12 month of occupancy $5,283.20; $5,283.20 for the second year; $5,892.80 during the third year; $5,892.80 during the fourth year; and $5,892.80 during the fifth year and every calendar month during the term of this lease (except that Tenant shall pay, upon the execution and delivery of this lease by Tenant, the sum of $5,283.20 to be applied against the first installment or installments of fixed rent becoming due under this lease), and (b) additional rent consisting of all such other sums of money as shall become due from and payable by Tenant to Landlord hereunder (for default in payment of which Landlord shall have the same remedies as for a default in payment of fixed rent), all to be paid to Landlord at its office, or such other place, or to such agent and at such place, as Landlord may designate by notice to Tenant, in lawful money of the United States of America. -2- 7 1.05. Tenant shall pay the fixed rent and additional rent herein reserved promptly as and when the same shall become due and payable, without demand therefor and without any abatement, deduction or setoff whatsoever except as expressly provided in this lease. 1.06. If the Commencement Date occurs an a day other than the first day of a calendar month, the fixed rent for such calendar month shall be prorated and the balance of the first month's fixed rent theretofore paid shall be credited against the next monthly installment of fixed rent. ARTICLE 2 USE 2.01 Tenant shall use and occupy the Demised Premises for executive and general offices for the transaction of Tenant's business which is the sale and servicing of medical and chemical testing equipment. and for no other purpose. 2.02. If any governmental license or permit, other than a Certificate of Occupancy, shall be required for the proper and lawful conduct of Tenant's business in the Demised Premises, or any part thereof, and if failure to secure such license or permit would in any way affect Landlord, Tenant, at its expense, shall duly procure and thereafter maintain such license or permit and submit the same to inspection by Landlord. Tenant shall at all times comply with the terms and conditions of each such license or permit. 2.03. Tenant shall not at any time use or occupy, or do or permit anything to be done in the Demised Premises, in violation of the Certificate of Occupancy (or other similar municipal ordinance) governing the use and occupation of the Demised Premises or for the Building. 3. 8 ARTICLE 3 PREPARATION OF THE DEMISED PREMISES 3.01. The Demised Premises shall be completed and prepared for Tenant's occupancy in the manner, and subject to the terms, conditions and covenants, set forth in Exhibit C. The facilities, materials and work so to be furnished, installed and performed in the Demised Premises by Landlord at its expense are hereinafter and in paragraph 3 of Exhibit C referred to as "Landlord's Work". Such other installations, materials and work which may be undertaken by or for the account of Tenant to equip, decorate and furnish the Demised Premises for Tenant's occupancy, commonly called finishing trades work, are hereinafter and in Exhibit C called "Tenant's Finish Work". ARTICLE 4 WHEN DEMISED PREMISES READY FOR OCCUPANCY 4.01. The Demised Premises shall be deemed ready for occupancy on the earliest date on which all of the following conditions have been met. (a) A certificate of occupancy (temporary or final) has been issued by the applicable governmental authorities, permitting Tenant's use of the Demised Premises for the purposes for which the same have been leased. (b) Landlord's Work, and so much of Tenant's Finish Work as Landlord shall have undertaken, in the Demised Premises have been substantially completed; and same shall be so deemed notwithstanding the fact that minor or insubstantial details of construction, mechanical adjustment, or decoration remain to be performed, the noncompletion of which does not materially interfere with Tenant's use of the Demised Premises. (c) Reasonable means of access and facilities necessary to Tenant's use and occupancy of the Demised Premises, including corridors, elevators and stairways, and heating, ventilating, air conditioning, sanitary, water, and electrical facilities, have been installed and are in reasonably good operating order and available to Tenant. 4. 9 4.02. If the occurrence of any of the conditions listed in Section 4.01, and thereby the making of the Demised Premises ready for occupancy, shall be delayed due to any act or omission of Tenant or any of its employees, agents or contractors or any failure (not due to any act or omission of Landlord or any of its employees, agents or contractors) to plan or execute Tenant's Finish Work diligently and expeditiously, which shall continue after Landlord shall have given Tenant reasonable notice that such act, omission or failure would result in delay, and such delay shall have been unavoidable by Landlord in the exercise of reasonable diligence and prudence, the Demised Premises shall be deemed ready for occupancy on the date when they would have been ready but for such delay. 4.03. If and when Tenant shall take actual possession of the Demised Premises, it shall be conclusively presumed that the same were in satisfactory condition (except for latent defects) as of the date of such taking of possession, unless within fifteen (15) days after such date Tenant shall give Landlord notice specifying the respects in which the Demised Premises were not in satisfactory condition. ARTICLE 5 ADJUSTMENTS OF RENTS 5.01. For the purpose of Sections 5.01-5.03: (a) "Taxes " shall mean real estate taxes, special and extraordinary assessments and governmental levies against the Land and Building of which the Demised Premises are a part. (b) "Base Tax Rate" shall mean the assessed valuation of the Land and Building, as finally determined following completion of construction and issuance of a final certificate of occupancy therefor (or such equivalent certification if Certificates of Occupancy not be used), multiplied by the tax rate for the Tax Year 1993 (the "Base Year"). (c) "Tax Year" shall mean the fiscal year for which taxes are levied by the governmental authority. (d) "Operational Year" shall mean each calendar year after the Base Year; 5. 10 * (e) "Tenant's Proportionate Share of Increase" shall mean 12.7% multiplied by the increase in Taxes for the Operational Year over the Base Tax Rate. For purposes hereof, the Tenant's Proportionate Share of Increase has been computed based upon a total square footage of the Building equal to 32,100 square feet, and a total square footage of the Demised Premises equal to 4,064 square feet. (f) "Tenant's Projected Share of Increase" shall mean Tenant's Proportionate Share of Increase for the Operational and Projected operational Year divided by twelve (12) and payable monthly by Tenant to Landlord as additional rent. 5.02. After the expiration of the Base year and any Operational Year, Landlord shall furnish Tenant a written statement of the Taxes incurred for such Base Year or Operational Year. Within thirty (30) days after receipt of such statement for any Operational Year setting forth Tenant's proportionate Share of Increase, Tenant shall pay same to Landlord as additional rent, subject to the provisions of Section 5.03 hereof. * Plus 12.7% of 40% of the land tax 5a 11 5.03. Commencing with the first Operational Year after Landlord shall be entitled to receive Tenant's Proportionate Share of Increase, Tenant shall pay to Landlord as additional rent for the then Operational Year, Tenant's Projected Share of Increase. If the statement furnished by Landlord to Tenant pursuant to Section 5.02 at the end of the then Operational Year shall indicate that Tenant's Projected Share of Increase exceeded Tenant's Proportionate Share of Increase, Landlord shall forthwith either (a) pay the amount of excess directly to Tenant concurrently with the notice or (b) permit Tenant to credit the amount of such excess against the subsequent payment of rent due hereunder. If such statement furnished by Landlord to Tenant hereunder shall indicate that the Tenant's Proportionate Share of Increase exceeded Tenant's Projected Share of Increase for the then Operational Year, Tenant shall forthwith pay the amount of such excess to Landlord. 5.04. As used in Sections 5.04-5.06. (a) Operating Expenses shall mean any or all expenses incurred by Landlord in connection with the operation of the Building of which the Demised Premises are a part, including all expenses incurred as a result of Landlord's compliance with any of its obligations hereunder other than Landlord's Work and such expenses shall include: (i) salaries, wages, medical, surgical and general welfare benefits, (including group life insurance) and pension payments of employees of Landlord engaged in the operation and maintenance of the Building, (ii) payroll taxes, workmen's compensation, uniforms and dry cleaning for the employees referred to in subdivision (i), (iii) the cost of all charges for oil, gas, electricity (including, but not limited to, fuel cost adjustments), steam, heat, ventilation, air conditioning and water, (including sewer rental and assessments) furnished to the Building (including common areas thereof) including any taxes on any such utilities, but excluding therefrom the cost, including taxes thereon, of electric energy furnished directly to the Demised Premises for purposes other than for heating and air-conditioning (which costs shall be borne by Tenant pursuant to the provisions of Article 15 hereof), (iv) the cost of all charges for rent, casualty, war risk insurance (if obtainable from the United States government) and of liability insurance for the Building; (v) the cost of all building and cleaning supplies for the common areas of the Building and charges for telephone for the Building; and (vi) the cost of all charges for management, window cleaning and services contracts with independent contractors for the common areas of the Building. 6. 12 (b) "Operational Year" shall mean each calendar year after the Base Year as hereinafter defined. (c) "Base Year" shall be calendar year 1993, except that with respect to furnishing of electrical energy the base year shall mean the rates in effect as of January 1, 1993. (d) "Tenant's Proportionate Share of Increase" shall mean 12.7% multiplied by the increase in Operating Expenses for the Operational Year over Operating Expenses in the Base Year. For purposes hereof, the Tenant's Proportionate Share of Increase has been computed based upon a total square footage of the Building equal to 32,100 square feet, and a total square footage of the Demised Premises equal to 4,064 square feet. (e) "Tenant's Projected Share of Increase" shall mean Tenant's Proportionate Share of Increase for the prior Operational Year divided by twelve (12) and payable monthly by Tenant to Landlord as additional rent. 5.05. After the expiration of the Base Year and any Operational Year, Landlord shall furnish Tenant a written detailed statement of the Operating Expenses incurred for such Base Year or Operational Year. Within thirty (30) days after receipt of such statement for any Operational Year setting forth Tenant's Proportionate Share of Increase, Tenant shall pay same to Landlord as additional rent, subject to the provisions of Section 5.06 hereof. 5.06. Commencing with the first Operational Year after Landlord shall be entitled to receive Tenant's Proportionate Share of Increase, Tenant shall pay to Landlord as additional rent for the then Operational year, Tenant's Projected Share of Increase. If the statement furnished by Landlord to Tenant pursuant to Section 5.05 at the end of the then Operational Year shall indicate that Tenant's Projected Share of Increase exceeded Tenant's Proportionate Share of Increase, Landlord shall forthwith either (a) pay the amount of excess directly to Tenant concurrently with the notice or (b) permit Tenant to credit the amount of such excess against the subsequent payment of rent due hereunder. If such statement furnished by Landlord to Tenant hereunder shall indicate that the Tenant's Proportionate Share of Increase exceeded Tenant's Projected Share of Increase for the then Operational Year, Tenant shall forthwith pay the amount of such excess to Landlord. 5.07. Every notice given by Landlord pursuant to Section 5.05 shall be conclusive and binding upon Tenant unless (1) within a sixty (60) days after the receipt of such notice 7 13 Tenant shall notify Landlord that it disputes the correctness of the notice, specifying the particular respects in which the notice is claimed to be incorrect, and (ii) if such dispute shall not have been settled by agreement, shall submit the dispute to arbitration within ninety (90) days after receipt of the notice. Pending the determination of such dispute by agreement or arbitration as aforesaid, Tenant shall within thirty (30) days after receipt of such notice, pay additional rent in accordance with Landlord's notice and such payment shall be without prejudice to Tenant's position. If the dispute shall be determined in Tenant's favor, Landlord shall forthwith pay Tenant the amount of Tenant's overpayment of rents resulting from compliance with Landlord's statement. ARTICLE 6 SUBORDINATION, NOTICE TO LESSORS AND MORTGAGEES 6.01. This lease, and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to all ground leases, overriding leases and underlying leases of the Land and/or the Building now or hereafter existing and to all mortgages which may now or hereafter affect the Land and/or the Building and/or any of such leases, whether or not such mortgages shall also cover other lands and/or buildings, to each and every advance made or hereafter to be made under such mortgages, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and spreaders and consolidations of such mortgages. This Section shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute and deliver any instrument that Landlord, the lessor of any such lease or the holder of any such mortgage or any of their respective successors in interest may reasonably request to evidence such subordination. The leases to which this lease is, at the time referred to, subject and subordinate pursuant to this Article are hereinafter sometimes called "superior leases" and the mortgages to which this lease is, at the time referred to, subject and subordinate are hereinafter sometimes called "superior mortgages", the lessor of a superior lease or its successor in interest at the time referred to is sometimes hereinafter called a "lessor", and the holder of a superior mortgage or its successor in interest at the time referred to is sometimes hereinafter called a "superior mortgagee" 8. 14 ARTICLE 7 QUIET ENJOYMENT 7.01. So long as Tenant pays all of the fixed rent and additional rent due hereunder and performs all of Tenant's other obligations hereunder, Tenant shall peaceably and quietly have, hold and enjoy the Demised Premises subject, nevertheless, to the obligations of this lease and, as provided in Article 6, to the superior leases and the superior mortgages. ARTICLE 8 ASSIGNMENT, MORTGAGING, SUBLETTING 8.01. Neither this lease, nor the term and estate hereby granted, nor any part hereof or thereof, nor the interest of Tenant in any sublease, or the rentals thereunder, shall be assigned, mortgaged, pledged, encumbered or otherwise transferred by Tenant, and neither the Demised Premises, nor any part thereof shall be encumbered in any manner by reason of any act or omission on the part of Tenant or anyone claiming under or through Tenant, or shall be sublet, or offered or advertised for subletting, or be used or occupied or permitted to be used or occupied, or utilized for desk space or for mailing privileges, by anyone other than Tenant or for any purpose other than as permitted by this lease, without the prior written consent of Landlord in every case, except as expressly otherwise provided in this Article. 8.02. If this lease be assigned, whether or not in violation of the provisions of this lease, Landlord may collect rent from the assignee. If the Demised Premises or any part thereof be sublet or be used or occupied by anybody other than Tenant, whether or not in violation of this lease, Landlord may, after default by Tenant and expiration of Tenant's time to cure such default, collect rent from the undertenant or occupant. In either event, Landlord may apply the net amount collected to the rents herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of any of the provisions of Section 8.01, or the acceptance of the assignee, undertenant or occupants as tenant, or a 9 15 release of Tenant from the further performance by Tenant of Tenant's obligations under this lease. The consent by Landlord to assignment, mortgaging, underletting or use or occupancy by others shall not in any wise be considered to relieve Tenant from obtaining the express written consent of Landlord to any other or further assignment, mortgaging or underletting at use or occupancy by others not expressly permitted by this Article. 8.03. Provided Tenant complies with the following conditions Landlord shall not unreasonably withhold its consent to the subletting of the entire Demised Premises: (a) Tenant shall submit in writing to Landlord (i) the name of the proposed subtenant, (ii) the nature and character of the proposed subtenant's business, (iii) the terms and conditions of the proposed sublease and (iv) such reasonable financial information as Landlord may request regarding the proposed subtenant; (b) If Tenant requests the right to sublease, the Landlord, at Landlord's election, may (i) elect to sublease the Demised Premises directly from Tenant upon the same terms and conditions offered to the proposed subtenant, or (ii) cancel this lease, in which event Tenant agrees to surrender all of its right, title and interest hereunder and Landlord may thereafter enter into a direct lease with the proposed subtenant or with any other persons as Landlord may desire, or (iii) consent to the subletting. Landlord's election under this subdivision (b) shall be made within thirty (30) days after the information set forth in subdivision (a) hereof has been received by Landlord; (c) If Tenant has obtained consent to such proposed subletting by any superior lessor and/or superior mortgagee, provided such superior lessor and/or superior mortgagee requires consent to the subletting. 8.04. Tenant shall remain fully liable for the performance of all of Tenant's obligations hereunder notwithstanding any subletting provided for herein, and without limiting the generality of the foregoing, shall remain fully responsible and liable to Landlord for all acts and omissions of any subtenant or anyone claiming under or through any subtenant which shall be in violation of any of the obligations of this lease and any such violation shall be deemed to be a violation by Tenant. 10. 16 8.05. Notwithstanding any assignment and assumption by the assignee of the obligations of Tenant hereunder, Tenant herein named, or any immediate or remote successor in interest of Tenant herein named, shall remain liable jointly and severally (as a primary obligor) with its assignee and all subsequent assignees for the performance of Tenant's obligations hereunder. ARTICLE 9 COMPLIANCE WITH LAWS AND REQUIREMENTS OF PUBLIC AUTHORITIES 9.01. Tenant shall give prompt notice to Landlord of any notice it receives of the violation of any law or requirement of public authority, and at its expense shall comply with all laws and requirements of public authorities which shall, with respect to the Demised Premises or the use and occupation thereof, or the abatement of any nuisance, impose any violation, order or duty on Landlord or Tenant, arising from (i) Tenant's use of the Demised Premises, (ii) the manner of conduct of Tenant's business or operation of its installations, equipment or other property therein, (iii) any cause or condition created by or at the instance of Tenant, other than by Landlord's performance of any work for or on behalf of Tenant, or (iv) breach of any of Tenant's obligations hereunder. Furthermore, Tenant need not comply with any such law or requirement of public authority so long as Tenant shall be contesting the validity thereof, or the applicability thereof to the Demised Premises, in accordance with Section 9.02. 9.02. Tenant may, at its expense (and if necessary, in the name of but without expense to Landlord) contest, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability to the Demised Premises, of any law or requirement of public authority, and Landlord shall cooperate with Tenant in such proceedings, provided that 11. 17 (a) Tenant shall defend, indemnify and hold harmless Landlord against all liability, loss or damage which Landlord shall suffer by reason of such non-compliance or contest, including reasonable attorney's fees and other expenses reasonably incurred by Landlord; (b) Such non-compliance or contest shall not constitute or result in any violation of any superior lease or superior mortgage, or if such superior lease and/or superior mortgage shall permit such non-compliance or contest on condition of the taking of action or furnishing of security by Landlord, such action shall be taken and such security shall be furnished at the expense of Tenant; and (c) Tenant shall keep Landlord advised as to the status of such proceedings. ARTICLE 10 INSURANCE 10.01. Tenant shall not violate, or permit the violation of, any condition imposed by the standard fire insurance policy then issued for office buildings in the county which the Demised Premises are situate, and shall not do, or permit anything to be kept in the Demised Premises which would increase the fire or other casualty insurance rate on the Building or the property therein over the rate which would otherwise then be in effect, (unless Tenant pays the resulting increased amount of premium as provided in Section 10.02) or which would result in insurance companies of good standing refusing to insure the Building or any of such property in amounts and at normal rates reasonably satisfactory to Landlord. However, Tenant shall not be subject to any liability or obligation under this Section by reason of the proper use of the Demised Premises for the purposes permitted by Article 2. 10.02. If, by reason of any act or omission on the part of Tenant, the rate of fire insurance with extended coverage on the Building or equipment or other property of Landlord or other tenants shall be higher than it otherwise would be, Tenant shall reimburse Landlord, on demand, for that part of the premiums for fire insurance and extended coverage paid by Landlord because of such act or omission on the part of Tenant, which sum shall be deemed to be additional rent and collectible as such. 12. 18 10.03. In the event that any dispute should arise between Landlord and Tenant concerning insurance rates, a schedule or "make up" of rates for the Building or the Demised Premises, as the case may be, issued by the Fire Insurance Rating Organization of New Jersey or other similar body making rates for fire insurance and extended coverage for the premises concerned, shall be presumptive evidence of the facts therein stated and of the several items and charges in the fire insurance rates with extended coverage then applicable to such premises. 10.04. Tenant shall obtain and keep in full force and effect during the term of this Lease at its own cost and expense Public Liability Insurance, such insurance to afford protection in an amount of not less than $500,000 for injury or death to any one person, $1,000,000 for injury or death arising out of any one occurrence, and $50,000 for damage to property, protecting and naming the Landlord and the Tenant as insureds against any and all claims for personal injury, death or property damage occurring in, upon, adjacent, or connected with the Demised Premises and any part thereof. Said insurance is to be written on a form reasonably satisfactory to Landlord by good and solvent insurance companies of recognized standing, admitted to do business in the State of New Jersey which shall be reasonably satisfactory to the Landlord. Tenant shall pay all premiums and charges therefor and upon failure to do so Landlord may, but shall not be obligated, to make such payments, and in such latter event the Tenant agrees to pay the amount thereof to Landlord on demand and said sum shall be deemed to be additional rent and in each instance collectible on the first day of any month following the date of notice to Tenant in the same manner as though it were rent originally reserved hereunder. Tenant will use its best efforts to include in such Public Liability Insurance policy a provision to the effect that same will be non-cancellable, except upon reasonable advance written notice to Landlord. The original insurance policies or appropriate certificates shall be deposited with Landlord together with any renewals, replacements or endorsements to the end that said insurance shall be in full force and effect for the benefit of the Landlord during the term of this Lease. In the event Tenant shall fail to procure and place such insurance, the Landlord may, but shall not be obligated to, procure and place same, in which event the amount 13. 19 of the premium paid shall be refunded by Tenant to Landlord upon demand and shall in each instance be collectible on the first day of the month or any subsequent month following the date of payment by Landlord, in the same manner as though said sums were additional rent reserved hereunder. 10.05. Each party agrees to use its best efforts to include in each of its insurance policies (insuring the Building and Landlord's property therein and rental value thereof in the case of Landlord, and insuring Tenant's property and business interest in the Demised Premises (business interruption insurance) in the case of Tenant, against loss, damage or destruction by fire or other casualty) a waiver of the insurer's right of subrogation against the other party, or if such waiver should be unobtainable or unenforceable (a) an express agreement that such policy shall not be invalidated if the assured waives the right of recovery against any party responsible for a casualty covered by the policy before the casualty or (b) any other form of permission for the release of the other party. If such waiver, agreement or permission shall not be, or shall cease to be, obtainable without additional charge or at all, the insured party shall so notify the other party promptly after learning thereof. In such case, if the other party shall so elect and shall pay the insurer's additional charge therefor, such waiver, agreement or permission shall be included in the policy, or the other party shall be named as an additional assured in the policy. Each such policy which shall so name a party hereto as an additional assured shall contain, if obtainable, agreements by the insurer that the policy will not be cancelled without at least ten (10) days prior notice to both assureds and that the act or omission of one assured will not invalidate the policy as to the other assured. Any failure by Tenant, if named as an additional assured, promptly to endorse to the order of Landlord, without recourse, any instrument for the payment of money under or with respect to the policy of which Landlord is the owner or original or primary assured, shall be deemed a default under this Lease. 10.06. Each party hereby releases the other party with respect to any claim (including a claim for negligence) which it might otherwise have against the other party for loss, damage or destruction with respect to its property (including rental value or business interruption) occurring during the term of this Lease and with respect and to the extent to which it is insured under a policy or policies containing a waiver 14. 20 of subrogation or permission to release liability or naming the other party as an additional assured, as provided in Sections 10.04 and 10.05. If notwithstanding the recovery of insurance proceeds by either party for loss, damage or destruction of its property (or rental value or business interruption) the other party is liable to the first party with respect thereto or is obligated under this Lease to make replacement, repair or restoration or payment, then provided that the first party's right of full recovery under its insurance policies is not thereby prejudiced or otherwise adversely affected, the amount of the net proceeds of the first party's insurance against such loss, damage or destruction shall be offset against the second party's liability to the first party therefor, or shall be made available to the second party to pay for replacement, repair or restoration, as the case may be. 10.07. The waiver of subrogation or permission for release referred to in Section 10.05 shall extend to the agents of each party and its and their employees and, in the case of Tenant, shall also extend to all other persons and entities occupying, using or visiting the Demised Premises in accordance with the terms of this Lease, but only if and to the extent that, such waiver or permission can be obtained without additional charge (unless such party shall pay such charge). The releases provided for in Section 10.06 shall likewise extend to such agents, employees and other persons and entities, if and to the extent that such waiver or permission is effective as to them. Nothing contained in Section 10.06 shall be deemed to relieve either party of any duty imposed elsewhere in this Lease to repair, restore or rebuild or to nullify any abatement of rents provided for elsewhere in this Lease. Except as otherwise provided in Section 10.04, nothing contained in Sections 10.05 and 10.06 shall be deemed to impose upon either party any duty to procure or maintain any of the kinds of insurance referred to therein or any particular amounts or limits of any such kinds of insurance. However, each party shall advise the other, upon request, from time to time (but not more often than once a year) of all of the policies of insurance it is carrying of any of the kinds referred to in Section 10.05, and if it shall discontinue any such policy or allow it to lapse, shall notify the other party thereof with reasonable promptness. The insurance policies referred to in Sections 10.05 and 10.06 shall be deemed to include policies procured and maintained by a party for the benefit of its lessor, mortgagee or pledgee. 15. 21 ARTICLE 11 RULES AND REGULATIONS 11.01. Tenant and its employees and agents shall faithfully observe and comply with the Rules and Regulations annexed hereto as Exhibit D, and such reasonable changes therein (whether by modification, elimination or addition) as Landlord at any time or times hereafter may make and communicate in writing to Tenant, which do not unreasonably affect the conduct of Tenant's business in the Demised Premises; provided, however, that in case of any conflict or inconsistency between the provisions of this lease and any of the Rules and Regulations as originally promulgated or as changed, the provisions of this lease shall control. 11.02. Nothing in this lease contained shall be construed to impose upon Landlord any duty or obligation to Tenant to enforce the Rules and Regulations or the terms, covenants or conditions in any other lease, as against any other tenant, and Landlord shall not be liable to Tenant for violation of the same by any other tenant or its employees, agents or visitors. However, Landlord shall not enforce any of the Rules and Regulations in such manner as to discriminate against Tenant or anyone claiming under or through Tenant. ARTICLE 12 TENANT'S CHANGES 12.01. Tenant shall make no changes, alterations, additions, installations, substitutions or improvements (hereinafter collectively called "changes", and, as applied to changes provided for in this Article, "Tenant's Changes") in and to the Demised Premises without the express prior written consent of Landlord. All proposed Tenant's Changes shall be submitted to Landlord for written approval at least sixty (60) days prior to the date Tenant intends to commence such changes, such submission to include all plans and specifications for the work to be done, proposed scheduling, and the estimated cost of completion of Tenant's Changes. If Landlord consents to Tenant's Changes, Tenant may commence and diligently prosecute to completion Tenant's Changes, under the direct supervision of Landlord. 16. 22 Tenant shall pay to Landlord a supervision fee (which shall include the cost of review of the proposed Tenant's Changes) equal to ten (10)% percent of the certified cost of completion of Tenant's Changes. Prior to the commencement of Tenant's changes, Tenant shall pay to Landlord ten (10%) percent of the estimated cost of completion (the "Estimated Payment") as additional rent. Within fifteen (15) days after completion of Tenant's Changes, Tenant shall furnish Landlord with a statement, certified by an officer or a principal of Tenant to be accurate and true of the total cost of completion of Tenant's Changes, (the "Total Cost"). If such certified statement furnished by Tenant shall indicate that the Estimated Payment exceeded ten (10%) percent of the Total Cost, Landlord shall forthwith either (a) pay the amount of excess directly to Tenant concurrently with the delivery of the certified statement or (b) permit Tenant to credit the amount of such excess against the subsequent payment of rent due hereunder. If such certified statement furnished by Tenant shall indicate that ten (10%) percent of the Total Cost exceeded Tenant's Estimated Payment, Tenant shall, simultaneously with the delivery to Landlord of the certified statement pay the amount of such excess to Landlord as additional rent. 12.02. Notwithstanding the provisions of Section 12.01, all proposed Tenant's Changes which shall affect or alter: (a) the outside appearance or the strength of the Building or of any of its structural parts; (b) any part of the Building outside of the Demised Premises; (c) the mechanical, electrical, sanitary and other service systems of the Building, or increase the usage of such systems, shall be performed only by the Landlord, at a cost to be mutually agreed upon between Landlord and Tenant. 12.03. Tenant, at its expense, shall obtain all necessary governmental permits and certificates for the commencement and prosecution of Tenant's Changes and for final approval 17. 23 thereof upon completion, and shall cause Tenant's Changes to be performed in compliance therewith and with all applicable laws and requirements of public authorities, and with all applicable requirements of insurance bodies, and in good and workmanlike manner, using new materials and equipment at least equal in quality and class to the original installations in the Building. Tenant's Changes shall be performed in such manner as not to unreasonably interfere with or delay, and (unless Tenant shall indemnify Landlord therefor to the latter's reasonable satisfaction) as not to impose any additional expense upon Landlord in the construction, maintenance or operation of the Building. Throughout the performance of Tenant's Changes, Tenant, at its expense, shall carry, or cause to be carried, workmen's compensation insurance in statutory limits and general liability insurance for any occurrence in or about the Building, of which Landlord and its agents shall be named as parties insured in such limits as Landlord may reasonably prescribe, with insurers reasonably satisfactory to Landlord. Tenant shall furnish Landlord with reasonably satisfactory evidence that such insurance is in effect at or before the commencement of Tenant's Changes and, on request, at reasonable intervals thereafter during the continuance of Tenant's Changes. If any of Tenant's Changes shall involve the removal of any fixtures, equipment or other property in the Demised Premises which are not Tenant's Property (as defined in Article 13), such fixtures, equipment or other property shall be promptly replaced, at Tenant's expense, with new fixtures, equipment or other property (as the case may be) of like utility and at least equal value unless Landlord shall otherwise expressly consent in writing, and Tenant shall deliver such removed fixtures to Landlord. 12.04. Tenant, at its expense, and with diligence and dispatch, shall procure the cancellation or discharge of all notices of violation arising from or otherwise connected with Tenant's Changes which shall be issued by any public authority having or asserting jurisdiction. Tenant shall defend, indemnify and save harmless Landlord against any and all mechanic's and other liens filed in connection with Tenant's Changes, including the liens of any security interest in, conditional sales of, or chattel mortgages upon, any materials, fixtures or articles so installed in and constituting part of the Demised Premises and against all costs, expenses and liabilities incurred in connection with any such lien, security interest, conditional sale or chattel mortgage or any action or proceeding brought thereon. Tenant, at its expense, shall 18. 24 procure the satisfaction or discharge of all such liens within fifteen (15) days after Landlord makes written demand therefor. However, nothing herein contained shall prevent Tenant from contesting, in good faith and at its own expense, any such notice of violation, provided that Tenant shall comply with the provisions of Section 9.02. 12.05. Tenant agrees that the exercise of its right pursuant to the provisions of this Article 12 shall not be done in a manner which would create any work stoppage, picketing, labor disruption or dispute or violate Landlord's union contracts affecting the Land and Building, nor interference with the business of Landlord or any Tenant or Occupant of the Building. ARTICLE 13 TENANT'S PROPERTY 13.01. All fixtures, equipment, improvements and appurtenances, attached to or built into the Demised Premises at the commencement of or during the term of this lease, whether or not by or at the expense of Tenant, shall be and remain a part of the Demised Premises, shall be deemed the property of Landlord and shall not be removed by Tenant, except as hereinafter in this Article expressly provided. 13.02. All business and trade fixtures, machinery and equipment, communications equipment and office equipment, whether or not attached to or built into the Demised Premises, which are installed in the Demised Premises by or for the account of Tenant, without expense to Landlord, and can be removed without permanent structural damage to the Building, and all furniture, furnishings and other articles of movable personal property owned by Tenant and located in the Demised Premises (all of which are sometimes called "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by it at any time during the term of this lease; provided that if any of Tenant's Property is removed, Tenant shall repair or pay the cost of repairing any damage to the Demised Premises or to the Building resulting from such removal. Any equipment or other property for which Landlord shall have granted any allowance or credit to Tenant shall not be deemed to have been installed by or for the account of Tenant, without expense to Landlord, and shall not be considered Tenant's Property. 19. 25 13.03. At or before the Expiration Date, or the date of any earlier termination of this lease, or as promptly as practicable after such an earlier termination date, Tenant at its expense, shall remove from the Demised Premises all of Tenant's Property except such items thereof as Tenant shall have expressly agreed in writing with Landlord were to remain and to become the property of Landlord, and shall repair any damage to the Demised Premises or the Building resulting from such removal. 13.04. Any other items of Tenant's Property (except money, securities and other like valuables) which shall remain in the Demised Premises after the Expiration Date or after a period of fifteen (15) days following an earlier termination date, may, at the option of the Landlord, be deemed to have been abandoned, and in such case either may be retained by Landlord as its property or may be disposed of, without accountability, in such manner as Landlord may see fit, at Tenant's expense. ARTICLE 14 REPAIRS AND MAINTENANCE 14.01. Tenant shall take good care of the Demised Premises. Tenant, at its expense, shall promptly make all repairs, ordinary or extraordinary, interior or exterior, structural or, otherwise, in and about the Demised Premises and the Building, as shall be required by reason of (i) the performance or existence of Tenant's Finish Work or Tenant's Changes, (ii) the installation, use or operation of Tenant's Property in the Demised Premises, (iii) the moving of Tenant's Property, in or out of the Building, or (iv) the misuse or neglect of Tenant or any of its employees, agents or contractors but Tenant shall not be responsible, and Landlord shall be responsible, for any of such repairs as are required by reason of Landlord's neglect or other fault in the manner of performing any of Tenant's Finish Work or Tenant's Changes which may 20. 26 be undertaken by Landlord for Tenant's account or are otherwise required by reason of neglect or other fault of Landlord or its employees, agents or contractors. Except if required by the neglect or other fault of Landlord or its employees, agents or contractors, Tenant, at its expense, shall replace all scratched, damaged or broken doors or other glass in or about the Demised Premises and shall be responsible for all repairs, maintenance and replacement of wall and floor coverings in the Demised Premises and, for the repair and maintenance of all lighting fixtures therein. 14.02. Landlord, at its expense, shall keep and maintain the Building and its fixtures, appurtenances, systems and facilities serving the Demised Premises, in good working order, condition and repair and shall make all repairs, structural and otherwise, interior and exterior, as and when needed in or about the Demised Premises, except for those repairs for which Tenant is responsible pursuant to any other provisions of this lease. 14.03. Except as expressly otherwise provided in this lease, Landlord shall have no liability to Tenant by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this lease, or required by law, to make in or to any portion of the Building or the Demised Premises, or in or to the fixtures, equipment or appurtenances of the Building or the Demised Premises, provided that Landlord shall use due diligence with respect thereto and shall perform such work, except in case of emergency, at times reasonably convenient to Tenant and otherwise in such manner as will not materially interfere with Tenant's use of the Demised Premises. ARTICLE 15 ELECTRICITY 15.01. Landlord shall furnish the electric energy that Tenant shall require in the Demised Premises. Tenant shall pay to Landlord, as additional rent, for all electric energy furnished to Tenant at the Demised Premises. Additional rent for such elec- -21- 27 tric energy shill be calculated and payable in the manner hereinafter set forth. 15.02. Within a reasonable time after the commencement of the term of this lease, subsequent to Tenant's having taken occupancy of the Demised Premises and having installed and commenced the use of Tenant's electrical equipment, Landlord, at Tenant's sole expense, shall cause a survey to be made by a reputable independent electrical engineer or similar agency of the estimated use of electric energy (other than for heat and air conditioning) to the Demised Premises, and shall compute the cost thereof for the quantity so determined at prevailing retail rates. Tenant shall pay Landlord the cost of such electric energy, as so calculated, on a monthly basis, as additional rent, together with its payment of fixed rent. Until such time as Landlord shall complete the aforedescribed survey, Tenant shall pay to Landlord, each and every month, as additional rent, for and on account of Tenant's electrical consumption, the sum of $ to be applied against Tenant's obligations hereunder. Upon completion of the survey, there shall be an adjustment for the period from the Commencement Date through the date that the results of the survey shall be effectuated as shall be required. Landlord shall have the right, at any time, during the term of this lease, to cause the Demised Premises to be resurveyed. In the event that such resurvey shall indicate increased electrical consumption by Tenant at the Demised Premises, there shall be an adjustment in the amount paid by Tenant to Landlord for Tenant's electrical consumption in accordance with the survey as well as an adjustment retroactive to the date Landlord establishes Tenant's increase in electrical consumption in excess of the consumption established by the prior survey. Landlord shall submit to Tenant the results of any electrical survey and the same shall be deemed binding upon Tenant unless Tenant shall object to same within ninety (90) days of the date that Landlord shall furnish Tenant with the results of the survey. In the event that Landlord and Tenant cannot agree upon the results of a survey the same shall be submitted to arbitration in accordance with Article 33, provided, however, until such time as the arbitration shall have been concluded, the results of Landlord's survey shall be utilized for the purposes of determining Tenant's electrical consumption with an appropriate adjustment to be made based upon the results of the arbitration. -22- 28 15.03. Landlord shall not be liable in any way to Tenant for any failure or defect in the supply or character or electric energy furnished to the Demised Premises by reason of any requirement, act or omission of the public utility serving the Building with electricity or for any other reason. Landlord shall furnish and install all replacement lighting tubes, lamps, bulbs and ballasts required in the Demised Premises at Tenant's expense. 15.04. Tenant's use of electric energy in the Demised Premises shall not at any time exceed the capacity of any of the electrical conductors and equipment in or otherwise serving the Demised Premises. In order to insure that such capacity is not exceeded and to avert possible adverse effect upon the Building electric service, Tenant shall not, without Landlord's prior written consent in each instance (which shall not be unreasonably withheld), connect any additional fixtures, appliances or equipment to the Building electric distribution system or make any alteration or addition to the electric system of the Demised Premises existing on the Commencement Date. Should Landlord grant such consent, all additional risers or other equipment required therefor shall be provided by Landlord and the cost thereof shall be paid by Tenant upon Landlord's demand. As a condition to granting such consent, Landlord, at Tenant's sole expense, may cause a new survey to be made of the use of electric energy (other than for heating and air-conditioning) in order to calculate the potential additional electric energy to be made available to Tenant based upon the estimated additional capacity of such additional risers or other equipment. When the amount of such increase is so determined, and the estimated cost thereof is calculated, the amount of monthly additional rent payable pursuant to Section 15.02 hereof shall be adjusted to reflect the additional cost, and shall be payable as therein provided. 15.05. If the public utility rate schedule for the supply of electric current to the Building shall be increased during the term of this lease, the additional rent payable pursuant to Section 15.02 hereof shall be equitably adjusted to reflect the resulting increase in Landlord's cost of furnishing electric service to the Demised Premises effective as of the date of any increase. Landlord and Tenant agree that the rate charged to Tenant for electricity shall not be greater than the rate Tenant would have paid had the Demised Premises been separately metered. 22 A 29 15.06. Tenant agrees within three (3) months from the Commencement Date to submit to Landlord a list of fixtures and equipment utilizing electric current including, but not limited to, copying machines, computers and word processing equipment and equipment of a similar nature. On the first day of each calendar quarter thereafter, Tenant shall submit to Landlord a statement indicating any substantial changes in the list previously supplied as same may be updated by the required quarterly statements. ARTICLE 16 HEAT, VENTILATION AND AIR-CONDITIONING 16.01. Landlord, at its expense, shall maintain and operate the heating, ventilating and air-conditioning systems (hereafter called "the systems") and shall furnish heat, ventilating and air-conditioning (hereinafter collectively called "air-conditioning service") in the Demised Premises through the systems, in compliance with the performance specifications in paragraph 3(C) of Exhibit C, as may be required for comfortable occupancy of the Demised Premises during regular hours (that is, generally customary daytime business hours, but not before 8:00 a.m., or after 6:00 p.m. weekdays) of business days (which term is used herein to mean all days except Saturdays, Sundays and days observed by the Federal or the state government as legal holidays) throughout the year. If Tenant shall require air-conditioning service at any other time (hereinafter called "after hours"), Landlord shall furnish such after hours air-conditioning service upon reasonable advance notice from Tenant, and Tenant shall pay Landlord's then established charges therefor on Landlord's demand. 16.02. Use of the Demised Premises, or any part thereof, in a manner exceeding the design conditions (including occupancy and connected electrical load) specified in Exhibit C for air-conditioning service in the Demised Premises, or rearrangement of partitioning which interferes with normal operation of the air-conditioning in the Demised Premises, may require changes in the air-conditioning system servicing the Demised Premises. Such changes, so occasioned, shall be made by Landlord, at Tenant's expense, as Tenant's Changes pursuant to Article 12. 23. 30 ARTICLE 17 LANDLORD'S OTHER SERVICES 17.01. Landlord, at its expense, shall provide public elevator service, passenger and service, by elevators serving the floor on which the Demised Premises are situated during regular hours of business days, and shall have at least one passenger elevator subject to call at all other times. 17.02. Landlord, at its expense, shall cause the Demised Premises, including the exterior and the interior of the windows thereof, to be cleaned. Tenant shall pay to Landlord on demand the costs incurred by Landlord for (a) extra cleaning work in the Demised Premises required because of (i) misuse or neglect on the part of Tenant or its employees or visitors, (ii) use of portions of the Demised Premises for preparation, serving or consumption of food or beverages, data processing or reproducing operations, private lavatories or toilets or other special purposes requiring greater or more difficult cleaning work than office areas, (iii) unusual quantity of interior glass surfaces, (iv) non-building standard materials or finishes installed by Tenant or at its request, and (b) removal from the Demised Premises and the Building of (i) so much of any refuse and rubbish of Tenant as shall exceed that ordinarily accumulated daily in the routine of business office occupancy. Landlord, its cleaning contractor and their employees shall have after-hours access to the Demised Premises and the free use of light, power and water in the Demised Premises as reasonably required for the purpose of cleaning the Demised Premises in accordance with Landlord's obligations hereunder. 17.03. Landlord, at its expense, shall furnish adequate hot and cold water to each floor of the Building for drinking, lavatory and cleaning purposes, together with soap, towels and toilet tissue for each lavatory. If Tenant uses water for any other purpose Landlord, at Tenant's expense, shall install meters to measure Tenant's consumption of cold water and/or hot water for such other purposes and/or steam, as the case may be. Tenant shall pay for the quantities of cold water and hot water shown on such meters, at Landlord's cost thereof, on the rendition of Landlord's bills therefor. 24. 31 17.04. Landlord, at its expense, and at Tenant's request, shall insert initial listings on the Building directory of the names of Tenant, and the names of any of their officers and employees, provided that the names so listed shall not take up more than Tenant's Proportionate Share of the space on the Building directory. All Building directory changes made at Tenant's request after the Tenant's initial listings have been placed on the Building directory shall be made by Landlord at the expense of Tenant, and Tenant agrees to promptly pay to Landlord as additional rent the cost of such changes within ten (10) days after Landlord has submitted an invoice therefor. 17.05. Landlord reserves the right, without any liability to Tenant, except as otherwise expressly provided in this lease, to stop service of any of the heating, ventilating, air conditioning, electric, sanitary, elevator or other Building systems serving the Demised Premises, or the rendition of any of the other services required of Landlord under this lease, whenever and for so long as may be necessary, by reason of accidents, emergencies, strikes or the making of repairs or changes which Landlord is required by this lease or by law to make or in good faith deems necessary, by reason of difficulty in securing proper supplies of fuel, steam, water, electricity, labor or supplies, or by reason of any other cause beyond Landlord's reasonable control. 17.06. Landlord shall make available for Tenant's use seven parking spaces in the parking area adjacent to the Building. The manner of allocation of parking spaces, as well as the methods of control of same, shall be in the sole and absolute discretion of Landlord. ARTICLE 18 ACCESS, CHANGES IN BUILDING FACILITIES, NAME 18.01. All walls, windows and doors bounding the Demised Premises (including exterior Building walls, core corridor walls and doors and any core corridor entrance), except the inside surfaces thereof, any terraces or roofs adjacent to the Demised Premises, and any space in or adjacent to the Demised Premises used for shafts, stacks, pipes, conduits, fan room, ducts, electric or other utilities, sinks or other Building facilities, and the use thereof, as well as access thereto through the Demised Premises for the purposes of operation, maintenance, decoration and repair are reserved to Landlord. 18.02. Tenant shall permit Landlord to install, use and maintain pipes, ducts and conduits within the demising walls, bearing columns and ceilings of the Demised Premises. 18.03. Landlord or Landlord's agent shall have the right upon request (except in emergency under clause (ii) hereof) to enter and/or pass through the Demised Premises or any part 25. 32 thereof, at reasonable times during reasonable hours, (i) to examine the Demised Premises and to show them to the fee owners, lessors of superior leases, holders of superior mortgages, or prospective purchasers, mortgagees or lessees of the Building as an entirety, and (ii) for the purpose of making such repairs or changes or doing such repainting in or to the Demised Premises or its facilities, as may be provided for by this lease or as may be mutually agreed upon by the parties or as Landlord may be required to make by law or in order to repair and maintain said structure or its fixtures or facilities. Landlord shall be allowed to take all materials into and upon the Demised Premises that may be required for such repairs, changes, repainting or maintenance, without liability to Tenant, but Landlord shall not unreasonably interfere with Tenant's use of the Demised Premises. Landlord shall also have the right to enter on and/or pass through the Demised Premises, or any part thereof, at such times as such entry shall be required by circumstances of emergency affecting the Demised Premises or said structure. 18.04. During the period of eighteen (18) months prior to the Expiration Date Landlord may exhibit the Demised Premises to prospective tenants. 18.05. Landlord reserves the right, at any time after completion of the Building, without incurring any liability to Tenant therefor, to make such changes in or to the Building and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages, elevators, escalators and stairways thereof, as it may deem necessary or desirable. 18.06. Landlord may adopt any name for the Building. Landlord reserves the right to change the name or address of the Building at any time. 18.07. For the purposes of Article 18, the term "Landlord" shall include lessors of leases and the holders of mortgages to which this lease is subject and subordinate as provided in Article 7. ARTICLE 19 NOTICE OF ACCIDENTS 19.01. Tenant shall give notice to Landlord, promptly after Tenant learns thereof, of (i) any accident in or about 26. 33 the Demised Premises for which Landlord might be liable, (ii) all fires in the Demised Premises, (iii) all damage to or defects in the Demised Premises, including the fixtures, equipment and appurtenances thereof, for the repair of which Landlord might be responsible, and (iv) all damage to or defects in any parts or appurtenances of the Building's sanitary, electrical, heating, ventilating, air-conditioning, elevator and other systems located in or passing through the Demised Premises or any part thereof. ARTICLE 20 NON-LIABILITY AND INDEMNIFICATION 20.01. Neither Landlord nor any agent or employee of Landlord shall be liable to Tenant for any injury or damage to Tenant or to any other person or for any damage to, or loss (by theft or otherwise) of, any property of Tenant or of any other person, irrespective of the cause of such injury, damage or loss, unless caused by or due to the negligence of Landlord, its agents or employees without contributory negligence on the part of Tenant, it being understood that no property, other than such as might normally be brought upon or kept in the Demised Premises as an incident to the reasonable use of the Demised Premises for the purposes herein permitted, will be brought upon or be kept in the Demised Premises. 20.02. Tenant shall indemnify and save harmless Landlord and its agents against and from (a) any and all claims (i) arising from (x) the conduct or management of the Demised Premises or of any business therein, or (y) any work or thing whatsoever done, or any condition created (other than by Landlord for Landlord's or Tenant's account) in or about the Demised Premises during the term of this lease or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Demised Premises, or (ii) arising from any negligent or otherwise wrongful act or omission of Tenant or any of its subtenants or licensees or its or their employees, agents or contractors, and (b) all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon. In case any action or proceeding be brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall resist and defend such action or proceeding. 27. 34 20.03. Except as otherwise expressly provided in this lease, this lease and the obligations of Tenant hereunder shall be in no wise affected, impaired or excused because Landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under this lease by reason of strike, other labor trouble, governmental pre-emption or priorities or other controls in connection with a national or other public emergency or shortages of fuel, supplies or labor resulting therefrom, or other like cause beyond Landlord's reasonable control. ARTICLE 21 DESTRUCTION OR DAMAGE 21.01. If the Building or the Demised Premises shall be partially or totally damaged or destroyed by fire or other cause, then, whether or not the damage or destruction shall have resulted from the fault or neglect of Tenant, or its employees, agents or visitors (and if this lease shall not have been terminated as in this Article hereinafter provided), Landlord shall repair the damage and restore and rebuild the Building and/or the Demised Premises, at its expense, with reasonable dispatch after notice to it of the damage or destruction; provided, however, that Landlord shall not be required to repair or replace any of Tenant's Property. 21.02. If the Building or the Demised Premises shall be partially damaged or partially destroyed by fire or other cause not attributable to the fault, negligence or misuse of the Demised Premises by the Tenant, its agents or employees, the rents payable hereunder shall be abated to the extent that the Demised Premises shall have been rendered untenantable and for the period from the date of such damage or destruction to the date the damage shall be repaired or restored. If the Demised Premises or a major part thereof shall be totally (which shall be deemed to include substantially totally) damaged or destroyed or rendered completely (which shall be deemed to include substantially completely) untenantable on account of fire or other cause, the rents shall abate as of the date of the damage or destruction and until Landlord shall repair, restore and rebuild the Building and the Demised Premises, provided, however, that should Tenant reoccupy a portion of the Demised Premises during the period the restoration work is taking place and prior to the date that the same are made completely tenantable, rents allocable to such portion shall be payable by Tenant from the date of such occupancy. 28. 35 21.03. If the Building or the Demised Premises shall be totally damaged or destroyed by fire or other cause, or if the Building shall be so damaged or destroyed by fire or other cause (whether or not the Demised Premises are damaged or destroyed) as to require a reasonably estimated expenditure of more than 40% of the full insurable value of the Building immediately prior to the casualty, then in either such case Landlord may terminate this lease by giving Tenant notice to such effect within 180 days after the date of the casualty. In case of any damage or destruction mentioned in this Article, Tenant may terminate this lease by notice to Landlord, if Landlord has not completed the making of the required repairs and restored and rebuilt the Building and the Demised Premises within twelve (12) months from the date of such damage or destruction, or within such period after such date (not exceeding six (6) months) as shall equal the aggregate period Landlord may have been delayed in doing so by adjustment of insurance, labor trouble, governmental controls, act of God, or any other cause beyond Landlord's reasonable control. 21.04. No damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the Building pursuant to this Article. Landlord shall use its best efforts to effect such repair or restoration promptly and in such manner as not unreasonably to interfere with Tenant's use and occupancy. 21.05. Notwithstanding any of the foregoing provisions of this Article, if Landlord or the lessor of any superior lease or the holder of any superior mortgage shall be unable to collect all of the insurance proceeds (including rent insurance proceeds) applicable to damage or destruction of the Demised Premises or the Building by fire or other cause, by reason of some action or inaction on the part of Tenant or any of its employees, agents or contractors, then, without prejudice to any other remedies which may be available against Tenant, there shall be no abatement of Tenant's rents. 21.06. Landlord will not carry insurance of any kind on Tenant's Property, and, except as provided by law or by reason of its fault or its breach of any of its obligations hereunder, shall not be obligated to repair any damage thereto or replace the same; to the extent that Tenant shall maintain insurance on Tenant's Property, Landlord shall not be obligated to repair any damage thereto or replace the same. 29. 36 21.07. The provisions of this Article shall be considered an express agreement governing any case of damage or destruction of the Demised Premises by fire or other casualty, and any law of the State of New Jersey providing for such a contingency in the absence of an express agreement, and any other law of like import, now or hereafter in force, shall have no application in such case. 21.08. If the Demised Premises and/or access thereto become partially or totally damaged or destroyed by any casualty not insured against, then Landlord shall have the right to terminate this Lease upon giving the Tenant thirty (30) days notice and upon the expiration of said thirty (30) day notice period this Lease shall terminate as if such termination date were the Expiration Date. ARTICLE 22 EMINENT DOMAIN 22.01. If the whole of the Building shall be lawfully taken by condemnation or in any other manner for any public or quasi-public use or purpose, this lease and the term and estate hereby granted shall forthwith terminate as of the date of vesting of title on such taking (which date is hereinafter also referred to as the "date of the taking"), and the rents shall be prorated and adjusted as of such date. 22.02. If any part of the Building shall be so taken, this lease shall be unaffected by such taking, except that Tenant may elect to terminate this lease in the event of a partial taking, if the area of the Demised Premises shall not be reasonably sufficient for Tenant to continue feasible operation of its business and more than forty (40%) percent of the Demised Premises shall have been taken. Tenant shall give notice of such election to Landlord not later than thirty (30) days after the date of such taking. Upon the giving of such notice to Landlord this Lease shall terminate on the date of service of notice and the rents apportioned to the part of the Demised Premises so taken shall be prorated and adjusted as of the date of the taking and the rents apportioned to the remainder of the Demised Premises shall be prorated and adjusted as of such termination date. Upon such partial taking and this lease continuing in force as to any part of the Demised Premises, the rents apportioned to the part taken shall be prorated and adjusted as of the date of taking and from such date the fixed rent shall be reduced to the amount apportioned to the remainder of the Demised Premises and additional rent shall be payable pursuant to Article 5 according to the rentable area remaining. 30. 37 22.03. Except as specifically set forth in Section 22.04 hereof, Landlord shall be entitled to receive the entire award in any proceeding with respect to any taking provided for in this Article without deduction therefrom for any estate vested in Tenant by this Lease and Tenant shall receive no part of such award. Tenant hereby expressly assigns to Landlord all of its right, title and interest in or to every such award. 22.04. If the temporary use or occupancy or all or any part of the Demised Premises shall be lawfully taken by condemnation or in any other manner for any public or quasi-public use or purpose during the term of this lease, Tenant shall be entitled, except as hereinafter set forth, to receive any award which does not serve to diminish Landlord's award in any respect and, if so awarded, for the taking of Tenant's Property and for moving expenses, and Landlord shall be entitled to receive that portion which represents reimbursement for the cost of restoration of the Demised Premises. This lease shall be and remain unaffected by such taking and Tenant shall continue responsible for all of its obligations hereunder insofar as such obligations are not affected by such taking and shall continue to pay in full the fixed rent and additional rent when due. If the period of temporary use or occupancy shall extend beyond the Expiration Date, that part of the award which represents compensation for the use or occupancy of the Demised Premises (or a part thereof) shall be divided between Landlord and Tenant so that Tenant shall receive so much thereof as represents the period prior to the Expiration Date and Landlord shall receive so much thereof as represents the period subsequent to the Expiration Date. All moneys received by Tenant as, or as part of, an award for temporary use and occupancy for a period beyond the date to which the rents hereunder have been paid by Tenant shall be received, held and applied by Tenant as a trust fund for payment of the rents falling due hereunder. 22.05. In the event of any taking of less than the whole of the Building which does not result in a termination of this lease, or in the event of a taking for a temporary use or occupancy of all or any part of the Demised Premises which does not extend beyond the expiration date, Landlord, at its expense, shall proceed with reasonable diligence to repair, alter and restore the remaining parts of the Building and the Demised Premises to substantially their former condition to the extent that the same may be feasible and so as to constitute a complete and tenantable Building and Demised Premises provided that Landlord's liability under this Section 22.05 shall be limited to 31. 38 the net amount (after deducting all costs and expenses, including, but not limited to, legal expenses incurred in connection with the eminent domain proceeding) received by Landlord as an award arising out of such taking, and provided further that Landlord shall have the right, if such taking occurs within the last three (3) years of the term of this Lease, to terminate this Lease by giving the Tenant written notice to such effect within ninety (90) days after such taking and this Lease shall then expire on the effective date stated in the notice as if that were the Expiration Date, but the fixed rent and the additional rent shall be prorated and adjusted as of the date of such taking. 22.06. Should any part of the Demised Premises be taken to effect compliance with any law or requirement of public authority other than in the manner hereinabove provided in this Article, then, (i) if such compliance is the obligation of Tenant under this Lease, Tenant shall not be entitled to any diminution or abatement of rent or other compensation from Landlord therefor, but (ii) if such compliance is the obligation of Landlord under this Lease, the fixed rent hereunder shall be reduced and additional rents under Article 5 shall be adjusted in the same manner as is provided in Section 22.02 according to the reduction in rentable area of the Demised Premises resulting from such taking. 22.07. Any dispute which may arise between the parties with respect to the meaning or application of any of the provisions of this Article shall be determined by arbitration in the manner provided in Article 33. ARTICLE 23 SURRENDER 23.01 On the last day of the term of this lease, or upon any earlier termination of this lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall quit and surrender the Demised Premises to Landlord in good order, condition and repair, except for ordinary wear and tear and such damage or destruction as Landlord is required to repair or restore under this lease, and Tenant shall remove all of Tenant's Property therefrom except as otherwise expressly provided in this lease. 32. 39 ARTICLE 24 CONDITIONS OF LIMITATION 24.01. This lease and the term and estate hereby granted are subject to the limitation that whenever Tenant shall make an assignment of the property of Tenant for the benefit of creditors, or shall file a voluntary petition under any bankruptcy or insolvency law, or an involuntary petition alleging an act of bankruptcy or insolvency shall be filed against Tenant under any bankruptcy or insolvency law, or whenever a petition shall be filed by or against Tenant under the reorganization provisions of the United States Bankruptcy Act or under the provisions of any law of like import, or whenever a petition shall be filed by Tenant under the arrangement provisions of the United States Bankruptcy Act or under the provisions of any law of like import, or whenever a permanent receiver of Tenant or of or for the property of Tenant shall be appointed, then Landlord, (a) at any time after receipt of notice of the occurrence of any such event, or (b) if such event occurs without the acquiescence of Tenant, at any time after the event continues for thirty (30) days, Landlord may give Tenant a notice of intention to end the term of this Lease at the expiration of five (5) days from the date of service of such notice of intention, and upon the expiration of said five (5) day period this Lease and the term and estate hereby granted, whether or not the term shall theretofore have commenced, shall terminate with the same effect as if that day were the Expiration Date, but Tenant shall remain liable for damages as provided in Article 26. 24.02. This lease and the term and estate hereby granted are subject to the further limitation that (a) whenever Tenant shall default in the payment of any installment of fixed rent, or in the payment of any additional rent or any other charge payable by Tenant to Landlord, on any day upon which the same ought to be paid, and such default shall continue for ten (10) days thereafter, or (b) whenever Tenant shall do or permit anything to be done, whether by action or inaction, contrary to any of Tenant's obligations hereunder, and if such situation shall continue and shall not be remedied by Tenant within 33. 40 thirty (30) days after Landlord shall have given to Tenant a notice specifying the same, or, in the case of a happening or default which cannot with due diligence be cured within a period of thirty (30) days and the continuance of which for the period required for cure will not subject Landlord to the risk of criminal liability or termination of any superior lease or foreclosure of any superior mortgage, if Tenant shall not, (i) within said thirty (30) day period advise Landlord of Tenant's intention to duly institute all steps necessary to remedy such situation, (ii) duly institute within said thirty (30) day period, and thereafter diligently prosecute to completion all steps necessary to remedy the same and (iii) complete such remedy within such time after the date of the giving of said notice of Landlord as shall reasonably be necessary, or (c) whenever any event shall occur or any contingency shall arise whereby this lease or the estate hereby granted or the unexpired balance of the term hereof would, by operation of law or otherwise, devolve upon or pass to any person, firm or corporation other than Tenant, except as expressly permitted by Article 8, or (d) whenever Tenant shall abandon the Demised Premises (unless as a result of a casualty), then and in any of said cases this lease and the term and estate hereby granted, whether or not the term shall theretofore have commenced, shall terminate without the necessity of any notice or any further notice, as the case may be, with the same effect as if that day were the Expiration Date, but Tenant shall remain liable for damages as provided in Article 26. ARTICLE 25 RE-ENTRY BY LANDLORD 25.01. If Tenant shall default in the payment of any installment of fixed rent, or of any additional rent, on any date upon which the same ought to be paid, and if such default shall continue for ten (10) days thereafter, or if this Lease shall expire as in Article 24 provided, Landlord or Landlord's agents and employees may immediately or at any time thereafter re-enter the Demised Premises, or any part thereof, 34. 41 in the name of the whole, either by summary dispossess proceedings or by any suitable action or proceeding at law, or by force or otherwise, without being liable to indictment, prosecution or damages therefor, and may repossess the same, and may remove any persons therefrom, to the end that Landlord may have, hold and enjoy the Demised Premises again as and of its first estate and interest therein. The word "re-enter", as herein used, is not restricted to its technical legal meaning. In the event of any termination of this lease under the provisions of Article 24 or if Landlord shall re-enter the Demised Premises under the provisions of this Article or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the fixed rent and additional rent payable by Tenant to Landlord up to the time of such termination of this Lease, or of such recovery of possession of the Demised Premises by Landlord, as the case may be, and shall also pay to Landlord damages as provided in Article 26. 25.02. In the event of a breach or threatened breach by Tenant of any of its obligations under this lease, Landlord shall also have the right of injunction. The special remedies to which Landlord may resort hereunder are cumulative and are not intended to be exclusive of any other remedies or means of redress to which Landlord may lawfully be entitled at any time and Landlord may invoke any remedy allowed at law or in equity as if specific remedies were not provided for herein. 25.03. If this Lease shall terminate under the provisions of Article 24, or if Landlord shall re-enter the Demised Premises under the provisions of this Article, or in the event of the termination of this lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Landlord shall be entitled to retain all moneys, if any, paid by Tenant to Landlord, whether as advance rent, security or otherwise, but such moneys shall be credited by Landlord against any fixed rent or additional rent due from Tenant at the time of such termination or re-entry or, at Landlord's option, against any damages payable by Tenant under Article 26 or pursuant to law. 35. 42 ARTICLE 26 DAMAGES 26.01. If this lease is terminated under the provisions of Article 24, or if Landlord shall re-enter the Demised Premises under the provisions of Article 25, or in the event of the termination of this lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Tenant shall pay to Landlord as damages, at the election of Landlord, either (a) a sum which at the time of such termination of this lease or at the time of any such re-entry by Landlord, as the case may be, represents the then value of the excess, if any, of (1) the aggregate of the fixed rent and the additional rent payable hereunder which would have been payable by Tenant (conclusively presuming the additional rent to be the same as was payable for the year immediately preceding such termination) for the period commencing with such earlier termination of this lease or the date of any such re-entry, as the case may be, and ending with the Expiration Date, had this lease not so terminated or had Landlord not so re-entered the Demised Premises, over (2) the aggregate rental value of the Demised Premises for the same period, or (b) sums equal to the fixed rent and the additional rent (as above presumed) payable hereunder which would have been payable by Tenant had this lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor specified herein following such termination or such re-entry and until the Expiration Date, provided, however, that if Landlord shall relet the Demised Premises during said period, Landlord shall credit Tenant with the net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses incurred or paid by Landlord in terminating this lease or 36. 43 in re-entering the Demised Premises and in securing possession thereof, as well as the expenses of reletting, including altering and preparing the Demised Premises for new tenants, brokers' commissions, and all other expenses properly chargeable against the Demised Premises and the rental therefrom; it being understood that any such reletting may be for a period shorter or longer than the remaining term of this lease; but in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for the collection of damages pursuant to this Subsection to a credit in respect of any net rents from a reletting, except to the extent that such net rents are actually received by Landlord. If the Demised Premises or any part thereof should be relet in combination with other space, then proper apportionment on a square foot basis shall be made of the rent received from such reletting and of the expenses of reletting. If the Demised Premises or any part thereof be relet by Landlord for the unexpired portion of the term of this lease, or any part thereof, before presentation of proof of such damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall, prima facie, be the fair and reasonable rental value for the Demised Premises, or part thereof, so relet during the term of the reletting. 26.02. Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Landlord from time to time at its election, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the term of this Lease would have expired if it had not been so terminated under the provisions of Article 24, or under any provision of law, or had Landlord not re-entered the Demised Premises. Nothing herein contained shall be construed to limit or preclude recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder on the part of Tenant. Nothing herein contained shall be construed to limit or prejudice the right of Landlord to seek and obtain as liquidated damages by reason of the termination of this lease or re-entry on the Demised Premises for the default of Tenant under this lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved whether or not such amount be greater, equal to, or less than any of the sums referred to in Section 26.01. 37. 44 ARTICLE 27 WAIVERS 27.01. Tenant, for Tenant, and on behalf of any and all persons claiming through or under Tenant, including creditors of all kinds, does hereby waive and surrender all right and privilege which they or any of them might have under or by reason of any present or future law, to redeem the Demised Premises or to have a continuance of this lease for the term hereby demised after being dispossessed or ejected therefrom by process of law or under the terms of this lease or after the termination of this lease as herein provided. 27.02. In the event that Tenant is in arrears in payment of fixed rent or additional rent hereunder, Tenant waives Tenant's right, if any, to designate the items against which any payments made by Tenant are to be credited, and Tenant agrees that Landlord may apply any payments made by Tenant to any items it sees fit, irrespective of and notwithstanding any designation or request by Tenant as to the items against which any such payments shall be credited. 27.03. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised Premises, including any claim of injury or damage, or any emergency or other statutory remedy with respect thereto. 27.04. The provisions of Articles 16 and 17 shall be considered express agreements governing the services to be furnished by Landlord, and Tenant agrees that any laws and/or requirements of public authorities, now or hereafter in force, shall have no application in connection with any enlargement of Landlord's obligations with respect to such services. ARTICLE 28 NO OTHER WAIVERS OR MODIFICATIONS 28.01. The failure of either party to insist in any one or more instances upon the strict performance of any one or more of the obligations of this lease, or to exercise any election herein contained, shall not be construed as a waiver 38. 45 or relinquishment for the future of the performance of such one or more obligations of this lease or of the right to exercise such election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. No executory agreement hereafter made between Landlord and Tenant shall be effective to change, modify, waive, release, discharge, terminate or effect an abandonment of this lease, in whole or in part, unless such executory agreement is in writing, refers expressly to this lease and is signed by the party against whom enforcement of the change, modification, waiver, release, discharge or termination or effectuation of the abandonment is sought. 28.02. The following specific provisions of this Section shall not be deemed to limit the generality of any of the foregoing provisions of this Article: (a) No agreement to accept a surrender of all or any part of the Demised Premises shall be valid unless in writing and signed by Landlord. The delivery of keys to an employee of Landlord or of its agent shall not operate as a termination of this lease or a surrender of the Demised Premises. If Tenant shall at any time request Landlord to sublet the Demised Premises for Tenant's account, Landlord or its agent is authorized to receive said keys for such purposes without releasing Tenant from any of its obligations under this lease, and Tenant hereby releases Landlord from any liability for loss or damage to any of Tenant's property in connection with such subletting. (b) The receipt by Landlord of rent with knowledge of breach of any obligation of this lease shall not be deemed a waiver of such breach. (c) No payment by Tenant or receipt by Landlord of a lesser amount than the correct fixed rent or additional rent due hereunder shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other remedy in this lease or at law provided. ARTICLE 29 CURING TENANT'S DEFAULTS, ADDITIONAL RENT 29.01. If Tenant shall default in the performance of any of Tenant's obligations under this lease, Landlord, without thereby waiving such default, may (but shall not be obligated 39. 46 to) perform the same for the account and at the expense of Tenant, without notice, in a case of emergency, and in any other case, only if such default continues after the expiration of (i) ten (10) days from the date Landlord gives Tenant notice of intention so to do, or (ii) the applicable grace period provided in Section 24.02 or elsewhere in this lease for cure of such default, whichever occurs later. 29.02. Bills for any expenses incurred by Landlord in connection with any such performance by it for this account of Tenant, and bills for all costs, expenses and disbursements of every kind and nature whatsoever, including reasonable counsel fees, involved in collecting or endeavoring to collect the fixed rent or additional rent or any part thereof or enforcing or endeavoring to enforce any rights against Tenant, under or in connection with this lease, or pursuant to law, including any such cost, expense and disbursement involved in instituting and prosecuting summary proceedings, as well as bills for any property, material, labor or services provided, furnished, or rendered, by Landlord or at its instance to Tenant, may be sent by Landlord to Tenant monthly, or immediately, at Landlord's option, and, shall be due and payable in accordance with the terms of such bills. ARTICLE 30 BROKER 30.01. Tenant covenants, warrants and represents that there was no broker except The Boyle Company instrumental in consummating this lease and that no conversations or negotiations were had with any broker except concerning the renting of the premises. Tenant agrees to hold Landlord harmless against any claims for a brokerage commission arising out of any conversations or negotiations had by Tenant with any broker except ARTICLE 31 NOTICES 31.01. Any notice, statement, demand or other communication required or permitted to be given, rendered or made by either party to the other, pursuant to this lease or pursuant to any applicable law or requirement of public authority, shall be in 40. 47 writing (whether or not so stated elsewhere in this lease) and shall be deemed to have been properly given, rendered or made, if sent by registered or certified mail, return receipt requested, addressed to the other party at the address hereinabove set forth (except that after the Commencement Date, Tenant's address, unless Tenant shall give notice to the contrary, shall be the Building) and shall be deemed to have been given, rendered or made on the date following the date of mailing. Either party may, by notice as aforesaid, designate a different address or addresses for notices, statements, demand or other communications intended for it. ARTICLE 32 ESTOPPEL CERTIFICATE, MEMORANDUM 32.01. Each party agrees, at any time and from time to time, as requested by the other party, upon not less than ten (10) days' prior notice, to execute and deliver to the other a statement certifying that this lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), certifying the dates to which the fixed rent and additional rent have been paid, and stating whether or not, to the best knowledge of the signer, the other party is in default in performance of any of its obligations under this lease, and, if so, specifying each such default of which the signer may have knowledge, it being intended that any such statement delivered pursuant hereto may be relied upon by others with whom the party requesting such certificate may be dealing. If Tenant fails to deliver such notice, Landlord shall be deemed appointed as Tenant's attorney-in-fact to prepare and deliver such notice on behalf of Tenant, and Tenant shall be deemed bound thereby upon Landlord's furnishing a copy of the notice to Tenant. 32.02 At the request of either party, Landlord and Tenant shall promptly execute, acknowledge and deliver a memorandum with respect to this lease sufficient for recording. Such memorandum shall not in any circumstances be deemed to change or otherwise affect any of the obligations or provisions of this lease. ARTICLE 33 ARBITRATION 33.01. Either party may request arbitration of any matter in dispute wherein arbitration is expressly provided in this 41. 48 Lease as the appropriate remedy. The party requesting arbitration shall do so by giving notice to that effect to the other party. The arbitration shall be conducted, to the extent consistent with this Article, in accordance with the then prevailing rules of the American Arbitration Association (or any organization successor thereto) and application shall be made to the American Arbitration Association for the appointment of one (1) arbitrator. The arbitrator shall have the right to retain and consult experts and competent authorities skilled in the matters under arbitration. The arbitrator shall render his award within sixty (60) days after his appointment. Such award shall be in writing and counterpart copies thereof shall be delivered to each of the parties. In rendering such decision and award, the arbitrator shall not add to, subtract from or otherwise modify the provisions of this lease. 33.02. If for any reason whatsoever the written decision and award of the arbitrator shall not be rendered within sixty (60) days after his appointment, then at any time thereafter before such decision and award shall have been rendered either party may apply to the Superior Court or to any other court having jurisdiction and exercising the functions similar to those now exercised by such court, by action, proceeding or otherwise (but not by a new arbitration proceeding) as may be proper to determine the question in dispute consistently with the provisions of this lease. 33.03. Each party shall pay the fees and expenses of the arbitration equally. ARTICLE 34 NO OTHER REPRESENTATIONS, CONSTRUCTION, GOVERNING LAW 34.01. Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this lease, is not relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this lease or in any other written agreement which may be made between the parties concurrently with the execution and delivery of this lease and shall expressly refer to this lease. This lease and said other written agreement(s) made concurrently herewith are hereinafter referred to as the "lease documents". It is understood and agreed that all understandings and agreements hereto- 42. 49 fore had between the parties are merged in the lease documents, which alone fully and completely express their agreements and that the same are entered into after full investigation, neither party relying upon any statement or representation not embodied in the lease documents, made by the other. 34.02. If any of the provisions of this lease, or the application thereof to any person or circumstances, shall, to any extent, be invalid or unenforceable, the remainder of this lease, or the application of such provision or provisions to persons or circumstances other than those as to whom or which it is held, invalid or unenforceable, shall not be affected thereby, and every provision of this lease shall be valid and enforceable to the fullest extent permitted by law. 34.03. This lease shall be governed in all respects by the laws of the State of New Jersey. ARTICLE 35 SECURITY 35.01 Tenant has deposited with Landlord the Burn of $ 10,566.00 receipt of which is hereby acknowledged. Said deposit (sometimes referred to as the "Security Deposit") shall be held by Landlord as security for the faithful performance by Tenant of all the terms of the Lease by said Tenant to be observed and performed. The Security Deposit shall not and may not be mortgaged, assigned, transferred or encumbered by Tenant, without the written consent of Landlord, and any such act on the part of Tenant shall be without force and effect and shall not be binding upon Landlord. If any of the fixed or additional rent herein reserved or any other sum payable by Tenant to Landlord shall be overdue and unpaid, or if Landlord makes payment on behalf of Tenant, or if Tenant shall fail to perform any of the terms, covenants and conditions of the Lease, then Landlord may, at its option and without prejudice to any other remedy which Landlord may have on account thereof, appropriate and apply the entire Security Deposit or so much thereof as may be necessary to compensate Landlord toward the payment of fixed or additional rent and any loss or damage sustained by Landlord due to such breach on the part of Tenant, plus expenses; and Tenant shall forthwith upon demand restore the Security Deposit to the original sum deposited. The issuance of a warrant and/or the re-entering of the Demised Premises by Landlord for any default on the part of Tenant or for any other reason prior to 43. 50 the expiration of the Demised Term shall not be deemed such a termination of the Lease as to entitle Tenant to the recovery of the Security Deposit. If Tenant complies with all of the terms, covenants and conditions of the Lease and pays all of the fixed and additional rent and all other sums payable by Tenant to Landlord as they fall due, the Security Deposit shall be returned in full to Tenant after the expiration of the Demised Term and within thirty days after delivery of possession of the Demised Premises to Landlord. In the event of bankruptcy or other creditor-debtor proceedings against Tenant, the Security Deposit and all other securities shall be deemed to be applied first to the payment of fixed and additional rent and other charges due Landlord for all periods prior to the filing of such proceedings. In the event of sale by Landlord of the Building, Landlord may deliver the then balance of the Security Deposit to the transferee of Landlord's interest in the Demised Premises and Landlord shall thereupon be discharged from any further liability with respect to the Security Deposit, and this provision shall also apply to any subsequent transferees. No holder of a superior mortgage or a lessor's interest in a superior lease to which the Lease is subordinate shall be responsible in connection with the Security Deposit, by way of credit or payment of any fixed or additional rent, or otherwise, unless such mortgagee or lessor actually shall have received the entire Security Deposit. ARTICLE 36 PARTIES BOUND 36.01. The obligation of this lease shall bind and benefit the successors and assigns of the parties with the same effect as if mentioned in each instance where a party is named or referred to, except that no violation of the provisions of Article 8 shall operate to vest any rights in any successor or assignee of Tenant and that the provisions of this Article shall not be construed as modifying the conditions of limitation contained in Article 24. However, the obligations of Landlord under this lease shall not be binding upon Landlord herein named with respect to any period subsequent to the transfer of its interest in the Building as owner or lessee thereof and in event of such transfer said obligations shall thereafter be binding upon each transferee of the interest of Landlord herein named as such owner or lessee of the Building, but only with respect to the period ending with a subsequent transfer within the meaning of this Article. 44. 51 36.02. If Landlord shall be an individual, joint venture, tenancy in common, copartnership, unincorporated association, or other unincorporated aggregate of individuals and/or entities or a corporation, Tenant shall look only to such Landlord's estate and property in the Building (or the proceeds thereof) and, where expressly so provided in this lease, to offset against the rents payable under this lease, for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default by Landlord hereunder, and no other property or assets of such Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this lease, the relationship of Landlord and Tenant hereunder or Tenant's use or occupancy of the Demised Premises. ARTICLE 37 CERTAIN DEFINITIONS AND CONSTRUCTIONS 37.01. For the purposes of this lease and all agreements supplemental to this lease, unless the context otherwise requires the definitions set forth in Exhibit E annexed hereto shall be utilized. 37.02. The various terms which are italicized and defined in other Articles of this lease or are defined in Exhibits annexed hereto, shall have the meanings specified in such other Articles and such Exhibits for all purposes of this lease and all agreements supplemental thereto, unless the context shall otherwise require. 37.03. The Article headings in this lease and the Index prefixed to this lease are inserted only as a matter of convenience in reference and are not to be given any effect whatsoever in construing this lease. 45. 52 ARTICLE 38 REPRESENTATIVES AUTHORIZED 38.01 The above signatures represent that they are authorized by their respective entities to execute this agreement, and that Tenant will supply a Board Resolution confirming same. -46- 53 [LETTERHEAD ILLEGIBLE] BEGINNING at the point of intersection of the westerly line of South Street and the northerly line of Central Avenue; thence 1) along the said northerly line of Central Avenue North 87 degrees 47 minutes West 408.58 feet to a point in the easterly line of lands now or formerly of the L.B. Coddington Co.; thence 2) along the said line of lands of L.B. Coddington Co., North 2 degrees 13 minutes West 508.70 feet to a point in the southerly line of lands now or formerly of Paul R. Badgley; thence 3) along the said line of lands of Paul R. Badgley North 78 degrees 38 minutes East 231.35 feet to a point in the said westerly line of South Street; thence 4) along the said westerly line of South Street; South 40 degrees 36 minutes East 166.10 feet to a point of curve; thence 5) still along the said westerly line of South Street on a curve to the right having a radius of 344.19 feet an arc distance of 228.48 feet to a point of tangency; thence 6) still along the said westerly line of South Street South 2 degrees 34 minutes East 235.26 feet to the point or place of BEGINNING. The above description describes the entire parcel occupied by the office building of which the demised premises forms a part and also includes the Murray Hill Motor Inn building, parking appurtenances, et cetera. It is not the intention of this description that the demised premises includes the above description, but merely sets forth the entire parcel of which the demised premises in the office building forms a part. 54 EXHIBIT B [TENANT LAYOUT PLAN] BARRINGER TECHNOLOGIES 55 EXHIBIT C LANDLORDS WORKLETTER 1) Landlord will paint and repair all walls and door frames with two coats of latex paint, color to be chosen by Tenant. 2) Replace or repair any window blinds and screens. 3) Replace any stained or broken ceiling tiles. 4) Shampoo and clean all carpeted areas of the demised premises. 5) Clean all windows and sills of the demised premises. 6) Landlord agrees to repair any carpeting as necessary. 56 EXHIBIT D RULES AND REGULATIONS 1. The rights of tenants in the entrances, corridors, elevators and escalators of the Building are limited to ingress to and egress from the tenants' premises for the tenants and their employees, licensees and invitees, and no tenant shall use, or permit the use of, the entrances, corridors, escalators or elevators for any other purpose. No tenant shall invite to the tenant's premises, or permit the visit of, persons in such numbers or under such conditions as to interfere with the use and enjoyment of any of the plazas, entrances, corridors, escalators, elevators and other facilities of the Building by other tenants. Fire exits and stairways are for emergency use only, and they shall not be used for any other purpose by the tenants, their employees, licensees or invitees. No tenant shall encumber or obstruct, or permit the encumbrance or obstruction of any of the sidewalks, plazas, entrances, corridors, escalators, elevators, fire exits or stairways of the Building. The Landlord reserves the right to control and operate the public portions of the building and the public facilities, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. 2. The Landlord may refuse admission to the Building outside of ordinary business hours to any person not having a pass issued by the Landlord or the tenant whose premises are to be entered or not otherwise properly identified, and may require all persons admitted to or leaving the Building outside of ordinary business hours to register. Any person whose presence in the Building at any time shall, in the judgment of the Landlord, be prejudicial to the safety, character, reputation and interests of the Building or of its tenants may be denied access to the Building or may be ejected therefrom. In case of invasion, riot, public excitement or other commotion the Landlord may prevent all access to the Building during the continuance of the same, by closing the doors or otherwise, for the safety of the tenants and protection of property of the Building. The 57 Landlord may require any person leaving the Building with any package or other object to exhibit a pass from the tenant from whose premises the package or object is being removed, but the establishment and enforcement of such requirement shall not impose any responsibility on the Landlord for the protection of any tenant against the removal of property from the premises of the tenant. The Landlord shall in no way be liable to any tenant for damages or loss arising from the admission, exclusion or ejection of any person to or from the tenant's premises or the Building under the provisions of this rule. Canvassing, soliciting or peddling in the Building is prohibited and every tenant shall co-operate to prevent the same. 3. No tenant shall obtain or accept for use in its premises ice, drinking water, food, beverage, towel, barbering, boot blacking, floor polishing, lighting maintenance, cleaning or other similar services from any persons not authorized by the Landlord in writing to furnish such services, provided that the charges for such services by persons authorized by the Landlord are not excessive and where appropriate and consonant with the security and proper operation of the Building, sufficient persons are so authorized for the same service to provide tenants with a reasonably competitive selection. Such services shall be furnished only at such hours, in such places within the tenant's premises and under such reasonable regulations as may be fixed by the Landlord. 4. The cost of repairing any damage to the public portions of the Building or the public facilities or to any facilities used in common with other tenants, caused by a tenant or the employees, licensees or invitees of the tenant, shall be paid by such tenant. 5. No lettering, sign, advertisement, notice or object shall be displayed in or on the windows or doors, or on the outside of any tenant's premises, or at any point inside any tenant's premises where the same might be visible outside of such premises, except that the name of the tenant may be displayed on the entrance door of the tenant's premises, and in the elevator lobbies of the floors which are occupied entirely by any tenant, subject to the approval of the Landlord as to the size, color and style of such display. The inscription of the name of the tenant on the door of the tenant's premises 58 shall be done by the Landlord at the expense of the tenant. Listing of the name of the tenant on the directory boards in the Building shall be done by the Landlord at its expense, any other listings shall be in the discretion of the Landlord. 6. No awnings or other projections over or around the windows shall be installed by any tenant, and only such window blinds as are supplied or permitted by the Landlord shall be used in a tenant's premises. Linoleum, tile or other floor covering shall be laid in a tenant's premises only in a manner approved by the Landlord. 7. The Landlord shall have the right to prescribe the weight and position of safes and other objects of excessive weight, and no safe or other object whose weight exceeds the lawful load for the area upon which it would stand shall be brought into or kept upon a tenant's premises. If, in the judgment of the Landlord, it is necessary to distribute the concentrated weight of any heavy object, the work involved in such distribution shall be done at the expense of the tenant and in such manner as the Landlord shall determine. The moving of safes and other heavy objects shall take place only outside of ordinary business hours upon previous notice to the Landlord, and the persons employed to move the same in and out of the Building shall be reasonably acceptable to the Landlord and, if so required by law, shall hold a Master Rigger's license. Freight, furniture, business equipment, merchandise and bulky matter of any description shall be delivered to and removed from the premises only in the freight elevators and through the service entrances and corridors, and only during hours and in a manner approved by the Landlord. Arrangements will be made by the Landlord with any tenant for moving large quantities of furniture and equipment into or out of the building. 8. No machines or mechanical equipment of any kind other than typewriters and other ordinary portable business machines, may be installed or operated in any tenant's premises without Landlord's prior written consent, and in no case (even where the same are of a type so excepted or as so consented to by the Landlord) shall any machines or mechanical equipment be so placed or operated as to disturb other tenants; but machines and mechanical equipment which may be permitted 59 to be installed and used in a tenant's premises shall be so equipped, installed and maintained by such tenant as to prevent any disturbing noise, vibration or electrical or other interference from being transmitted from such premises to any other area of the Building. 9. No noise, including the playing of any musical instruments, radio or television, which, in the judgment of the Landlord, might disturb other tenants in the Building, shall be made or permitted by any tenant, and no cooking shall be done in the tenant's premises, except as expressly approved by the Landlord. Nothing shall be done or permitted in any tenant's premises, and nothing shall be brought into or kept in any tenant's premises, which would impair or interfere with any of the Building services or the proper and economic heating, cleaning or other servicing of the Building or the premises, or the use or enjoyment by any other tenant of any other premises, nor shall there be installed by any tenant any ventilating, air conditioning, electrical or other equipment of any kind which, in the judgment of the Landlord, might cause any such impairment or interference. No dangerous, inflammable, combustible or explosive object or material shall be brought into the Building by any tenant or with the permission of any tenant. Any cuspidors or similar containers or receptacles used in any tenant's premises shall be cared for and cleaned by and at the expense of the tenant. 10. No acids, vapors or other materials shall be discharged or permitted to be discharged into the waste lines, vents or flues of the Building which may damage them. The water and wash closets and other plumbing fixtures in or serving any tenant's premises shall not be used for any purpose other than the purposes for which they were designed or constructed, and no sweepings, rubbish, rags, acids or other foreign substances shall be deposited therein. 11. No additional locks or bolts of any kind shall be placed upon any of the doors or windows in any tenant's premises and no lock on any door therein shall be changed or altered in any respect. Additional keys for a tenant's premises and toilet rooms shall be procured only from the Landlord, which may make a reasonable charge therefor. Upon the termination of a tenant's lease, all keys of the tenant's premises and toilet rooms shall be delivered to the Landlord. 60 12. All entrance doors in each tenant's premises shall be left locked and all windows shall be left closed by the tenant when the tenant's premises are not in use. Entrance doors shall not be left open at any time. 13. Hand trucks not equipped with rubber tires and side guards shall not be used within the Building. 14. All windows in each tenant's premises shall be kept closed and all blinds therein above the ground floor shall be lowered when and as reasonably required because of the position of the sun, during the operation of the Building air conditioning system to cool or ventilate the tenant's premises. 15. The Landlord reserves the right to rescind, alter or waive any rule or regulation at any time prescribed for the Building when, in its judgment, it deems it necessary, desirable or proper for its best interest and for the best interests of the tenants, and no alteration or waiver of any rule or regulation in favor of one tenant shall operate as an alteration or waiver in favor of any other tenant. The Landlord shall not be responsible to any tenant for the non-observance or violation by any other tenant of any of the rules and regulations at any time prescribed by the Building. 61 EXHIBIT E DEFINITIONS (a) The term mortgage shall include an indenture of mortgage and deed of trust to a trustee to secure an issue of bonds, and the term mortgagee shall include such a trustee. (b ) The terms include, including and such as shall each be construed as if followed by the phrase, "without being limited to". (c) The term obligations of this lease, and words of like import, shall mean the covenants to pay rent and additional rent under this lease and all of the other covenants and conditions contained in this lease. Any provision in this lease that one party or the other or both shall do or not do or shall cause or permit or not cause or permit a particular act, condition, or circumstance shall be deemed to mean that such party so covenants or both parties so covenant, as the case may be. (d) The term Tenant's obligations hereunder, and words of like import, and the term Landlord's obligations hereunder, and words of like import, shall mean the obligations of this lease which are to be performed or observed by Tenant, or by Landlord, as the case may be. Reference to performance of either party's obligations under this lease shall be construed as "performance and observance". (e) Reference to Tenant being or not being in default hereunder, or words of like import, shall mean that Tenant is in default in the performance of one or more of Tenant's obligations hereunder, or that Tenant is not in default in the performance of any of Tenant's obligations hereunder, or that a condition of the character described in Section 24.01 has occurred and continues or has not occurred or does not continue, as the case may be. (f) References to Landlord as having no liability to Tenant or being without liability to Tenant, shall mean that Tenant is not entitled to terminate this lease, or to claim 62 actual or constructive eviction, partial or total, or to receive any abatement or diminution of rent, or to be relieved in any manner of any of its other obligations hereunder, or to be compensated for loss or injury suffered or to enforce any other kind of liability whatsoever against Landlord under or with respect to this lease or with respect to Tenant's use or occupancy of the Demised Premises. (g) The term laws and/or requirements of public authorities and words of like import shall mean laws and ordinances of any or all of the Federal, state, city, county and borough governments and rules, regulations, orders and/or directives of any or all departments, subdivisions, bureaus, agencies or offices thereof, or of any other governmental, public or quasi-public authorities, having jurisdiction in the premises, and/or the direction of any public officer pursuant to law. (h) The term requirements of insurance bodies and words of like import shall mean rules, regulations, orders and other requirements of the New Jersey Board of Fire Underwriters and/or the New Jersey Fire Insurance Rating Organization and/or any other similar body performing the same or similar functions and having jurisdiction or cognizance of the Building and/or the Demised Premises. (i) The term repair shall be deemed to include restoration and replacement as may be necessary to achieve and/or maintain good working order and condition. (j) Reference to termination of this lease includes expiration or earlier termination of the term of this lease or cancellation of this lease pursuant to any of the provisions of this lease or to law. Upon a termination of this lease, the term and estate granted by this lease shall end at noon of the date of termination as if such date were the date of expiration of the term of this lease and neither party shall have any further obligation or liability to the other after such termination (i) except as shall be expressly provided for in this lease, or (ii) except for such obligation as by its nature or under the circumstances can only be, or by the provisions of this lease, may be, performed after such termination, and, in any event, unless expressly otherwise provided 63 in this lease, any liability for a payment which shall have accrued to or with respect to any period ending at the time of termination shall survive the termination of this lease. (k) The term in full force and effect when herein used in reference to this lease as a condition to the existence or exercise of a right on the part of Tenant shall be construed in each instance as including the further condition that at the time in question no default on the part of Tenant exists, and no event has occurred which has continued to exist for such period of time (after the notice, if any, required by this lease), as would entitled Landlord to terminate this lease or to dispossess Tenant. (l) The term Tenant shall mean Tenant herein named or any assignee or other successor in interest (immediate or remote) of Tenant herein named, while such Tenant or such assignee or other successor in interest, as the case may be, is in possession of the Demised Premises as owner of the Tenant's estate and interest granted by this lease and also, if Tenant is not an individual or a corporation, all of the persons, firms and corporations then comprising Tenant. (m) Words and phrases used in the singular shall be deemed to include the plural and vice versa, and nouns and pronouns used in any particular gender shall be deemed to include any other gender. (n) The rule of ejusdem generis shall not be applicable to limit a general statement following or referable to an enumeration of specific matters to matters similar to the matters specifically mentioned. (o) All references in this lease to numbered Articles, numbered Sections and lettered Exhibits are references to Articles and Sections of this lease, and Exhibits annexed to (and thereby made part of) this lease, as the case may be, unless expressly otherwise designated in the context. 64 WITNESS: /s/ /s/ - --------------------------- ----------------------------------------- MURRAY HILL INN ASSOCIATES A Limited Partnership by its General Partner The Boyle Group, A Limited Partnership by its General Partner Murray Hill 91, Inc. by William A. Boyle III, President ATTEST: BARRINGER TECHNOLOGIES, INC. /s/ /s/ STANLEY BINDER, President - --------------------------- ----------------------------------------- EX-10.18 12 LEASE BETWEEN BRL AND LEHNDORFF OF 7/27/95 1 EXHIBIT 10.18 SINGLE TENANT INDUSTRIAL LEASE This Indenture made as of the 27th day of July 1995. BETWEEN: LEHNDORFF MANAGEMENT LIMITED in Its capacity as agent for the Owners (hereinafter called the "Landlord") -and- BARRINGER RESEARCH LIMITED (hereinafter called the "Tenant") Building: 1730 Aimco Boulevard, Mississauga Rentable Area: 28,380 square feet Commencement Date: September 1, 1995 Expiry Date: August 31, 2005 2 INDEX CLAUSE 1 PREMISES CLAUSE 2 TERM CLAUSE 3 POSSESSION OF PREMISES CLAUSE 4 RENT AND SECURITY DEPOSIT CLAUSE 5 RENT AND INTEREST & GOODS AND SERVICES TAX CLAUSE 6 NET LEASE CLAUSE 7 UTILITIES & OTHER SERVICES CLAUSE 8 TAXES, ETC. CLAUSE 9 INSURANCE CLAUSE 10 SPUR TRACK CLAUSE 11 OPERATING AND MAINTENANCE COSTS CLAUSE 12 DELETED CLAUSE 13 GOOD & SUBSTANTIAL REPAIR CLAUSE 14 ENTRY TO INSPECT CLAUSE 15 QUALITY OF REPAIR CLAUSE 16 NUISANCE, WASTE, HAZARDOUS SUBSTANCES CLAUSE 17 USE CLAUSE 18 ORDINANCES & REGULATIONS CLAUSE 19 ASSIGNMENT 7 SUB-LETTING CLAUSE 20 INDEMNIFICATION CLAUSE 21 TENANT'S INSURANCE CLAUSE 22 DAMAGE CLAUSE 23 QUIET POSSESSION CLAUSE 24 LANDLORD'S REPAIRS CLAUSE 25 LANDLORD'S INSURANCE CLAUSE 26 TAXES CLAUSE 27 DAMAGE & DESTRUCTION CLAUSE 28 ALTERATIONS & IMPROVEMENTS CLAUSE 29 SIGNS CLAUSE 30 NO LIENS CLAUSE 31 TIME FOR PAYMENT AND LEGAL COSTS CLAUSE 32 DEFAULT CLAUSE 33 CONSEQUENCES OF DEFAULT CLAUSE 34 DISTRESS CLAUSE 35 SURRENDER 3 CLAUSE 36 RIGHT TO EXHIBIT PREMISES CLAUSE 37 OVERHOLDING CLAUSE 38 WAIVER BY THE LANDLORD CLAUSE 39 NOTICES CLAUSE 40 DELETED CLAUSE 41 SUBORDINATION & ACKNOWLEDGEMENTS CLAUSE 42 DELETED CLAUSE 43 TIME OF ESSENCE CLAUSE 44 HEADINGS CLAUSE 45 INTERPRETATION CLAUSE 46 ACCEPTANCE CLAUSE 47 GOVERNING LAWS CLAUSE 48 DELETED CLAUSE 49 DELETED CLAUSE 50 REPRESENTATIONS CLAUSE 51 BINDING ON SUCCESSORS & APPROVED ASSIGNS CLAUSE 52 SALE OR FINANCING OF LANDS OR ASSIGNMENT BY LANDLORD CLAUSE 53 REGISTRATION CLAUSE 54 LAND USE CAVEAT CLAUSE 55 EXCLUSION OF LIABILITY CLAUSE 56 LANDLORD'S RIGHT TO PERFORM CLAUSE 57 EXPROPRIATION CLAUSE 58 DELAY CLAUSE 59 SCHEDULES 4 1 THIS AGREEMENT made as of the 27th day of July 1995. BETWEEN LEHNDORFF MANAGEMENT LIMITED, successor by amalgamation to Lehndorff Property Management Limited, a Corporation incorporated under the laws of the Province of Ontario having a local office at 390 Bay Street, Toronto, Ontario, in its capacity as agent for the Owners, (herein called "the Landlord") OF THE FIRST PART -and- BARRINGER RESEARCH LIMITED (herein called "the Tenant") OF THE SECOND PART 1. PREMISES The Landlord is the manager of the building containing 28,380 square feet, as outlined in red on Schedule "B", situate on the Lands (herein called the "Building") known municipally as 1730 Aimco Boulevard, Mississauga, and described in Schedule "A". NOW THEREFORE THIS AGREEMENT WITNESSETH that the Landlord, being the duly authorized managing agent of the Owner of the Lands, in consideration of the rents, covenants and agreements hereinafter reserved and contained on the part of the Tenant to be paid, observed and performed does hereby Lease unto the Tenant the Lands and Building, hereinafter called the "Demised Premises", containing 28,380 square feet. 2. TERM TO HAVE AND TO HOLD the Demised Premises for and during the Term of ten (10) years commencing on the 1st day of September 1995, (the "Commencement Date") and to be fully completed and ended on the 31st day of August 2005, (the "Expiry Date") (herein called the "Term") unless this Lease is sooner terminated as hereinafter provided. 3. POSSESSION OF PREMISES Except (or Landlord's Work and repairs referred to in Schedule "G", "J" and "N" attached hereto, which are to be completed by the Landlord, the Tenant accepts the Demised Premises in an "as is" condition. PROVIDED ALWAYS, that if the Demised Premises are not ready for possession by the Tenant on the Rent Commencement Date for any reason attributable to any failure or neglect of the Landlord, the Rent Commencement Date shall be postponed until the Demised Premises are ready for possession by the Tenant but the Expiry Date shall not be varied as a result thereof nor shall the Tenant have any claim against the Landlord as a result of such postponement. PROVIDED FURTHER, HOWEVER, that if the Demised Premises are not ready for possession by the Tenant on the Rent Commencement Date set forth below due to any act or failure to act on the part of the Tenant, then the Rent shall commence on that date as though the Demised Premises were ready for possession by the Tenant and all the provisions of this Lease shall apply. For the purpose of this Lease, the Demised Premises shall be deemed to be ready for possession by the Tenant when the Landlord's and the Tenant's representatives acting reasonably certify in writing that the improvements, and repairs, if any, being carried out by the Landlord to the Demised Premises, in accordance with plans and specifications heretofore approved by the Tenant or as otherwise determined pursuant to the terms and conditions of the Offer to Lease on which this Lease is based and the Schedules attached hereto, have been carried out to the extent necessary to permit the Demised Premises to be utilized by the Tenant without undue interference. 5 2 4. RENT & SECURITY DEPOSIT YIELDING AND PAYING therefore unto the Landlord Basic Rent as follows: For the period November 1, 1995 (the "Rent Commencement Date") to AUGUST 31, 2000, $8,514.00 per month (adjusted pro-rata if the Rent Commencement Date is not the first day of a month) payable in advance on the Rent Commencement Date and thereafter on the first day of each month throughout this period. For the period SEPTEMBER 1, 2000 to AUGUST 31, 2005, $13,007.50 per month in advance on the first day of each month throughout this period. All of the amounts referred to above are called "Basic Rent" within this LEASE. THE LANDLORD ACKNOWLEDGES THAT THE TENANT HAS DEPOSITED $20,497.46 WITH THE LISTING BROKER, CB COMMERCIAL, IN TRUST TO BE APPLIED AS FIRST MONTHS NET RENTAL PLUS LAST MONTHS NET RENTAL PLUS G.S.T. 5. RENT AND INTEREST AND GOODS AND SERVICES TAXES The Tenant covenants and agrees to pay to the Landlord or its order in lawful money of Canada, at the office of the Landlord hereinafter set forth, or at such other place as the Landlord may in writing direct, without notice or demand, except as otherwise specifically provided herein, and without deduction or set-off for any reason whatsoever a Rent comprised of: a) the Basic Rent hereby reserved in the manner herein provided; and b) all amounts which become due and payable to the Landlord from time to time pursuant to the terms permitted in this Lease within the time herein provided (the "Additional Rent"); all of which amounts shall be payable and recoverable as Rent. The Tenant covenants and agrees to pay to the Landlord interest at a rate equal to the prime bank lending rate from time to time charged by the Landlord's bank on all arrears of Basic Rent or Additional Rent owing to the Landlord and all other sums payable by the Tenant to the Landlord pursuant to the terms hereof from the date of default in the payment thereof until payment is received by the Landlord. Basic Rent and Additional Rent may be herein referred to collectively as "Rent". In addition to the Rent payable herein, the Tenant will pay to the Landlord (acting as agent for the taxing authority if applicable) or directly to the taxing authority (if required by the applicable legislation) in the manner specified by the Landlord, the full amount of all goods and services taxes, sales taxes, value-added taxes, multi-stage taxes, business transfer taxes and any other taxes imposed on the Tenant in respect of the Rent payable by the Tenant under this Lease or in respect of the rental of space by the Tenant under this Lease (collectively and individually, "GST"). GST is payable by the Tenant whether characterized as a goods and services tax, sales tax, value-added tax, multi-stage tax, business transfer tax, or otherwise. GST so payable by the Tenant will: a) be calculated by the Landlord in accordance with the applicable legislation; b) be paid by the Tenant at the same time as the amounts to which the GST applies are payable to the Landlord under the terms of this Lease (or upon demand at such other time or times as the Landlord from time to time determines); and c) despite anything else in this Lease, be considered not to be Rent, but the Landlord shall have all of the same remedies for and rights of recovery with respect to such amounts as it has for non-payment of Rent under this Lease or at law. 6 3 6. NET LEASE The Tenant covenants and agrees with the Landlord that this Lease is a net Lease and the Basic Rent referred to above is to be received by the Landlord free of all outgoings whatsoever except as otherwise herein specifically provided and except for the Landlord's income taxes and for payments of any financing respecting the Lands and the Building that may now or in the future become due. The Rent herein shall be a net rental to the Landlord, and in addition to the Rent, the Tenant shall pay real estate taxes, local improvement charges, if any, utility charges, water and telephone charges, outside maintenance including driveways, trucking and parking areas, lawn and shrubbery maintenance, snow removal and insurance premiums for the building, in accordance with the Lease. 7. UTILITIES & OTHER SERVICES The Tenant covenants and agrees to pay and discharge as the same fall due during the Term, without limitation, all charges for garbage removal, janitorial services and maintenance respecting the Demised Premises and all charges for utilities, including telephone installations, water, electrical power, gas, and telephone charges metered separately or charged separately by the authority providing the same to the Demised Premises, as well as any charges of such authority based thereon for treatment or other facilities, and all like charges or rates, goods and services taxes and business taxes, and all floor space and personal property taxes, license fees, or other like taxes or fees which may be imposed by any municipal, legislative or other authority upon or in respect of any personal property of the Tenant situated thereon, as the same are assessed and fall due. 8. TAXES, ETC. See Rider Page 3A. 9. INSURANCE The Tenant covenants and agrees to pay 100% per cent of the premiums for the insurance carried by the Tenant on behalf of the Landlord during the Term of this Lease for insurance against fire (and other coverages for perils and liabilities related to the Lands or Building, which coverage shall be in the Landlord's reasonable discretion) on the Building of which the Demised Premises form a part, which insurance shall include coverage of the Tenant's trade fixtures, merchandise, stock in trade, furniture or other property within, about or adjacent to the Demised Premises or the Lands and Building. Premiums shall include any costs incurred with respect to payment of any deductible amounts or below deductible amounts payable pursuant to bona fide claims made on the insurance policies. 7 Rider 3A 8. Taxes, Etc. In addition to the payment of Basic Rent hereunder, the Tenant shall promptly discharge and pay when due (subject to the right of contestation as hereinafter mentioned but including any fine, penalty, interest or cost which may be added thereto) all taxes, rates, duties, assessments and other public charges which during the Term may be levied, rated, charged or assessed against the Demised Premises and the Building or any property owned or brought thereon by the Tenant; and every tax, licence fee, business tax and other public charge (except, however, any income, capital or profits taxes imposed on or against the Landlord) together with interest and/or penalties thereon which, during the Term, may be assessed, levied or charged in respect of the occupancy of the Demised Premises and the Building by the Tenant, or any businesses carried on therein by the Tenant, or the property of the Tenant thereon whether such taxes, rates, assessments, licence fees and other public charges are assessed, levied or charged by municipal, provincial, federal, school or other public body. If the Tenant shall fail to pay any such amount or amounts when due, the Landlord may, at its option, pay the same and an amount equal to the amount so paid, together with interest thereon computed at the rate of interest set out in paragraph 5 of this Lease from the date of payment by the Landlord, shall be charged to and paid by the Tenant as Additional Rent. The Tenant shall, forthwith after payment of the foregoing items and charges, produce to the Landlord on request evidence satisfactory to the Landlord of the fact of such payment; provided, however, that: (a) if by law any tax, rate, duty, assessment, fee or charge, at the option of the taxpayer, may be paid by instalments (whether or not interest shall accrue on the unpaid balance thereof), the Tenant may pay the sum in instalments as the same respectively become due; (b) the Tenant shall only be required to pay a proportionate part of any such tax, rate, duty, assessment, fee or charge which relates to a fiscal period of the taxing authority a part of which period is included in a period prior to the commencement or after the expiration of the Term; (c) the Tenant may, upon written notice to the Landlord and after paying such tax, rate, assessment or other public charge under protest, contest the validity or the amount thereof (if meanwhile such contestation will involve no forfeiture, foreclosure, escheat, sale or termination of the Landlord's title to the Demised Premises and the Building or any part thereof), but upon a final determination of any such contest the Tenant shall immediately pay and satisfy all proper costs, penalties, interest or other charges payable in connection therewith. The Landlord shall co-operate in the institution and prosecution of any such proceedings and will execute any documents required therefor, and the expense of such proceedings including Landlord's costs shall be borne by the Tenant and any refunds or rebates secured relative to the period of occupancy shall belong to the Tenant. 8 4 Tenant shall provide proof of payment in form satisfactory to the Landlord, with certified copies of insurance policies required to be maintained herein, at Landlord's request. The Tenant covenants and agrees not to allow anything to be done, kept, used or sold upon or about the Demised Premises which contravenes any of the insurance policies or which would prevent the Landlord from procuring any such policy with companies acceptable to the Landlord. If any insurance policy upon the Building or any part thereof is cancelled or threatened by the insurer to be cancelled, or the coverage thereunder reduced or threatened to be reduced by the insurer, or if such insurance policy is not obtainable by reason of the use and occupation of the Demised Premises or any part thereof by the Tenant or any assignee or sub-tenant of the Tenant or by anyone permitted by the Tenant to be upon the Demised Premises, the Tenant will promptly advise the Landlord of such notice, and if the Tenant fails to remedy the condition giving rise to cancellation, threatened cancellation, reduction or threatened reduction in coverage or refusal to cover within 24 hours after notice thereof by the Landlord, the Landlord may, without limiting any other remedies it may have pursuant to this Lease or at law, enter the Demised Premises and remedy the condition giving rise to the cancellation or reduction or threatened cancellation or threatened reduction or refusal to cover and the Tenant will pay to the Landlord the cost thereof upon demand and the Landlord shall not be liable for any inconvenience, disturbance, loss of business or other damage resulting from such entry and remedying. 10. SPUR TRACK 11. OPERATION AND MAINTENANCE COSTS Except as otherwise provided in this Lease, the Tenant covenants and agrees to operate, service, maintain, clean, supervise, police, replace and repair, and keep in good order and safe condition the Demised Premises including, without limiting the generality of the foregoing, all exterior (including roof) maintenance and repairs, (excluding structural repairs and maintenance to the Building and structural roof maintenance and repairs, which are the responsibility of the Landlord,) landscaping, snow and ice removal and to pay on demand to the Landlord reasonable management and administration service charges pertaining to the Landlord's operation of the Demised Premises. 12. DELETED 13. GOOD & SUBSTANTIAL REPAIR a) The Tenant covenants and agrees to keep, at the expense of the Tenant, at all times during the said Term, the Demised Premises in a clean and sanitary condition and in good and substantial repair, and to replace any broken glass windows in the Demised Premises and at the end or sooner termination of the said Lease, to peaceably surrender and yield up the Demised Premises in good and substantial repair and condition (normal wear and tear and latent defect excepted) and, without limiting the generality of the foregoing the Tenant will, during the Term of the Lease, cause such good management and care to be taken of the Demised Premises and the various parts thereof, both interior and exterior, that no injury to the same shall occur, and that the air conditioning equipment, if any, heating apparatus, electric or other wires, pipes, pumps, valves, reservoirs, sinks, baths, plumbing apparatus, gas keys and fastenings of all kinds on the said Demised Premises shall be kept during the said Term in a state of efficient and good working order, and that all heating apparatus, water closets, sinks, baths and accessories thereto on the Demised Premises shall be protected from frost and kept at all times free from any uncleanliness or obstruction that would prevent their efficient working and that repairs needful or expedient to keep them in efficient working order during the said Term will be borne by the Tenant. And the Tenant shall be directly responsible for all of the above repairs, maintenance and decoration with respect to the Demised Premises and will promptly, at its expense, carry out any and all repairs required thereto. The Tenant shall be responsible for 9 5 all janitorial services respecting the Demised Premises, including the washing of windows therein both inside and outside. b) The Tenant covenants and agrees without limiting the generality of the within clause or derogating from the provisions thereof, to maintain in good condition to the satisfaction of the Landlord, the heating system and air conditioning system, if any, in the Demised Premises and to operate, repair and replace, all subject to exceptions of the within clause hereof, the system and all parts when necessary throughout the Term of the Lease. The Tenant covenants and agrees that it will at all times, with respect to those matters of which the Tenant shall have knowledge, give the Landlord prompt written notice of any accident or defect to or in the water pipes, gas pipes, air conditioning equipment, if any, heating apparatus, electric or other wires, or plumbing fixtures in the Demised Premises. PROVIDED HOWEVER, that the Landlord may at its sole option from time to time, elect by written notice to the Tenant to carry out at the expense and in the name of the Tenant the Tenant's obligations pursuant to this clause for such periods of time as the Landlord may determine, and the cost thereof shall be payable to the Landlord by the Tenant forthwith as Rent on demand together with interest thereon at the aforesaid rate from the date of the expenditure of such monies by the Landlord until paid by the Tenant. The Landlord in doing so shall not be liable for inconvenience, disturbance, loss of business or other damage resulting therefrom. 14. ENTRY TO INSPECT The Tenant covenants and agrees to permit the Landlord and its agents and employees at all reasonable times to enter the Demised Premises to view the state of repair and the Tenant shall forthwith, after the receipt of written notice thereof, at the Tenant's expense, commence and diligently proceed to make such repairs and replacements as the Tenant may be obligated to make and in the event of the Tenant's failure or neglect so to do, the Landlord and its agents and employees may enter the Demised Premises and, at the Tenant's expense, perform and carry out such repairs or replacements and the Landlord in so doing shall not be liable for inconvenience, disturbance, loss of business or other damage resulting therefrom and in the event the Landlord expends any monies pursuant to this clause the Tenant will pay the same on demand together with interest thereon at the aforesaid rate from the date of the expenditure of such monies by the Landlord until paid by the Tenant as Additional Rent on the first day of the next month next following said payment by the Landlord. 15. QUALITY OF REPAIR The Tenant covenants and agrees that all repairs and replacements made by the Tenant to the Demised Premises shall be of a quality and class at least equal to the original and shall become the property of the Landlord absolutely and a part of the Demised Premises. 16. NUISANCE, WASTE, HAZARDOUS SUBSTANCES The Tenant shall not keep or permit on the Leased Premises any toxic or dangerous or hazardous waste, substance or material, asbestos, polychlorinated biphenals, special nuclear or byproduct material, heavy metals, radioactive materials, (hereinafter collectively referred to as "prohibited substances"). Any other substances declared to be hazardous or toxic or dangerous under any law or regulation now or hereafter enacted or promulgated by any government authority having jurisdiction, pollutant, contaminant or petroleum (shall be cumulatively referred to as "noxious substances"). If the Tenant discovers the existence of any noxious substances on the Leased Premises, the Tenant shall promptly report such information to the Landlord. The Tenant shall not disclose such information to any government agencies, officials or other persons unless required to do so by applicable law. The Tenant shall at its sole cost and expense comply with all applicable environmental laws, regulations, rulings or orders, ordinances and occupational safety and health laws, rules, regulations, requirements or permits, including, without limitation, any laws requiring the filing of reports and notices relating to any noxious substances on the Leased Premises (cumulatively referred to as "environmental and health laws"). In the event of a violation of any environmental or health laws, or of a release of a noxious substance from the Leased Premises, or of the discovery of environmental contamination requiring remediation which violation, release or environmental contamination is attributable to the acts, omission or negligence of the Tenant, its agents, employees or invitees, the Tenant shall provide at its sole cost and expense all bonds and other security required by governmental authorities having jurisdiction and the Landlord shall have the right but shall not be obliged to enter the Leased Premises and to supervise and approve any actions taken by the Tenant to address the violation, release or environmental contamination, and in the event that the Tenant fails to promptly address such violation, release or environmental contamination then the Landlord shall have the right but shall not be obliged to perform, at the Tenant's sole cost and expense, any actions necessary or appropriate to address the violation, release or environmental contamination. The Tenant hereby indemnifies, protects and holds harmless the Landlord, its successors and assigns, its property manager and those for whom in law the Landlord is responsible from and against all claims, demands, actions, suits, fines, penalties, costs, expenses, damages and obligations of any nature arising from any violation of any environmental or health laws or any other environmental, health or safety matter including, without limitation, nuisance or toxic tort claims, caused by the acts, omissions or negligence of the Tenant, its agents, employees or invitees. The Tenant hereby 10 6 authorizes the Landlord to make enquiries from time to time of any governmental authority having jurisdiction with respect to the Tenant's compliance with environmental and health laws, and the Tenant agrees from time to time to provide such written authorization as the Landlord may reasonably require in order to facilitate the obtaining of such information. The Tenant shall permit the Landlord and its lenders and agents to conduct inspections and appraisals from time to time of the Tenant's records, and physical Inspection of the Tenant's operations, business and assets respecting compliance with environmental and health laws and all matters pertaining to noxious substances. The Tenant shall forthwith notify the Landlord in writing upon being advised of any alleged violation or infringement of environmental and health laws or any intended enforcement action pertaining thereto. If the Tenant shall keep or permit any noxious substances upon the Leased Premises then such noxious substances shall be and remain the sole and exclusive property of the Tenant and shall not become the property of the Landlord notwithstanding any other provision of this Lease or any rule of law or any degree of affixation of the noxious substance or the goods containing the noxious substance to the Leased Premises or the Property and notwithstanding the expiry or earlier termination of this Lease. The obligations of the Tenant hereunder relating to noxious substances and environmental and health laws shall survive the expiry or earlier termination of this Lease. See Rider 6A. 17. USE The Tenant covenants and agrees that it will use the Demised Premises for the purpose of research laboratories, general office use and light assembly and the Tenant shall not use or permit, or suffer the use of any part or parts thereof for any other business or purpose whatsoever unless the Landlord gives its written consent to such change in use, not to be unreasonably withheld, and provided that any such use shall be in compliance with all zoning regulations and other legislation applicable the Demised Premises and the Building and shall not be in breach of any other provision of this Lease. 18. ORDINANCES & REGULATIONS Notwithstanding the use of the Demised Premises permitted in this Lease hereof, the Tenant covenants and agrees to observe and fulfil the provisions and requirements of all statutes, orders-in-council, by-laws, rules and regulations, municipal, legislative, parliamentary or by other lawful authority, relating to the use of the Demised Premises by the Tenant and, without limitation thereto, to comply with any applicable lawful regulation or order of The Canadian Underwriters Association or any body having similar functions or any liability or fire insurance company by which the Landlord or Tenant may be insured, and that all fines, charges, costs, damages, or other expenses resulting from the default of infringement of, or changes in the Demised Premises required as a result of the Tenant's use of the Demised Premises to comply with, the above mentioned shall be borne by the Tenant. See Rider 6A. 19. ASSIGNMENT & SUB-LETTING The Tenant covenants that it will not assign this Lease nor sub-let the Demised Premises in whole or in part without the prior written consent of the Landlord, which consent the Landlord covenants not to withhold unreasonably: - as to any assignee or sub-lessee who is in a financial condition satisfactory to the Landlord, agrees to use the Demised Premises for those purposes permitted hereunder, and is otherwise satisfactory to the Landlord, acting reasonably, and - as to any portion of the Demised Premises which, in the Landlord's sole judgment, is a proper and rational division of the Demised Premises, subject to the Landlord's right of termination arising under this clause. Without limitation, the Tenant shall for the purpose of this clause be considered to assign or sub-let in any case where it permits the Demised Premises or any portion thereof to be occupied by persons other than the Tenant, its agents and employees and others engaged in carrying on the business of the Tenant, whether pursuant to assignment, sub-letting, license or other right, or where any of the foregoing occurs by operation of law. The Tenant shall not assign this Lease or sub-let the whole or any part of the Demised Premises unless: - it shall have received or procured a bona fide written offer to take an assignment or sub-Lease which is not inconsistent with this Lease, and the acceptance of which would not breach any provision of this Lease if this clause is being complied with, and - it shall have first requested and obtained the consent in writing of the Landlord thereto. Any request for consent shall be in writing and accompanied by a copy of the offer certified by the Tenant to be true and complete, and the Tenant shall furnish to the Landlord all information available to the Tenant and requested by the Landlord as to the responsibility, financial standing and business of the proposed assignee or sub-lessee. Notwithstanding the provisions herein, within 30 days after the receipt by the Landlord 11 RIDER 6A 16. Nuisance, Waste, Hazardous Substances (cont.) Notwithstanding the provision of Clause 16, the Landlord acknowledges that the Tenant is required to use small quantities of certain noxious substances, including without limitation, radioactive materials, chemicals and explosives, in the course of its business activities and that such substances will from time to time be stored on the Demised Premises, always in compliance with the Atomic Energy control Board Radio-Isotope Licensing Requirements governing the use, storage and transportation of radioactive materials and Energy Mines & Resources License for a Temporary Magazine governing the use and storage of explosives, or such other requirements which may from time to time be applicable to such substances. The Tenant covenants to provide the Landlord with copies of all licenses and renewals thereto so the Landlord is kept current of the licensing requirements. Provided, however, that nothing in this Lease shall make the Tenant liable for any environmental contamination which existed on the Demised Premises prior to the date of this Lease, or which cannot be shown to have been caused in whole or in part by the Tenant. The Landlord represents to the best of its knowledge that there is no environmental contamination currently in existence on the Demised Premises. The Landlord agrees that it shall reimburse the Tenant for half of the cost of a Phase I environmental assessment of the Demised Premises which the Tenant shall cause to be conducted prior to its occupancy of the Demised Premises. 18. Ordinances & Regulations (cont.) Notwithstanding the foregoing, any non-observance by the Tenant of any governmental or municipal regulations or other requirements governing the conduct of any business by the Tenant in the Demised Premises shall not be deemed a breach of covenant under the terms of this Lease if such non-observance in no way raises any risk of penalty, damage or loss whatsoever to the Landlord, its agents and mortgagees. Provided that the foregoing obligations of the Tenant shall be subject to the Tenant being entitled to contest in good faith and in an expeditious and diligent manner, any such governmental or municipal regulations or other requirements. 12 7 of such request for consent and of all information which the Landlord shall have requested herein, the Landlord shall have the right upon written notice of termination submitted to the Tenant, if the request is to assign this Lease or sub-let the whole or part of the Demised Premises, to cancel and terminate this Lease with respect to such part, in each case as of a termination date to be stipulated in the notice of termination which shall be not less than 30 days following the giving of such notice. In such event the Tenant shall surrender the whole or part, as the case may be, of the Demised Premises in accordance with such notice of termination and Basic Rent and Additional Rent shall be apportioned and paid to the date of surrender and, if a part only of the Demised Premises is surrendered, Basic Rent and Additional Rent shall after the date of surrender abate proportionately. If such consent shall be given the Tenant shall assign or sub-let, as the case may be, only upon the terms set out in the offer submitted to the Landlord as aforesaid and not otherwise. No assignment or sub-letting of this Lease shall be effective unless the assignee or sub-lessee shall execute an assumption agreement on the Landlord's form, assuming all the obligations of the Tenant hereunder, and shall pay to the Landlord its reasonable fee for processing the assignment or sub-letting such fee not to exceed $500.00. The Tenant agrees that in the event the Landlord consents to the sub-letting in whole or in part of the Demised Premises on terms under which the sub-lessee is required to make any payment of Rent to the Tenant in excess of those payable by the Tenant pursuant to this Lease, the Tenant shall, upon any excess payments becoming due to the Tenant, pay such excess payments to the Landlord. Notwithstanding any of the foregoing, it is agreed that the Tenant shall be allowed to assign this Lease or to sublet all or part of the Demised Premises to a related company of the Tenant without the Landlord's prior written consent. The Tenant agrees that any consent to an assignment or sub-letting of this Lease or Demised Premises, shall not thereby release the Tenant of its obligations hereunder. The Landlord's consent to any assignment, subletting, change of control, parting with or sharing possession does not imply any further consent to do so without the Tenant in each instance complying with the terms of this Lease. 20. INDEMNIFICATION The Tenant covenants and agrees notwithstanding any other provisions of this Lease to the contrary, to indemnify and save harmless the Landlord from any and all liabilities, damages, costs, claims, suits or actions resulting from: a) any breach, violation or non-performance of any covenant, condition or agreement in this Lease set forth and contained on the part of the Tenant to be fulfilled, kept, observed and performed; b) any damage to property, including property of the Landlord, occasioned by the operations of the Tenant's business on, or the Tenant's occupation of the Demised Premises; c) any injury to person or persons, including death, resulting at any time therefrom, occasioned by the operation of the Tenant's business on, or the Tenant's occupation of, the Demised Premises; See Rider 7A. 21. TENANT'S INSURANCE See Rider 7A. 13 Rider 7A. 20. Indemnification (cont.) Provided, however, that the foregoing indemnity shall not apply where any injury, loss or damage is due to the sole negligence of the Landlord or those for whom the Landlord is in law responsible, or due to any breach by the Landlord of any provision of this Lease. 20.2 The Landlord covenants and agrees notwithstanding any other provisions of this Lease to the contrary, to indemnify and save harmless the Tenant from any and all liabilities, damages, costs, claims, suits or actions resulting from: (a) any breach, violation or non-performance of any covenant, condition or agreement in this Lease set forth and contained on the part of the Landlord to be fulfilled, kept, observed and performed; (b) any damage to property, including property of the Tenant, or any injury to person(s), including death, resulting at any time therefrom, occasioned by any structural flaw or failure of the Building other than insurable losses or from any negligence, act, omission, fault or default of the Landlord or those for whom it is in law responsible. Provided, however, that the foregoing indemnity shall not apply where any injury, loss or damage is due to the negligence of the Tenant or those for whom the Tenant is in law responsible or due to any peril against which the Tenant is or ought to have been insured, or due to any breach by the Tenant of any provision of this Lease. 21. Tenant's Insurance a) The Tenant shall, at its sole cost and expense, take out and keep in full force and effect and in the names of the Tenant, the Landlord, the Landlord's Mortgagees, trustees, holding companies, and as otherwise designated from time to time by the Landlord, as their respective interest may appear, the following insurance: (i) All Risks Form Insurance upon property of every description and kind including, without limitation, the building, stock-in-trade, furniture, alterations, additions, partitions, fixtures and anything in the nature of a leasehold improvement, in an amount of not less than full replacement cost thereof, against, at least all perils normally covered under an all risks broad form policy including fire, lightning, windstorm, hail, by-laws, sprinkler leakage, flood, earthquake and collapse. The amount of insurance carried shall not be subject to a percentage co-insurance clause. In the event that there shall be a dispute as to the amount of full replacement cost, the decision of an arbitrator selected in accordance with the provisions of the Arbitration Act (Ontario) shall be conclusive; (ii) where applicable, Comprehensive Broad Form Boiler and Machinery Insurance on a blanket repair and replacement basis with limits for each accident for at least the full building replacement costs as well as all leasehold improvements, such insurance to include a joint loss agreement endorsement; (iii) Business Interruption Insurance in an amount that will reimburse the Lessee for direct or indirect loss of earnings including prevention of access and Rental Loss Insurance for a minimum twelve (12) month period of indemnity which limits shall include all Rent (Basic Rent and realty taxes) set out in this Lease; Landlord must be shown as Loss Payee with respect to loss of rentals; .../continue 14 Rider 7A. 21. Tenant's Insurance (cont.) (iv) broad form Commercial General Liability Insurance written on an occurrence form including, without limitation, personal injury and property damage insurance, contractual liability, non-owned automobile liability, operations and completed operations coverage (where applicable), owners' and contractors' protective insurance coverage including activities and operations conducted by the Tenant and any other persons on the Premises and by the Tenant and any other persons performing work on the Premises and those for whom the Tenant is in law, responsible for. Such policies will be written on a broad form comprehensive basis including limits of at least three million dollars ($3,000,000.00) for bodily injury for any one or more persons, or property damage (but the Landlord, acting responsibly, or the mortgagee, may require higher limits from time to time); (v) standard Owner's Form Automobile Insurance providing third party liability insurance with one million dollars ($1,000,000.00) inclusive limits, and accident benefits insurance, covering all licensed vehicles owned or operated by or on behalf of the Tenant; (vii) any other form or forms of insurance as the Tenant and or the Landlord or its Mortgagees may reasonably require from time to time, in amounts and for insurance risks against which a prudent Tenant or Landlord would insure. b) All Property Damage Policies written on behalf of the Tenant shall contain the Mortgagee's standard mortgage clause. c) All policies will (i) be taken out with insurers acceptable to the Landlord or the Mortgagees acting reasonably (ii) be in a form satisfactory to the Landlord or its Mortgagees acting reasonably (iii) will be primary and not excess to any other insurance available to all and any of the Landlord and Mortgagee; (vi) contain a Cross Liability and Severability of Interest clause; (vii) contain an undertaking by the insurers to notify the landlord and the Mortgagee in writing not less than thirty (30) days before any cancellation, or termination. d) The Tenant will deliver as directed to the Landlord and to its Mortgagees (if requested) duly executed by the Tenant's insurers certified copies of each insurance policy as soon as possible after the placing of the insurance and proof of payment in form satisfactory to the Landlord, no review or approval of any insurance certificate or insurance policy by the Landlord derogates from or diminishes the Landlord's rights under this Lease. 15 8 In case of loss or damage, the proceeds of insurance for the Building and Tenant's improvements shall be and are hereby assigned and made payable to the Landlord and to the extent that such proceeds of insurance have been paid to the Landlord, they shall be released to the Tenant (provided the Tenant is not in default) upon the Tenant's written request, in progress payments, at stages determined by a certificate of the Landlord's architect, stating that repairs to each such stage have been satisfactorily completed free of liens by the Tenant. In the event the Tenant defaults in making such repairs, the Landlord may perform the repairs and the proceeds may be applied by the Landlord to the cost thereof. The Tenant agrees that if the Tenant fails to take out or keep in force any such insurance referred to in this clause, or should any such insurance not be approved by either the Landlord or its mortgagees (including trustee for bondholders) and should the Tenant not rectify the situation within 48 hours after written notice by the Landlord to the Tenant (stating if the Landlord or its mortgagees (including trustee for bondholders) do not approve of such insurance, the reasons therefore) the Landlord shall have the right without assuming any obligation in connection therewith, to effect such insurance at the sole cost of the Tenant and all outlays by the Landlord shall be immediately payable by the Tenant to the Landlord as Additional Rent and shall be due on the first day of the next month following said payment by the Landlord without prejudice to any other rights and remedies of the Landlord under this Lease. The Tenant shall not do or permit anything to be done upon the Demised Premises which shall cause the rate of insurance on the Lands and Building to be increased and if the rate of insurance on the Lands and Building shall be increased by reason of any use made of the Demised Premises or by reason of anything done or omitted or permitted to be done by the Tenant or by anyone permitted by the Tenant to be upon the Demised Premises, the Tenant shall on demand pay to the Landlord the amount of such increase, and if any insurance on the Lands and Building or any part thereof or on any building connected to Lands and Building shall be cancelled by the insurer by reason of the use or occupation of the Demised Premises or any part thereof by the Tenant or by any assignee or sub-lessee of the Tenant or by anyone permitted by the Tenant to be upon the Demised Premises the Landlord may, at its option, in addition to any other remedy it may have, forthwith terminate this Lease by notice in writing to the Tenant and thereupon Rent and any other payments for which the Tenant is liable under this Lease shall be apportioned and paid in full to the date of such termination and the Tenant shall immediately deliver up possession of the Demised Premises to the Landlord and the Landlord may re-enter and take possession of the same. The Tenant covenants and agrees that the Landlord shall not be liable or responsible in any way for any loss of or damage or injury to any property belonging to the Tenant or to employees of the Tenant or to any other person while such property is on the Demised Premises or in the Lands and Building whether or not such property has been entrusted to employees or agents of the Landlord and without limiting the generality of the foregoing the Landlord shall not be liable for any damage to any such property caused by steam, water, rain or snow which may leak into, issue or flow from any part of the Lands or Building or from the water, steam or drainage pipes or plumbing works of the Lands and Building or from any other place or quarter or for any 16 9 damage caused by or attributable to the condition or arrangement of any electric or other wiring or for any damage caused by anything done or omitted by the Landlord or by any other Tenant of the Lands and Building. The Tenant covenants and agrees that it will indemnify the Landlord and save it harmless from and against any and all loss, claims, actions, damages, liability and expense in connection with loss of life, personal injury or damage to property arising from any occurrence on the Demised Premises, or the Lands and Building, or the occupancy or use by the Tenant of the Demised Premises or occasioned wholly or in part by any act or omission of the Tenant, its agents, contractors, employees, servants, licensees or concessionaires or by anyone permitted by the Tenant to be in the Demised Premises or on the Lands and Building. In case the Landlord, without actual fault on its part, is made a party to any litigation commenced by or against the Tenant, the Tenant shall protect and hold the Landlord harmless and shall pay all costs, expenses and legal fees (on a solicitor and his client basis) incurred or paid by the Landlord in enforcing this Lease. The requirements imposed on the Tenant in this clause respecting the obtaining and maintaining of insurance shall not in any manner limit or derogate from any other obligations imposed on the Tenant pursuant to this Lease or at law. 22. DAMAGE The Tenant covenants and agrees that it will not bring upon the Demised Premises, the Building, the Lands, or any part thereof any vehicles, machinery, equipment, safes, articles or things that by reason of their weight, site or use might damage the floors or other improvements of the Demised Premises, the Building or the Lands and that if any damage is caused to the Demised Premises, the Building or the Lands by any such vehicle, machinery, equipment, article or thing, or by such overloading or by any act, neglect or misuse on the part of the Tenant or any of its servants, agents or employees or any person having business with the Tenant, will at the election of the Landlord either forthwith at its sole cost repair such damage to the satisfaction of the Landlord or pay the cost of repair as determined by the Landlord, to the Landlord. 23. QUIET POSSESSION The Landlord covenants with the Tenant that upon the Tenant paying the Rent hereby reserved and all other charges herein provided and observing, performing and keeping the covenants and agreements herein contained, the Tenant shall and may peaceably possess and enjoy the said Demised Premises for the Term hereby granted without any interruption or disturbance from the Landlord. 24. LANDLORD'S REPAIRS The Landlord covenants and agrees that notwithstanding the provisions permitted in this Lease, it shall at its sole cost during the Term hereof carry out as soon as possible in the circumstances after receipt of notice thereof in writing from the Tenant, structural repairs to footings, structural columns, foundation, exterior walls, and metal roof decks, unless necessitated as the result of normal wear and tear, and damages recoverable under insurance policies. PROVIDED HOWEVER, that if such repairs are necessitated by the negligence or misconduct of the Tenant, its servants, agents, contractors, licensees, employees, visitors or others for whom in law the Tenant is responsible, the Tenant shall pay to the Landlord on demand the cost of such repairs as Additional Rent on the first day of the next month next following said payment by the Landlord and interest thereon from the date of expenditure thereof by the Landlord until paid by the Tenant to the extent the cost thereof is not recoverable from insurance. PROVIDED that the Landlord shall not be responsible for any damages, loss or injuries sustained by the Tenant, or any persons claiming through or under it, by reason of such defects or the consequences thereof, including the inconvenience occasioned to the Tenant by the entry of the Landlord or its agents and employees on the Demised Premises to effect such repairs. The Landlord and Tenant shall, throughout the Term of this Lease, at their respective expense, comply with all provisions of law, including, without limiting the generality of the foregoing: (i) all requirements of all federal, provincial and municipal legislative enactments, by-laws, and other governmental or municipal regulations now or hereafter in force which relate to each of their responsibilities in respect of the Lands, the Building and the Demised Premises, or to the making of any repairs, replacements, alterations, additions, changes, substitutions or improvements thereto which are their responsibility under this Lease; and (ii) all police, fire, building and sanitary regulations imposed by any governmental, provincial and municipal authorities or made by fire insurance underwriters relating to each of their obligations in respect of the Lands, the Building and the Demised Premises. Notwithstanding the foregoing, any non-observance by either party of any governmental or municipal regulations or other requirements governing their obligations shall not be deemed a breach of covenant under the terms of this Lease if such non-observance in no way disturbs, harms or poses a threat to the Tenant's use and occupation of the Demised Premises or in no way raises any risk of penalty, damage or loss to the Tenant or the Landlord. Provided that the foregoing obligations of the Landlord and the Tenant shall be subject to the Landlord or the Tenant, as the case may be, being entitled to contest in good faith and in an expeditious and diligent manner, any such governmental or municipal regulations or other requirements. 25. LANDLORD'S INSURANCE 26. TAXES The Landlord covenants and agrees that it will, from time to time, pay or cause to be paid the taxes (including local improvement charges), assessments and other outgoings permitted in this Lease, PROVIDED 17 10 HOWEVER, that nothing contained in this clause shall derogate from the Tenant's covenant permitted in this Lease. 27. DAMAGE & DESTRUCTION It is agreed between the Landlord and the Tenant that: (a) In the event of damage to the Lands and Building or to any part thereof, if the damage is such that the Demised Premises or any substantial part thereof is rendered not reasonably capable of use and occupancy by the Tenant for the purposes of its business for any period of time in excess of 10 days, then: (i) unless the damage was caused by the fault or negligence of the Tenant or its employees, agents, invitees or others under its control, from the date of occurrence of the damage and until the Demised Premises are again reasonably capable for use and occupancy as aforesaid, the Basic Rent payable pursuant to this Lease shall abate from time to time in proportion to the part or parts of the Demised Premises not reasonably capable of such use and occupancy; and (ii) unless this Lease is terminated as hereinafter provided, the Landlord or the Tenant as the case may be (according to the nature of the damage and their respective obligations to repair as provided herein) shall repair such damage with all reasonable diligence, but to the extent that any part of the Demised Premises is not reasonably capable of such use and occupancy by reason of damage which the Tenant would otherwise be entitled hereunder shall not extend later than the time by which, in the reasonable opinion of the Landlord, repairs by the Tenant ought to have been completed with reasonable diligence; and (b) If the Demised Premises are substantially damaged or destroyed by any cause and if in the reasonable opinion of the Landlord given in writing within 30 days of the occurrence the damage cannot reasonably be repaired within 180 days after the occurrence thereof, then at the option of the Landlord or the Tenant, this Lease shall terminate, in which event neither the Landlord nor the Tenant shall be bound to repair as provided herein, and the Tenant shall instead deliver up possession of the Demised Premises to the Landlord with reasonable expedition and Rent shall be apportioned and paid to the date of the occurrence; and (c) If the premises whether of the Tenant or other lessees of the Lands and Building comprising in the aggregate half or more of the total number of square feet of rentable area in the Building (as determined by the Landlord) or portions of the Building which affect access or services essential thereto, are substantially damaged or destroyed by any cause and if in the reasonable opinion of the Landlord the damage cannot reasonably be repaired within 180 days after the occurrence thereof, the Landlord or the Tenant may, by written notice to the other given within 30 days after the occurrence of such damage or destruction, terminate this Lease, in which event neither the Landlord nor the Tenant shall be bound to repair as provided herein and the Tenant shall instead deliver up possession of the Demised Premises to the Landlord with reasonable expedition but in any event within 60 days after delivery of such notice of termination, and Rent shall be apportioned and paid to the date upon which possession is so delivered up (but subject to any abatement to which the Tenant may be entitled to herein. 28. ALTERATIONS & IMPROVEMENTS Should the Tenant require any alterations, improvements, partitions, or changes of whatsoever kind to or in the Demised Premises after the Tenant has taken possession thereof, the Tenant will make and install the same at its own expense and risk; PROVIDED HOWEVER, that no repairs, alterations, improvements, partitions, or changes of whatsoever kind shall be made without the Tenant having first obtained all permits and authorizations required by all authorities having jurisdiction and a copy of said permits and authorizations having been delivered to the Landlord and further without the written consent of the Landlord first had and obtained, such consent not to be unreasonably withheld; PROVIDED FURTHER, that any such repairs, alterations, improvements, partitions, or changes of whatsoever kind shall be made in a good and workmanlike manner with new, first-class materials and shall be carried out and the plans relating thereto shall be prepared by qualified tradesmen, engineers or consultants. All alterations, improvements, partitions and changes made in or to the Demised Premises at any time before or after the taking of possession by the Tenant, by the Tenant or the Landlord, shall immediately become the property of the Landlord and form part of the Demised Premises and the Lands and Building and shall remain upon the Demised Premises. PROVIDED ALWAYS that the Landlord may at the expiration or sooner termination of this Lease for any reason whatsoever require that the Tenant restore the Demised Premises in whole or in part to the same condition in which they were at the time of the entering into of this Lease, the exceptions to the Tenant's repair obligations only excepted. Notwithstanding any of the foregoing, it is understood that the Tenant's obligation to restore the Demised Premises shall not include the restoration of any alterations or improvements which have been made to the Demised Premises by either the Landlord or the Tenant under the Offer to Lease or under this Lease in anticipation of or in connection with the Tenant's occupation of the Demised Premises. Notwithstanding any of the foregoing provisions of this clause to the contrary all trade fixtures installed in the Demised Premises by the Tenant and all other property not attached or affixed to the Demised Premises other than by its own weight and installed in the Demised Premises by the Tenant shall remain the property of the Tenant and shall not form a part of the Demised Premises during the Term of this Lease PROVIDED that no such trade fixtures which are attached or affixed to the Demised Premises other than by their own weight 18 11 shall be removed from the Demised Premises during the Term unless replaced by trade fixtures of comparable value. At the expiration or sooner termination of the Term of this Lease all trade fixtures attached or affixed to the Demised Premises other than by their own weight (excluding such trade fixtures, equipment machinery and shelving which must be attached to prevent movement or vibration or for safety purposes) and other than for those excepted fixtures with respect to which the Landlord, prior to their installation, granted in writing to the Tenant a right of removal at the expiration or sooner termination of the Lease, shall become the sole property of the Landlord; PROVIDED HOWEVER, that the Landlord may at the expiration or sooner termination of this Lease for any reason whatsoever require that the Tenant remove any such fixtures and restore the Demised Premises in whole or in part to the same condition in which they were at the time of the entering into of this Lease, the exceptions to the Tenant's repair obligations only excepted. 29. SIGNS No signs shall be installed in or on the Demised Premises or the Building or the Lands without the prior written consent of the Landlord. All such signs shall conform to all applicable codes or statutes and the building standard as determined by the Landlord from time to time as to size, design and location. At the termination of this Lease, any of the Tenant's signs shall be removed by the Tenant and any damage caused by such removal shall be repaired, all at the expense of the Tenant. NOTWITHSTANDING THE FOREGOING, THE TENANT SHALL HAVE THE RIGHT TO ERECT A SIGN(S) ON THE EXTERIOR OF THE BUILDING AND ON THE LANDS DENOTING ITS TENANCY THEREIN PROVIDED SUCH SIGN(S) CONFORMS WITH MUNICIPAL BY-LAWS AND OWNER'S REGULATIONS GOVERNING SIGNS. 30. NO LIENS At no time during the Term shall the Tenant permit any Construction lien or similar lien to stand against the Demised Premises for any labour or materials furnished to, or with the consent of, the Tenant, its agents or contractors, in connection with work of any character (including all work which the Tenant is obliged to do hereunder) performed or claimed to have been performed on the Demised Premises by or at the direction or sufferance of the Tenant. The Tenant shall cause all registrations of claims for such liens, and/or certificates of action under any applicable legislation to be discharged, released or vacated, as the case may be, within thirty (30) days of such registration, or, in the event that such lien is being disputed by the Tenant, the Tenant shall have commenced such action as may be required in order to dispute such lien, all without cost or expense to the Landlord; provided further that if the Tenant shall fail to remove, release or vacate any such lien as required hereunder, the Landlord at its option may pay and discharge such lien, and all amounts paid by or on behalf of the Landlord together with all expenses incurred in connection therewith shall be charged to and paid by the Tenant as Additional Rent. 31. TIME FOR PAYMENT AND LEGAL COSTS All amounts (other than Rent) required to be paid by the Tenant to the Landlord pursuant to this Lease shall, unless otherwise specified herein, be payable at the place designated by the Landlord for payment of Rent and on demand and if not so paid within 15 days of such demand be treated as Rent in arrears and the Landlord may, in addition to any other remedy and it may have for the recovery of the same, distrain for the amount thereof as Rent in arrears. In the event that the Tenant shall make default in payment of any sums required to be paid by it under this Lease (other than payments to the Landlord), the Landlord may pay the same. Unless otherwise expressly provided herein all sums referred to in the preceding clause of this clause and all reasonable costs paid by the Landlord on account of any default by the Tenant under this Lease, shall be payable by the Tenant to the Landlord as Additional Rent on the first day of the next month next following said payment by the Landlord. The Landlord may, by notice to the Tenant, demand payment thereof and if not paid by the Tenant within 15 days of such notice, the amount thereof shall be deemed to be Rent in arrears and the Landlord may, in addition to any other remedy it may have for the recovery of the same, distrain for the amount thereof as Rent in arrears. Wherever in this Lease the Landlord has made a payment which is subsequently charged to the Tenant for payment, the Landlord shall first provide the Tenant with evidence showing that such payment was made by the Landlord. 32. DEFAULT If and whenever: a) the Rent hereby reserved, or any part thereof, be not paid when due, or there is non-payment of any other sum which the Tenant is obligated to pay under any provisions hereof, and such default shall continue for 5 days after notice by the Landlord requiring the Tenant to rectify the same; or 19 12 b) the Term hereby granted, or any goods, chattels or equipment of the Tenant, shall be taken or be exigible in execution or in attachment or if a writ of execution shall issue against the Tenant; or c) the Tenant shall become insolvent or commit an act of bankruptcy or become bankrupt or take the benefit of any Act that may be in force for bankrupt or insolvent debtors or become involved in a winding-up proceeding, voluntary or otherwise, or if a receiver shall be appointed for the business, property, affairs or revenues of the Tenant, or if any governmental authority shall take possession of the business or property of the Tenant; or d) the Tenant shall make a bulk sale of its goods or move or commence, attempt or threaten to move its goods, chattels and equipment out of the Demised Premises (other than in the routine course of its business) or shall abandon or vacate the Demised Premises for a period of 15 consecutive days (without written consent of the Landlord), or fail to conduct business from or occupy the Demised Premises; or e) the Tenant shall purport to assign, transfer, sub-let, or grant a license with respect to any portion or all of the Term or the Demised Premises without the written consent of the Landlord; or f) the Tenant fails to remedy any condition giving rise to cancellation, threatened cancellation, reduction or threatened reduction of any insurance policy on the Building or any part thereof within 24 hours after notice thereof by the Landlord; or g) the Tenant shall not observe, perform and keep any other of the covenants, agreements, provisions, stipulations and conditions herein to be observed, performed and kept by the Tenant and shall persist in such failure for 10 days after notice by the Landlord requiring that the Tenant remedy, correct, desist or comply (or in the case of any such breach which reasonably would require more than 10 days to rectify unless the Tenant shall commence rectification within the said 10 day period and thereafter promptly and diligently and continuously proceed with the rectification of the breach); then and in any of such cases at the option of the Landlord, the full amount of the current month's and next ensuing 3 months' installments of Rent shall immediately become due and payable and the Landlord may immediately distrain for the same, together with any arrears then unpaid; and the Landlord may without notice or any form of legal process forthwith re-enter upon and take possession of the Demised Premises or any part thereof in the name of the whole and remove and sell the Tenant's goods, chattels and equipment therefrom, any rule of law or equity to the contrary notwithstanding; and the Landlord may seize and sell such goods, chattels, and equipment of the Tenant as are in the Demised Premises or at any place at which the Landlord or any other person may have removed them in the same manner as if they had remained and been distrained upon the Demised Premises; and such sale may be effected in the discretion of the Landlord either by public action or by private treaty, and either in bulk or by individual item, or partly by one means and partly by another, all as the Landlord in its entire discretion may decide. 33. CONSEQUENCES OF DEFAULT If and whenever the Landlord is entitled to re-enter the Demised Premises, or does re-enter the Demised Premises, the Landlord may either terminate this Lease by giving written notice of termination to the Tenant, or by posting notice of termination in the Demised Premises, and in such event the Tenant will forthwith vacate and surrender the Demised Premises or alternatively, the Landlord may from time to time without terminating the Tenant's obligations under this Lease, make alterations and repairs considered by the Landlord necessary to facilitate a sub-letting and sub-let the Demised Premises or any part thereof as agent of the Tenant for such term or terms and at such rent or rents and upon such other terms and conditions as the Landlord in its reasonable discretion considers advisable. Upon each sub-letting all Rent and other monies received by the Landlord from the sub-letting will be applied first to the payment of indebtedness other than Rent due hereunder from the Tenant to the Landlord, second to the payment of costs and expenses of the sub-letting including brokerage fees and solicitors' fees and costs of the alteration and repairs, and third to the payment of Rent due and unpaid hereunder. The residue, if any, will be held by the Landlord and applied in payment of future Rent as it becomes due and payable. If the Rent received from the sub-letting during a month is less than the Rent to be paid during that month by the Tenant, the Tenant will pay the deficiency to the Landlord. The deficiency will be calculated and paid monthly. No re-entry by the Landlord will be construed as an election on its part to terminate this Lease unless a written notice of that intention is given to the Tenant or posted as aforesaid. Despite a sub-letting without termination, the Landlord may elect at any time to terminate this Lease for a previous breach. If the Landlord terminates this Lease for any breach, the Tenant will pay to the Landlord on demand therefore; a) both Basic Rent and Additional Rent, up to the time of re-entry or termination, whichever is later, plus accelerated Rent as provided for in this Lease; b) all reasonable costs payable by the Tenant pursuant to the provisions hereof up until the date of re-entry or termination, whichever is later; 20 13 c) such reasonable expenses as the Landlord may incur or has incurred in connection with re-entering or terminating and reletting, or collecting sums due or payable by the Tenant or realizing upon assets seized including brokerage expense, legal fees and disbursements and including the expense of keeping the Demised Premises in good order and repairing or maintaining the same or preparing the Demised Premises for re-leasing; and d) as liquidated damages for the loss of Rent and other income of the Landlord expected to be derived from this Lease during the period which would have constituted the unexpired portion of the Term had it not been terminated, the amount, if any, by which the rental value of the Demised Premises for such period established by reference to the terms and provisions of this Lease, exceeds the rental value of the Demised Premises for such period established by reference to the terms and provisions upon which the Landlord re-lets them, if such re-leasing is accomplished within a reasonable time after termination of this Lease, and otherwise with reference to all market and other relevant circumstances. Rental value is to be computed in each case by reducing the present worth at an assumed interest rate of 10% per cent per annum all Rent and other amounts to become payable for such period and where the ascertainment of amounts to become payable requires it, the Landlord may make estimates and assumptions of fact which will govern unless shown to be unreasonable or erroneous. 34. DISTRESS The Tenant waives and renounces the benefit of any present or future statute or any amendments thereto taking away or limiting the Landlord's right of distress and agrees with the Landlord that, notwithstanding any such enactment, all goods and chattels of the Tenant from time to time on the Demised Premises shall be subject to distress for arrears of Rent, subject always to the rights of prior secured parties. 35. SURRENDER The Tenant shall, subject to any provisions permitted in this Lease to the contrary, at the expiration of or sooner termination for any reason whatsoever of this Lease, peacefully surrender and yield up to the Landlord all and every part of the Demised Premises together with all Buildings, structures, and fixtures including all appurtenances, alterations, repairs, additions and replacements thereto all in good order, condition and repair, the exceptions to the Tenant's repair obligations only excepted. PROVIDED ALWAYS, that the Tenant shall on the expiration or sooner termination of this Lease sever and remove any and all fixtures which are not or have not become the property of the Landlord and the Tenant shall forthwith restore and repair the Demised Premises and any damage caused as a result of such severance or removal. If the Tenant does not so sever and remove in the time hereinbefore limited, the Landlord at its option may do so at the expense of the Tenant and the Tenant will have no interest whatsoever therein. PROVIDED ALWAYS, that no such fixtures and no goods and chattels of any kind will, except in the ordinary course of business, be removed from the Demised Premises during the Term or at any time thereafter without the written consent of the Landlord first had and obtained, until all Rent in arrears has been fully paid. 36. RIGHT TO EXHIBIT PREMISES The Landlord and its agents and employees may at all reasonable times enter the Demised Premises to exhibit the same for purposes of sale and may at all reasonable times enter the Demised Premises to exhibit the same for purposes of re-leasing and, in addition thereto, may display the usual "For Sale" and "For Lease" signs thereon, provided that the Landlord shall not display "For Lease" signs until it has received notice from the Tenant that this Lease will not be renewed. 37. OVERHOLDING If, at the expiration of the Term or sooner termination hereof, the Tenant shall remain in possession without any further written agreement or in circumstances where a tenancy would thereby be created by implication of law or otherwise, a tenancy from year to year shall not be created by implication of law or otherwise, but the Tenant shall be deemed to be a monthly tenant only, at the greater of the then fair market rent for similar space or double Basic Rent payable monthly in advance plus Additional Rent and otherwise upon and subject to the same terms and conditions as herein contained, excepting provisions for renewal (if any) and leasehold improvement allowance (if any), contained herein, and nothing including the acceptance of any Rent by the Landlord, for periods other than monthly periods, shall extend this Lease to the contrary except an agreement in writing between the Landlord and the Tenant and the Tenant hereby authorizes the Landlord to apply any monies received from the Tenant in payment of such monthly Rent. 38. WAIVER BY THE LANDLORD The failure of the Landlord to insist in any one or more cases upon the strict performance of any of the covenants of this Lease or to exercise any option herein contained shall not be construed as a waiver or a relinquishment for the future of such covenant or option and the acceptance of rental by the Landlord with knowledge of the breach by the Tenant of any covenants or conditions of this Lease shall not be deemed a waiver of such breach and no waiver by the Landlord of any provisions of the Lease shall be deemed to have been made unless expressed in writing and signed by the Landlord. 21 14 39. NOTICES Any notice, advice, document or writing required or contemplated by any provision thereof shall be given in writing and if to the Landlord, either delivered personally to an officer of the Landlord or mailed by prepaid mail addressed to the Landlord at the said local office address of the Landlord shown above, or sent by facsimile or similar means of electronic communication and if to the Tenant, either delivered personally to the Tenant (or to an officer of the Tenant, if a corporation) or mailed by prepaid mail address to the Tenant at the Demised Premises, or if an address of the Tenant is shown in the description of the Tenant above, to such address or if sent by facsimile or similar means of electronic communication to the number notified by either party to the other. Every such notice, advice, document or writing shall be deemed to have been given when delivered personally, of if mailed as aforesaid, upon the fifth day after being mailed or if sent by facsimile or similar means of electronic communication on the day following the date of transmission. The Landlord may from time to time by notice in writing to the Tenant designate another address as the address to which notices are to be mailed to it, or specify with greater particularity the address and persona to which such notices are to be mailed and may require that copies of notices be sent to an agent designated by it. The Tenant may, if an address of the Tenant is shown in the description of the Tenant above, from time to time by notice in writing to the Landlord, designate another address as the address to which the notices are to be mailed to it, or specify with greater particularity the address to which such notices are to be mailed. 40. DELETED 41. SUBORDINATION & ACKNOWLEDGEMENTS In the event of registration of this Lease (or a caveat based thereon) in the Lands Titles Office by the Tenant, and in the further event of a mortgage or mortgages being registered against the said Lands and Building, such mortgage or mortgages shall take priority over this Lease in every respect and the Tenant shall within 10 days of the request of the Landlord execute and deliver to the Landlord any and all documents required to give effect to the foregoing, including postponements under the appropriate Land Titles Act for the Province of Ontario dealing with such matters provided that the mortgagee shall deliver to the Tenant an agreement which shall permit the Tenant to continue in quiet possession of the Demised Premises in accordance with the terms of this Lease as long as the Tenant is not in default hereunder, whether such mortgage is in good standing or not. The Tenant covenants and agrees to promptly execute and deliver to the Landlord and, if required by the Landlord, to any mortgagee (including any trustee under a deed of trust and mortgage) designated by the Landlord, a certificate in writing as to the then status of this Lease, including whether it is in full force and effect, as modified or unmodified, confirming the Rent payable hereunder and the state of accounts between the Landlord and the Tenant and the existence or non-existence of defaults and any other matters pertaining to the Lease as to which the Landlord shall request of such certificate. PROVIDED FURTHER, that the Tenant, whenever requested by any mortgagee (including any trustee under a deed of trust and mortgage), shall attorn to such mortgagee as a Tenant upon all terms and conditions of this Lease and shall execute promptly whenever requested by the Landlord or by such mortgagee an instrument of attornment. 42. DELETED 43. TIME OF ESSENCE Time shall be of the essence hereof. 44. HEADINGS The Landlord and the Tenant hereto agree that the headings form no part of this Lease and shall be deemed to have been inserted for the convenience of reference only. 45. INTERPRETATION Where the singular and masculine or neuter are used throughout this Lease they shall be construed as if the plural and feminine had been used where the context of the party or parties hereto so requires and the rest of the sentence shall be construed as if the necessary grammatical and terminological changes thereby rendered necessary had been made. 46. ACCEPTANCE The Tenant does hereby accepts this Lease of the herein described Demised Premises to be held by it as Tenant and subject to the conditions, restrictions and covenants herein set forth. 22 15 47. GOVERNING LAWS This Lease and any rules and regulations adopted hereunder shall be governed by the laws of the Province of Ontario. Should any provision of this Lease and/or its conditions be illegal or not enforceable under the laws of the Province of Ontario, it or they shall be considered severable, and this Lease and its conditions shall remain in force and be binding upon the parties as though the provision or provisions had never been included. 48. DELETED 49. DELETED 50. REPRESENTATIONS The Tenant hereby acknowledges that the Demised Premises are taken without representation of any kind on the part of the Landlord or its agent other than as set forth herein. It is understood and agreed that no representative or agent of the Landlord or Tenant is or shall be authorized or permitted to make any representation with reference thereto, or to vary or modify this agreement in any way, and that this Lease contains all of the agreements and conditions made between the parties hereto respecting the Demised Premises and that any addition to or alteration of or changes in this Lease or other agreements hereafter made or conditions created to be binding, must be made in writing and signed by both parties. 51. BINDING ON SUCCESSORS & APPROVED ASSIGNS This indenture and everything herein contained shall enure to the benefit of and be binding upon the parties hereto, the successors and assigns of the Landlord and the approved successors and assigns of the Tenant. 52. SALE OR FINANCING OF LANDS OR ASSIGNMENT BY LANDLORD The Tenant acknowledges that the rights of the Landlord under this Lease may be mortgaged, charged, transferred or assigned to a purchaser or to a mortgagee or trustee. The Tenant further acknowledges that in the event of the sale or lease by the Landlord of the Lands or a portion thereof containing the Demised Premises or the assignment by the Landlord of this Lease or of any interest of the Landlord hereunder, and to the extent that such purchaser or assignee, has assumed the covenants and obligations of the Landlord hereunder, the Landlord shall, without further written agreement, be freed and relieved of liability upon such covenants and obligations. 53. REGISTRATION The Tenant covenants and agrees with the Landlord not to register this Lease in any Land Registration Office in the Province of Ontario without the prior written consent of the Landlord. If such consent is provided such notice of Lease or caveat shall be in such form as the Landlord shall have approved in writing and upon payment by the Tenant of the Landlord's reasonable fee (not to exceed $250.00) for same and all applicable transfer or recording taxes or charges. The Tenant shall remove and discharge at the Tenant's expense registration of such a notice or caveat at the expiry or earlier termination of the Term, and in the event of the Tenant's failure to so remove or discharge such notice or caveat after 10 days written notice by the Landlord to the Tenant, the Landlord may in the name and on behalf of the Tenant execute a discharge of such a notice or caveat in order to remove and discharge such notice of caveat and for the purpose thereof the Tenant hereby irrevocably constitutes and appoints any officer of the Landlord the true and lawful attorney of the Tenant. The Tenant will forthwith, upon demand, reimburse the Landlord for the costs of any such action. 54. LAND USE CAVEAT The Tenant covenants and agrees that it will not do or cause to be done any act or make or cause to be made any omission which will result in a breach or contravention of any land use caveats, development control caveats, restrictive covenants or similar instruments presently registered against title to the Lands, provided that the Tenant has been given prior notice of such caveats, restrictive covenants or similar instruments by the Landlord. Registration of such caveats, restrictive covenants or similar documents on title to the Lands shall not constitute notification of the Tenant under this paragraph. 23 16 55. EXCLUSION OF LIABILITY Except as otherwise provided in this Lease, it is agreed between the Landlord and the Tenant that: (a) The Landlord, its agents, servants and employees shall not be liable for damage or injury to any property of the Tenant which is entrusted to the care or control of the Landlord, its agents, servants or employees. (b) The Landlord, its agents, servants and employees, shall not be liable nor responsible in any way for any personal or consequential injury of any nature whatsoever that may be suffered or sustained by the Tenant or any employee, agent, customer, invitee or licensee of the Tenant or any other person who may be upon the Demised Premises or for any loss of or damage or injury to any property belonging to the Tenant or to its employees or to any other person while such property is on (he Demised Premises and, in particular (but without limiting the generality of the foregoing), the Landlord shall not be liable for any damage or damages of any nature whatsoever to any such property or persons caused by the failure, by reason of a breakdown of any apparatus or part thereof or other cause, to supply adequate drainage, snow or ice removal, heating, air conditioning, or electricity, or by reason of the interruption of any public utility or service or in the event of steam, water, rain, or snow which may leak into, issue, or flow from any part of the Building or from the water, steam, sprinkler, or drainage pipes or plumbing works of the same, or from any other place or quarter or for any damage caused by anything done or omitted by any lessee. The Tenant shall not be entitled to any abatement of Rent in respect of any such condition, failure or interruption of service. (c) The Landlord, its agents, servants, employees or contractors shall not be liable for any damage suffered to the Demised Premises or the contents thereof by reason of the Landlord, its agents, servants, employees or contractors, entering upon the Demised Premises as herein provided to undertake any examination thereof or any work therein or in the case of an emergency. 56. LANDLORD'S RIGHT TO PERFORM If the Tenant falls to perform any of the covenants or obligations of the Tenant under or in respect of this Lease, the Landlord may from time to time at its discretion perform or cause to be performed any of such covenants or obligations or any part thereof and for such purpose as may be requisite and may enter upon the Demised Premises to do such things, and all expenses incurred and expenditures made by or on behalf of the Landlord shall be paid by the Tenant as Additional Rent on the first day of the next month next following the payment by the Landlord, and if the Tenant fails to pay the same the Landlord may add the same to the Rent and recover the same by all remedies available to the Landlord for recovery of Rent in arrears; PROVIDED HOWEVER, that if the Landlord commences and completes either the performance of any such covenants or obligations or any part thereof, the Landlord shall not be obliged to complete such performance or be later obliged to act in like fashion. 57. EXPROPRIATION The Landlord and the Tenant shall co-operate, each with the other, in respect of any public taking of the Demised Premises or any part thereof so that the Tenant may receive the maximum award to which it is entitled in law for relocation costs and business interruption and so that the Landlord may receive the maximum award for all other compensation arising from or relating to such public taking including all compensation for the value of the Tenant's leasehold interest subject to the public taking) which shall be the property of the Landlord, and the Tenant's rights to such compensation are hereby assigned to the Landlord. If the whole or any part of the Demised Premises is publicly taken, as between the parties hereto, their respective rights and obligations under this Lease shall continue until the day on which the public taking authority takes possession thereof. If the whole or any part of the Demised Premises is publicly taken, the Landlord shall have the option, to be exercised by written notice to the Tenant, to terminate this Lease and such termination shall be effective on the day the public taking authority takes possession of the whole or the portion of the Lands and Building publicly taken. Rent and all other payments shall be adjusted as of the date of such termination and the Tenant shall, on the date of such public taking, vacate the Demised Premises and surrender the same to the Landlord, with the Landlord having the right to re-enter and re-possess the Demised Premises discharged of this Lease and to remove all persons therefrom. In this clause, the words "public taking" shall include expropriation and condemnation and shall include a sale by the Landlord to an authority with powers of expropriation, condemnation or taking, in lieu of or under threat of expropriation or taking and "publicly taken' shall have a corresponding meaning. 58. DELAY Except as herein otherwise expressly provided, if and whenever and to the extent that either the Landlord or the Tenant shall be prevented, delayed or restricted in the fulfillment of any obligation hereunder in respect of the supply or provision of any service or utility, the making of any repair, the doing of any work or any other thing (other than the payment of monies required to be paid by the Tenant to the Landlord hereunder) by reason of: 24 17 (a) strikes or work stoppages; (b) being unable to obtain any material, service, utility or labour required to fulfil such obligation; (c) any statute, law or regulation of, or inability to obtain any permission from any government authority having lawful jurisdiction preventing, delaying or restricting such fulfillment; or (d) other unavoidable occurrence, the time for fulfillment of such obligation shall be extended during the period in which such circumstance operates to prevent, delay or restrict the fulfillment thereof, and the other party to this Lease shall not be entitled to compensation for any inconvenience, nuisance or discomfort thereby occasioned; provided that nevertheless the Landlord will use reasonable efforts to maintain services essential to the use and enjoyment of the Demised Premises and provided further that if the Landlord shall be prevented, delayed or restricted in the fulfillment of any such obligation hereunder by reason of any of the circumstances set out herein and to fulfil such obligation could not, in the reasonable opinion of the Landlord, be completed without substantial additions to or renovations of the Lands and Building, the Landlord may on 60 days written notice to the Tenant terminate this Lease. 59. SCHEDULES The provisions of the following Schedules attached hereto shall form part of this Lease as if the same were embodied herein. Schedule "A" - Legal Description of Property Schedule "B" - Outlined of Demised Premises Schedule "C" - Rules and Regulations Schedule "D" - Option to Renew Schedule "E" - Alteration and Installations Schedule "F" - Structural Maintenance Schedule "G" - Mechanical Maintenance Schedule "H" - Basic Rent Free Period Schedule "I" - Vacant Possession Schedule "J" - Landlord's Work Schedule "K" - Space Planner Schedule "L" - Right of First Refusal - Purchase Schedule "M" - Cash Allowance Schedule "N" - Occupancy IN WITNESS WHEREOF the parties hereto have executed this agreement by their respective duly authorized officers in that behalf, as of the day and year first above written. BARRINGER RESEARCH LIMITED Per: /s/ (President) --------------------------------- /s/ Per: /s/ (VP Operations) - ------------------------------ --------------------------------- Witness as to Signing by Tenant of officer(s) of Tenant LEHNDORFF MANAGEMENT LIMITED in its capacity as agent for the Owners Per: /s/ Philip Mostowich --------------------------------- Title: Senior Vice President Illegible - ------------------------------ Per: /s/ Robert Stanley-Navona Witness as to --------------------------------- Signing by Landlord Title: 25 18 SCHEDULE A LEGAL DESCRIPTION OF LANDS ALL AND SINGULAR that certain parcel or tract of land and premises situate, lying and being in the City of Mississauga, in the Regional Municipality of Peel (formerly in the Town of Mississauga, in the County of Peel), and being composed of Part Blocks J and I, Plan 928 and designated as Parts 1 and 3 on a reference plan of survey deposited in the Land Registry Office of the Registry Division of Peel (No. 43) as Plan 43R-1619. 26 19 SCHEDULE B OUTLINED OF DEMISED PREMISES [SURVEYORS CERTIFICATE] 27 20 SCHEDULE C RULES AND REGULATIONS 1. The Tenant shall not perform any act or carry on any practice which may injure or detrimentally affect the use of any common areas and facilities or be a nuisance to any other tenants. 2. The Tenant shall not burn any trash or garbage in or about the demised premises. 3. The Tenant shall not keep, display or store any merchandise on, or otherwise obstruct common areas and roadways adjacent to the demised premises. 4. The Tenant shall not keep, place or store any garbage or waste containers outside of the demised premises, other than a waste bin to be located in the rear parking. 5. No dangerous or explosive materials shall be kept or permitted to be kept in the Leased Premises except as is stated in Rider 6A governing the quantities and compliance required for use in the Tenant's operations. 6. The Tenant shall give the Landlord prompt notice of any accident to or any defect in the plumbing, heating, air-conditioning, ventilating, mechanical or electrical apparatus or any other part of the Building. 7. If the Tenant desires any electrical or communications wiring, the Landlord reserves the right to direct qualified persons as to where and how the wires are to be introduced, and without such directions no borings or cutting for wires shall take place. No other wires or pipes of any kind shall be introduced without the prior written consent of the Landlord. 8. The Tenant shall permit the periodic closing of lanes, driveways and passages for the purpose of preserving the Landlord's rights over such lanes, driveways and passages. 28 21 SCHEDULE "D" Option to Renew (Negotiated) (a) The Landlord covenants with the Tenant that if the Tenant duly and regularly pays the Rent and any and all amounts required to be paid pursuant to this Lease and performs each and every covenant, proviso and agreement on the part of the Tenant to be paid, rendered, observed and performed herein, the Landlord will at the expiration of the then expiring term on written notice by the Tenant to the Landlord given by the Tenant not less than six (6) months prior to the expiration of the then expiring term grant to the Tenant a five (5) year renewal of lease of the Demised Premises (the "Renewal Term") on the same terms and conditions as in the standard lease agreement then, at the commencement of the Renewal Term, being used by the Landlord for the Building save and except the right of further renewal, Landlord's Work (if any), Basic Rent, the tenant improvement allowance (if any) and Basic Rent Free Period (if any). (b) The Basic Rent for the Renewal Term shall be determined by reference to prevailing rental rates for similar space in a similar area in which the Demised Premises are situate, and if the Landlord and Tenant are unable to agree on prevailing rental rates then the rental shall be determined by arbitration conducted in accordance with the provisions of the Arbitration Act. (c) Notwithstanding the above, if the Tenant does not exercise the Option to Renew in accordance with Schedule "D" then this Option to Renew is null and void. 29 22 SCHEDULE "E" ALTERATION AND INSTALLATIONS The Tenant shall have the right to make alterations and installations at its own expense, from time to time during the lease term or any renewal thereof, provided it has the prior written consent of the Landlord, which is not to be unreasonably withheld and further provided that it agrees to restore the premises to their original condition at the expiration of the lease term, reasonable wear and tear excepted, at the Landlord's option. The Tenant's obligation to restore the Demised Premises shall not, however, apply to any alterations or improvements which have been made to the Demised Premises by either the Landlord or the Tenant under the Offer to Lease or under this Lease in anticipation of or in connection with the Tenant's occupation of the Demised Premises. 30 23 SCHEDULE "F" STRUCTURAL MAINTENANCE The Landlord shall be responsible for all structural repairs including the roof if not occasioned by the fault of the Tenant or those for whom the Tenant is responsible, or repairs recoverable through insurance policies. 31 SCHEDULE "G" MECHANICAL MAINTENANCE During the Term of this Lease, the Tenant shall be responsible for the maintenance and servicing of all mechanical systems including but not limited to the HVAC, plumbing and electrical systems. Prior to occupancy by the Tenant, the Landlord shall cause the HVAC systems, roof deck and membrane and electrical wiring to be inspected by the Landlord's engineers. All repairs or replacements recommended by the Landlord's engineers shall be carried out by the Landlord at the Landlord's sole expense. The Landlord shall, prior to occupancy, provide the Tenant with written engineering reports with respect to the condition of the roof deck and membrane, the HVAC systems and electrical wiring and with a complete report setting out all repairs or replacements made hereunder. 32 25 SCHEDULE "H" BASIC RENT FREE PERIOD The Tenant shall not be required to pay Basic Rent for the first two (2) months of the Term of this Lease (herein called the "Basic Rent Free Period"). All other terms and provisions of this Lease shall, however, remain in full force and effect during the Basic Rent Free Period and thereafter including without limitation the payment of Additional Rent. 33 26 SCHEDULE "I" VACANT POSSESSION Provided the Lease has been executed, the Landlord shall provide vacant possession of the Premises on July 1, 1995 in order that the Tenant or Landlord may complete any work required prior to the Lease commencement date. This vacant possession period from July 1, 1995 to August 31, 1995 shall be on a total rent free basis. Tenant agrees to carry appropriate liability insurance during this period. All terms of the Lease shall apply during this period except payment of rent, taxes, utilities and maintenance. 34 27 SCHEDULE "J" LANDLORD'S WORK The Landlord shall, prior to September 1, 1995 complete the following work at its own expense using quality materials and workmanship. All work shall be completed in accordance with all applicable codes governing such work: i) re-coat and reline currently paved parking area with a proper asphalt coating; ii) ensure that all mechanical systems including but not limited to HVAC, electrical, plumbing and hardware systems have been properly serviced and are in good working order; iii) construct a dropped T-bar ceiling complete with adequate lighting, heating and air-conditioning for the warehouse area shown shaded on the attached Schedule "B". T-bar ceiling shall be at a height of 12' above warehouse floor. (iv) repair concrete slab adjacent to front entrance; v) carry out additional repairs specified in Tenant's letter to Landlord dated June 13, 1995. 35 28 SCHEDULE "K" SPACE PLANNER The Landlord agrees to furnish Tenant with a space planner in order to price and design modifications to the building that are necessary to the Tenant's operation. The cost of the space planner's feasibility drawings shall be borne by the Landlord. All working drawings are the responsibility of the Tenant. 36 29 SCHEDULE "L" RIGHT OF FIRST REFUSAL - PURCHASE The Tenant shall have the Right of First Refusal to purchase the said property at any time or times during its lease term or renewal thereof if and when the property becomes available for sale. Pursuant to this Right of First Refusal, the Landlord agrees to notify the Tenant when it has received a bona fide offer to purchase the property from a third party arms length purchaser which the Landlord is prepared to accept. Upon receipt of written notice and a copy of said offer, the Tenant shall have a period of 72 hours to match the terms of the offer which the Landlord must accept. 37 30 SCHEDULE "M" CASH ALLOWANCE Provided the Lease has been executed by both parties, the Landlord agrees to provide the Tenant with a cash allowance of One Hundred and Fifty Thousand Dollars ($150,000.00) CDN payable by certified cheque unless otherwise mutually agreed upon, in accordance with the following payment schedule set forth below. This cash allowance will be applied against moving expenses and other costs necessary to the operation of the Tenant's business. a) Fifty Thousand Dollars ($50,000.00) CDN payable within seven (7) days of signing of the Lease by both parties and occupancy of the Premises. b) Fifty Thousand Dollars ($50,000.00) CDN payable on August 1, 1995 provided the Tenant has delivered satisfactory proof of expenditure of the initial Fifty Thousand Dollars ($50,000.00) CDN. c) Fifty Thousand Dollars ($50,000.00) CDN payable on the Lease commencement date provided the Tenant has delivered satisfactory proof of expenditure of the previous Fifty Thousand Dollars CDN. 38 31 SCHEDULE "N" OCCUPANCY The Premises shall be given to the Tenant in a clean and broom swept condition free of any refuse or debris. Any damage caused by the vacating of the Premises by the existing tenant shall be repaired at the cost of the existing tenant (Savin Canada Inc.) or the Landlord. The Premises shall be repaired as required by the letter from the Tenant to the Landlord dated June 13, 1995. EX-21 13 LIST OF SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 BARRINGER TECHNOLOGIES INC. LIST OF SUBSIDIARIES Name Jurisdiction of Incorporation ---- ----------------------------- Barringer Instruments, Inc. Delaware Barringer Consumer Products, LLC New Jersey Barringer Research Ltd. Ontario, Canada Barringer Europe, SARL France Barringer Instruments UK, Ltd. United Kingdom EX-23.2 14 CONSENT OF BDO SEIDMAN, LLP 1 Exhibit 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Barringer Technologies Inc. New Providence, New Jersey We hereby consent to the inclusion in the Prospectus constituting a part of this Registration Statement of our report dated March 27, 1996, relating to the consolidated financial statements of Barringer Technologies Inc. for the year ended December 31, 1995, also included in the Prospectus. We also consent to the reference to us under the caption "Experts" in the Prospectus. BDO Seidman, LLP Woodbridge, New Jersey October 8, 1996 -----END PRIVACY-ENHANCED MESSAGE-----