-----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, Lj12KjJD8Brhlv3CWRCgCDf+rXbJJwAnRG0Br/HVRujo+jR81kf+CFEmaA8pB4v4 zRuqQaqwkc7P5hajUl+jLw== 0000950123-97-006535.txt : 19970808 0000950123-97-006535.hdr.sgml : 19970808 ACCESSION NUMBER: 0000950123-97-006535 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19970807 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: 333-33129 FILM NUMBER: 97653409 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 FORM SB-2 1 As filed with the Securities and Exchange Commission on August 7, 1997 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 OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
---------------------- 219 SOUTH STREET, MURRAY HILL, NEW JERSEY 07974 (908) 665-8200 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------------- STANLEY S. BINDER, PRESIDENT BARRINGER TECHNOLOGIES INC. 219 SOUTH STREET, MURRAY HILL, NEW JERSEY 07974 (908) 665-8200 (NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------------- COPIES TO: JOHN D. HOGOBOOM, ESQ. J. VAUGHAN CURTIS, ESQ. LOWENSTEIN, SANDLER, KOHL, FISHER & BOYLAN, P.A. ALSTON & BIRD LLP 65 LIVINGSTON AVENUE 1201 WEST PEACHTREE STREET ROSELAND, NEW JERSEY 07068 ATLANTA, GEORGIA 30309 (201) 992-8700 (404) 881-7000
---------------------- 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
========================================================================================================= PROPOSED MAXIMUM AMOUNT OF TITLE OF SECURITIES AGGREGATE REGISTRATION TO BE REGISTERED OFFERING PRICE(1) FEE - --------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value................................... $34,931,250 $10,586 =========================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act of 1933, as amended, on the basis of the average of the high and low sales prices for a share of Common Stock on the Nasdaq National Market on August 5, 1997. ---------------------- 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 AUGUST 7, 1997 [BARRINGER TECH LOGO] 2,000,000 SHARES COMMON STOCK All of the 2,000,000 shares of Common Stock offered hereby are being offered by Barringer Technologies Inc. ("Barringer" or the "Company"). On August 5, 1997, the last sale price of the Common Stock as reported on the Nasdaq National Market was $14.50 per share. See "Price Range of Common Stock." As of the date of this Prospectus, the Common Stock is traded on the Nasdaq National Market under the symbol "BARR." ---------------------- THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5. ---------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=============================================================================================== UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY (2) - ----------------------------------------------------------------------------------------------- Per Share.............. $ $ $ - ----------------------------------------------------------------------------------------------- Total(3)............... $ $ $ ===============================================================================================
(1) The Company and the Selling Stockholders (defined below) have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting estimated offering expenses of $300,000, payable by the Company. (3) The Company and certain stockholders (the "Selling Stockholders") have granted to the Underwriters a 30-day option to purchase up to an additional 300,000 shares of Common Stock solely to cover over-allotments, if any. If such over-allotment option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriting." ---------------------- The Common Stock is offered by the Underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of such shares will be made through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens & Company"), in San Francisco, California, on or about September , 1997. ROBERTSON, STEPHENS & COMPANY PACIFIC GROWTH EQUITIES, INC. The date of this Prospectus is September , 1997 3 Graphic Description Front Inside Cover Photo 1 is a map of the world showing the number of IONSCANS installed on each continent under the heading "BARRINGER IONSCAN(R) THE WORLD LEADER IN TRACE DETECTION*" Photo 2 is a photograph of Canadian Customs agents standing beside a ship with an IONSCAN. The caption reads as follows: "Customs services around the world use the IONSCAN(R) to detect the presence of illicit drugs at seaports, airports, and border crossings. U.S. Coast Guard and international counterparts also utilize the IONSCAN(R) for interdiction of drugs on the high seas." Photo 3 is a photograph of a French Security Agent utilizing the IONSCAN(R) in the inspection of luggage. The caption reads as follows: "Customs personnel inspect cargo and checked luggage." Photo 4 is a photograph of an airport security agent inspecting passenger luggage with an IONSCAN(R). The caption reads as follows: "The IONSCAN(R) Model 400 provides drug and explosive detection capability. In order to enhance passenger safety and security, a guard examines a carry-on item for traces of explosives at an airport screening station." Photo 5 is a photograph of French security agents walking with a passenger and wheeling an IONSCAN. The caption reads as follows: "Security personnel aboard European passenger trains use the IONSCAN(R) to examine carry-on baggage for traces of explosives prior to the train entering the Eurotunnel." 4 NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ---------------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary................................................................... 3 Forward-Looking Statements........................................................... 5 Risk Factors......................................................................... 5 Use of Proceeds...................................................................... 12 Price Range of Common Stock.......................................................... 12 Dividend Policy...................................................................... 12 Capitalization....................................................................... 13 Selected Consolidated Financial Data................................................. 14 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................... 15 Business............................................................................. 23 Management........................................................................... 32 Certain Transactions................................................................. 39 Principal and Selling Stockholders................................................... 41 Description of Capital Stock......................................................... 43 Shares Eligible for Future Sale...................................................... 47 Underwriting......................................................................... 48 Legal Matters........................................................................ 50 Experts.............................................................................. 50 Additional Information............................................................... 50 Index to Consolidated Financial Statements........................................... F-1
---------------------- "IONSCAN(R)" is a registered trademark of the Company. The Company was founded in September 1967. The Company's headquarters are located at 219 South Street, Murray Hill, New Jersey 07974 and its telephone number is (908) 665-8200. The Company intends to furnish its stockholders with annual reports containing audited consolidated financial statements examined by its independent certified public accountants and quarterly reports containing unaudited consolidated financial information for the first three quarters of each fiscal year. ---------------------- CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING." 2 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the consolidated financial statements and notes thereto appearing elsewhere in this Prospectus, including the information under "Risk Factors." THE COMPANY Barringer Technologies Inc. ("Barringer" or the "Company") is the world's leading manufacturer (based on units sold) of high sensitivity equipment used for detecting and identifying trace amounts of plastic and other explosives and illegal drugs. The Company designs and produces products that employ a proprietary application of ion mobility spectrometry ("IMS") technology that can detect and identify targeted compounds in amounts smaller than one-billionth of a gram in approximately six seconds. The Company's principal product, the IONSCAN(R), is a portable desktop system which had an installed base of over 500 units in 39 countries as of June 30, 1997. The Company's revenues have grown from $2.0 million for the year ended December 31, 1991 to $10.9 million for the year ended December 31, 1996, representing a compounded annual growth rate of 40.4% over the last five years. For the six months ended June 30, 1997, the Company's revenues and net income were $9.4 million and $2.3 million, respectively. The markets for the Company's IONSCAN(R) currently include aviation security, surface transportation security, facilities protection, forensics, military, correctional facilities, and customs and law enforcement agencies. The Company's customers include the Federal Aviation Administration (the "FAA"), the U.S. Coast Guard, the U.S. Drug Enforcement Agency (the "DEA") and the Federal Bureau of Investigation (the "FBI"), as well as customs agencies in France, Canada and Japan and various prison facilities in the U.S. and elsewhere. The IONSCAN(R) is also installed at over 40 airports and transportation centers around the world, including Gatwick and Heathrow airports in the United Kingdom, John F. Kennedy International Airport, certain European Passenger Service ("British Rail") terminals and the Eurotunnel. The Company believes that its principal competitive advantages are the detection capability, reliability, versatility, cost effectiveness, ease of use and portability of the IONSCAN(R). These advantages enable the IONSCAN(R) to be used both in lieu of and in conjunction with bulk imaging technologies, such as enhanced x-ray and computer aided tomography ("CATSCAN"). The Company believes that many of the markets it serves are experiencing substantial growth. Recently, growth in the markets for advanced explosives detection technology has accelerated significantly, principally in reaction to heightened safety concerns caused by the threat of terrorism. For example, in October 1996, Congress appropriated $144 million for the procurement of advanced explosives detection technology for aviation security. Terrorist attacks on bus and train stations, the World Trade Center and the Alfred R. Murrah Federal Building in Oklahoma City have resulted in the deployment of advanced explosives detection technology for other uses. In addition, according to the U.S. Office of National Drug Control Policy, use of certain illegal drugs has increased during the past five years. As a result of increased drug usage, a heightened public awareness regarding drug-related criminal activity and the use of more sophisticated techniques by drug traffickers, government agencies have increasingly turned to advanced detection technology to assist in their drug interdiction efforts. The Company markets its products through a direct sales organization comprised of 18 sales people located at its headquarters in New Jersey and at offices in Toronto, London, and Paris. In addition, the Company supports a network of 49 independent sales and service representatives located in Europe, the Middle East, Africa, Asia, South America and Australia. The Company's objective is to maintain its position as the world's leading provider of trace detection systems in its core markets and to become a leading supplier of other advanced technology security solutions. The Company intends to achieve this objective by further penetrating its existing markets, leveraging its IMS technology for new applications, pursuing strategic relationships and acquisitions and expanding its sales and marketing capabilities. 3 6 THE OFFERING Common Stock Offered..................... 2,000,000 shares Common Stock to be Outstanding after the Offering................................. 7,475,179 shares Use of Proceeds.......................... To increase sales, marketing and customer support capabilities, to expand facilities, to pursue possible acquisitions of, or investments in, complementary businesses, products or technologies and for general corporate purposes. See "Use of Proceeds." Nasdaq National Market Symbol............ BARR SUMMARY CONSOLIDATED FINANCIAL DATA (In thousands, except per share data)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------- --------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------ ------- ------- ------- ------ ------ (Unaudited) CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1): Revenues......................... $ 2,838 $7,770 $ 5,514 $ 6,374 $10,923 $5,012 $9,438 Gross profit..................... 627 3,840 1,414 2,773 5,560 2,365 5,483 Operating income (loss).......... (1,714) 541 (2,469) (886) 1,596 667 1,945 Income tax benefit (provision)... -- 153 (75) -- 391 -- 131 Income (loss) from continuing operations.................... (1,763) 593 (2,633) (1,178) 2,059 564 2,260 Net income (loss)................ (1,807) 595 (2,565) (827) 2,059 564 2,260 Preferred stock dividends........ (160) (114) (108) (82) (39) (24) (6) Net income (loss) attributable to common stockholders........... (1,967) 481 (2,673) (909) 2,020 540 2,254 Income (loss) per common share from continuing operations (fully diluted)............... $ (0.90) $ 0.20 $ (0.97) $ (0.39) $ 0.44 $ 0.15 $ 0.35 Net income (loss) per common share (fully diluted)......... $ (0.92) $ 0.20 $ (0.95) $ (0.28) $ 0.44 $ 0.15 $ 0.35 Weighted average common shares outstanding (fully diluted)... 2,135 2,570 2,827 3,283 4,607 3,854 6,388
JUNE 30, 1997 -------------------------- ACTUAL AS ADJUSTED(2) ------- -------------- (Unaudited) CONSOLIDATED BALANCE SHEET DATA: Working capital.................. $16,414 $ 43,374 Current assets................... 19,253 46,213 Total assets..................... 20,385 47,345 Current liabilities.............. 2,839 2,839 Long-term liabilities............ 121 121 Stockholders' equity............. 17,425 44,385
- ---------------------- (1) Amounts for all periods ending prior to December 31, 1995 reflect Barringer Laboratories Inc. ("Labco") as a discontinued operation. The Company sold a portion of its equity interest in Labco in 1995 and the remainder of its interest in 1996. See "Certain Transactions--Sale of Subsidiary." (2) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock offered hereby and the application of the estimated net proceeds therefrom, at an assumed public offering price of $14.50 per share and after deducting underwriting discounts and commissions and estimated Offering expenses. See "Capitalization." Unless otherwise indicated, all information herein has been adjusted to give effect to the one-for-four reverse split of the Common Stock effected on September 25, 1995 and assumes (i) no exercise of the Underwriters' over-allotment option, and (ii) no exercise or conversion of options, warrants and convertible securities outstanding as of August 1, 1997, exercisable for or convertible into an aggregate of 1,502,899 shares of Common Stock. 4 7 FORWARD-LOOKING STATEMENTS This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements include, but are not limited to, the anticipated growth in the demand for the Company's products, the Company's opportunities to increase sales through, among other things, the development of new applications and markets for the IONSCAN(R), the development of new products, the probability of the Company's success in the sale of IONSCAN(R)s in current or future markets, the potential effect of government regulations and directives changing security requirements, the ability of the IONSCAN(R) to satisfy any certification protocol adopted by the FAA or any other government agency, the amount and timing of domestic and foreign government appropriations for the development and deployment of advanced detection technology, liquidity and capital requirements and use of proceeds. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements contained herein. Important factors that could contribute to such differences are set forth below under "Risk Factors," including, but not limited to, "Dependence on and Effects of Government Regulation and Procurement Policies," "Dependence on Large Orders; Customer Concentrations," "Dependence on IONSCAN(R) and Market Acceptance," "Dependence on New Product Development; Technological Advancement," "Limited Proprietary Technology," "Fluctuations in Operating Results," "Competition," "Lengthy Sales Cycle," "International Business; Risk of Change in Foreign Regulations; Fluctuations in Exchange Rates," "Dependence on Limited Number of Suppliers," "Ability to Manage Rapid Growth" and "History of Losses; Cash Constraints." RISK FACTORS The Common Stock offered hereby involves a high degree of risk. In addition to the other information contained in this Prospectus, the following risk factors should be considered carefully in evaluating the Company, its business and an investment in the Common Stock offered hereby. DEPENDENCE ON AND EFFECTS OF GOVERNMENT REGULATION AND PROCUREMENT POLICIES The Company's business is dependent upon purchases of IONSCAN(R)s by government agencies. Budgetary allocations for detection equipment are dependent, in part, upon government policies that fluctuate from time to time in response to political and other factors, including the public's perception of the threat of airline bombings and other terrorist acts. Growth in the Company's business is substantially dependent upon the adoption and implementation of regulations or requirements in the aviation security market, particularly in the United States, resulting in the use of advanced explosives detection systems, including trace particle detection equipment. The Company expects that a substantial portion of current and anticipated purchases of advanced detection equipment in the aviation security market will be made by the FAA with appropriated funds. In addition, growth in the Company's business will also be dependent on continued government purchases of IONSCAN(R)s for drug interdiction applications. A reduction of funding for security efforts or drug interdiction could materially and adversely affect the Company's business, financial condition and results of operations. There can be no assurance that funding for the purchase of such equipment will be continued or as to the level of such funding. A substantial amount of the funds appropriated to date have been and amounts appropriated in the future will continue to be used to purchase equipment utilizing other technologies, such as enhanced x-ray, CATSCAN and other bulk imaging technologies. Accordingly, there can be no assurance as to the amount that will ultimately be spent on the purchase of trace particle detection equipment or as to the number of IONSCAN(R)s that will actually be purchased. In addition, there can be no assurance that the Company's products will meet any certification or other requirements that may be adopted by the FAA or any other government agency. See "Business -- Government Regulation." 5 8 DEPENDENCE ON LARGE ORDERS; CUSTOMER CONCENTRATIONS In any given fiscal year, the Company's revenues have principally consisted, and the Company believes will continue to consist, of orders for multiple IONSCAN(R)s from a limited number of customers. For example, during the first half of 1997, the Company received large orders for its IONSCAN(R) from the FAA and the U.S. Coast Guard. While the number and identity of the Company's customers may vary from period to period, the Company is nevertheless dependent upon these multiple orders for a substantial portion of its revenues. There can be no assurance that the Company will obtain such multiple orders on a consistent basis. During the first half of 1997, approximately $4.8 million, or 51.2%, of the Company's revenues were generated from sales to the Company's three largest customers. During the fiscal year ended December 31, 1996, revenues from the Company's three largest customers were approximately $4.3 million, or 39.3%, of the Company's revenues. The Company anticipates that a significant portion of its future revenues will result from orders from the FAA. The Company's inability to obtain sufficient multiple orders or to expand its customer base could have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON IONSCAN(R) AND MARKET ACCEPTANCE The Company derives substantially all of its revenues from the sale of IONSCAN(R)s and its future profitability is substantially dependent on the Company's ability to market the IONSCAN(R) successfully. There can be no assurance that markets for IONSCAN(R) technology will develop as the Company expects or that the Company will be able to capitalize on such market development. Similarly, there can be no assurance that any markets that do develop will be sustained. See "Business--Sales and Marketing." DEPENDENCE ON NEW PRODUCT DEVELOPMENT; TECHNOLOGICAL ADVANCEMENT The Company's success is dependent upon its ability to continue to enhance the IONSCAN(R) and to develop and introduce in a timely manner new products that incorporate technological advances, keep pace with evolving industry standards and respond to changing customer requirements. If the Company is unable to develop and introduce new products or enhancements in a timely manner in response to changing market conditions or customer requirements, the Company's business, financial condition and results of operations would be materially and adversely affected. See "Business--Sales and Marketing" and "--Product Development." In addition, from time to time the Company or its present or potential competitors may announce new products, capabilities or technologies that have the potential to replace, shorten the life spans of, or render obsolete the Company's existing products. There can be no assurance that the Company will be successful in convincing potential customers that the IONSCAN(R) is superior to such other systems or products, that new systems with comparable or greater performance, lower prices and faster or equivalent throughput will not be introduced, or that, if such products are introduced, customers will not delay or cancel existing or future orders for the IONSCAN(R). Announcements of currently planned or other new products may cause customers to delay their purchasing decisions in anticipation of such products, as occurred in late 1994 when the Company introduced the Model 400 IONSCAN(R). See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Competition." Such delays could have a material adverse effect on the Company's business, financial condition and results of operations. LIMITED PROPRIETARY TECHNOLOGY Certain of the technology used in the IONSCAN(R) is licensed by the Company from the Canadian government pursuant to a license agreement that expires in March 1999, subject to the Company's right to extend on a year-to-year basis through March 2009. While the Company holds patents relating to certain components, systems and techniques used in the IONSCAN(R) and while certain other elements of the IONSCAN(R) are protected by other intellectual property rights, the Company has 6 9 no comprehensive patent or similar exclusive intellectual property right covering the IONSCAN(R) in its entirety. In addition, the basic IMS technology used by the Company is not proprietary and is available in the public domain. Accordingly, present and potential competitors could use such basic technology to duplicate the performance of the IONSCAN(R). See "Business--Competition" and "--Patents, Trademarks and Proprietary Rights." FLUCTUATIONS IN OPERATING RESULTS The Company's past operating results have been, and its future operating results will be, subject to fluctuations resulting from a number of factors, including: the timing and size of orders from, and shipments to, major customers; budgeting and purchasing cycles of its customers; delays in product shipments caused by customer requirements or the inability of customers to accept shipments; the timing of enhancements to the IONSCAN(R) by the Company or new products introduced by the Company or its competitors; changes in pricing policies by the Company, its competitors or suppliers, including possible decreases in average selling prices of the IONSCAN(R) in response to competitive pressures; the proportion of revenues derived from competitive bid processes; the mix between sales to domestic and international customers; market acceptance of enhanced versions of the IONSCAN(R); the availability and cost of key components; the availability of manufacturing capacity; and fluctuations in general economic conditions. The Company also may choose to reduce prices or to increase spending in response to competition or to pursue new market opportunities, all of which may have a material adverse effect on the Company's business, financial condition and results of operations. The Company's revenues in any period are derived from sales of IONSCAN(R)s to a limited number of customers and are generally recognized upon shipment. As a result, variations in the number of orders or the timing of shipments may cause the Company's quarterly and annual operating results to vary substantially. See "-- Dependence on Large Orders; Customer Concentrations" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations." Moreover, although the Company's sales are not seasonal in nature, government agencies and certain other customers expend unused budgeted funds at the end of their respective fiscal years, causing the Company's sales to be higher during such periods. Because the Company generally recognizes substantially all of the revenue from a sale upon shipment, and because the recognition of revenue from the sale of relatively few IONSCAN(R)s may substantially impact the Company's profitability during any period, the impact of these budgetary considerations on the delivery date of a relatively few units could significantly affect the Company's quarterly results and the predictability of such quarterly results. COMPETITION The Company competes with other entities, including Thermedics Detection Inc., InVision Technologies, Inc. and Vivid Technologies, Inc., a number of which have significantly greater financial, marketing and other resources than the Company. Principal competitive factors include selectivity (the ability of an instrument to identify the presence of a particular substance), sensitivity (the ability of an instrument to detect small amounts of a particular substance), false alarm rate, price, marketing, ease of use and speed of analysis. There can be no assurance that the Company will be able to continue to compete successfully with its competitors or be able to compete with new market entrants or in new markets that may develop. The Company competes for government expenditures with equipment manufacturers utilizing other types of detection technologies, including enhanced x-ray, CATSCAN and other bulk imaging technologies, as well as with manufacturers of other IMS equipment and manufacturers using other trace particle detection technologies, such as gas chromatography and chemoluminescence. The Company also competes with the use of canines to locate the presence of explosives or drugs. 7 10 As a result of recent government initiatives, the Company anticipates that additional technologies, including improved IMS technologies, will be developed and that new competitors will enter the Company's markets. The failure of the Company to develop improvements or otherwise successfully compete in its markets would have a material adverse effect on the Company's business, financial condition and results of operations. See "--Dependence on and Effects of Government Regulation and Procurement Policies" and "Business--Competition." LENGTHY SALES CYCLE The Company's sales process is often protracted due to the lengthy approval processes that typically accompany government expenditures. Typically, six to 12 months may elapse between a new customer's initial evaluation of the IONSCAN(R) and the execution of a contract. See "--Fluctuations in Operating Results," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and "--Quarterly Results of Operations." INTERNATIONAL BUSINESS; RISK OF CHANGE IN FOREIGN REGULATIONS; FLUCTUATIONS IN EXCHANGE RATES The Company markets its products to customers outside of the U.S. and, accordingly, is exposed to the risks of international business operations, including unexpected changes in foreign and domestic regulatory requirements, possible foreign currency controls, uncertain ability to protect and utilize its intellectual property in foreign jurisdictions, currency exchange rate fluctuations or devaluations, tariffs or other barriers, difficulties in staffing and managing foreign operations, difficulties in obtaining and managing vendors and distributors and potentially negative tax consequences. International sales are subject to certain inherent risks including embargoes and other trade barriers, staffing and operating foreign sales and service operations and collecting accounts receivable. The Company is also subject to risks associated with regulations relating to the import and export of high technology products. The Company cannot predict whether quotas, duties, taxes or other charges or restrictions upon the importation or exportation of the Company's products in the future will be implemented by the U.S. or any other country. There can be no assurance that any of these factors will not have a material adverse effect on the Company's business, financial condition and results of operations. A portion of the Company's revenues and expenses are denominated in foreign currencies. Fluctuations in currency exchange rates could adversely affect the Company's profitability and could cause the Company's products to become relatively more expensive to customers in a particular country, leading to fewer sales or reduced selling prices in that country. As a result, the Company is exposed to a certain degree of exchange rate risk. The Company generally does not hedge its foreign exchange exposure. There can be no assurance that the Company will not experience material losses in the future as a result of currency fluctuations or that any such losses will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS Certain key components used in the Company's products have been designed by the Company to its specifications and are currently purchased only from one or a limited number of suppliers. The Company currently does not have long-term agreements with these suppliers. Moreover, in view of the high cost of many of these components, the Company does not maintain significant inventories of some necessary components. Recently, the Company has significantly increased its purchases of certain components to meet expected demand for the IONSCAN(R). As a result, in certain circumstances, the Company has had to enter into new supply relationships in order to satisfy its increased demand for components and may be required to do so in the future. If the Company's suppliers were to experience financial, operational, production or quality assurance difficulties, the supply of components to the Company would be reduced or interrupted. In the event that a supplier were to cease operations, discontinue a product or withhold supply for any reason, the Company might be unable to acquire certain components from alternative sources, to find alternative third-party manufacturers or sub- assemblers, or to obtain sufficient quantities of these components, which could result in delays or 8 11 interruptions in product shipments, and could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Manufacturing and Assembly." ABILITY TO MANAGE RAPID GROWTH The Company has rapidly expanded its business operations as a result of increased demand for the IONSCAN(R), which has placed significant demands on the Company's manufacturing, management and working capital resources and operating, management and financial control systems. Failure to maintain needed resources or to enhance the Company's operating, management and financial control systems as and when necessary, or difficulties encountered during such enhancements, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's future growth also will depend on its ability to continue to improve and expand its engineering and technical resources and to attract, retain and motivate key personnel. The failure of the Company to increase its revenues sufficiently to compensate for increased expenses resulting from current or future expansion, or the Company's failure to otherwise adequately manage the growth of its business, would have a material adverse effect on the Company's business, financial condition and results of operations. HISTORY OF LOSSES; CASH CONSTRAINTS The Company sustained net losses of $2.6 million and $827,000 for the years ended December 31, 1994 and 1995, respectively, and had an accumulated deficit of $12.3 million at June 30, 1997. Although the Company generated net income of $2.1 million and $2.3 million for the year ended December 31, 1996 and the six months ended June 30, 1997, respectively, the Company used $1.4 million and $1.3 million, respectively, of cash in operations during such periods as a result of the need for working capital to support higher levels of accounts receivable and inventory. The Company's failure to generate positive operating cash flow or to maintain other sources of working capital could result in significant cash shortages that could have a material adverse effect on the Company's business, financial condition and results of operations. RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS An element of the Company's strategy is to review acquisition prospects that would complement the Company's existing product offerings, augment its market coverage, enhance its technological capabilities or otherwise offer growth opportunities. Although the Company has no present understandings, commitments or agreements with respect to any material acquisition of any business, products or technologies, the Company may make such acquisitions in the future. Future acquisitions by the Company could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, and amortization expenses relating to goodwill and other intangible assets, any of which could materially and adversely affect the Company's business, financial condition and results of operations. Acquisitions entail numerous risks, including difficulties in the assimilation of acquired businesses, products and technologies, diversion of management's attention from other business concerns, risks of entering markets in which the Company has no or limited prior experience and potential loss of key employees of acquired organizations. The Company's management has limited experience in assimilating acquired organizations. No assurance can be given as to the ability of the Company to integrate successfully any businesses, products, technologies or personnel that might be acquired in the future, and the failure of the Company to do so could have a material adverse effect on the Company's business, financial condition and results of operations. RETENTION OF AND DEPENDENCE ON KEY PERSONNEL The Company's success will depend, in part, on its ability to retain the services of its key personnel, including management and scientific employees, who are and will continue to be instrumental in the development and management of the Company's business. Although the Company has entered into employment agreements with its Chief Executive Officer and certain of its other senior 9 12 executives, the loss of the services of one or more of the Company's key employees could have a material adverse effect on the Company. WARRANTY CLAIMS The Company generally provides a one-year parts and labor warranty on each IONSCAN(R), although from time to time the Company has provided extended warranties. Although the Company has not experienced significant warranty claims, there can be no assurance that such claims will not increase as the Company's sales increase. Increased warranty claims could have a material adverse effect on the Company's business, financial condition and results of operations. POTENTIAL PRODUCT LIABILITY INSURANCE LIMITS The Company currently maintains product liability insurance in the amount of $5.0 million per occurrence. The Company's insurance policy covers certain claims and the cost of legal fees involved in the defense of such claims, which are either covered under the policy or alleged in such a manner so as to invoke the insurer's duty to defend the Company. The Company believes that, as it distributes more products into the marketplace and expands its product lines, its exposure to potential product liability claims and litigation may increase. There can be no assurance that the Company's current level of insurance will be sufficient to protect the business and assets of the Company from all claims, nor can any assurance be given that the Company will be able to maintain its existing coverage or obtain additional coverage at commercially reasonable rates. Product liability losses in excess of insurance coverage could have a material adverse effect on the Company's business, financial condition and results of operations. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, 7,475,179 shares of Common Stock will be outstanding (7,775,179 shares, if the Underwriters' over-allotment option is exercised in full). All of the shares offered hereby will be freely tradable unless acquired by affiliates of the Company. The remaining 5,475,179 shares that will be outstanding upon completion of this Offering are freely tradable, subject to the lock-up described below. An additional 1,502,899 shares of Common Stock are issuable upon the exercise or conversion of outstanding stock options, warrants and convertible securities, 1,346,649 of which have been registered for resale by the holders thereof. The Company cannot predict the effect, if any, that sales of additional shares of Common Stock or the availability of shares for future sale will have on the market price of the Common Stock. Sales in the public market of substantial amounts of Common Stock (including shares issued upon the exercise or conversion of outstanding options, warrants and convertible securities), or the perception that such sales might occur, could adversely affect prevailing market prices for the Common Stock. Such sales also may make it more difficult for the Company to sell equity securities or equity related securities in the future at a time and price that the Company deems appropriate. The holders of an aggregate of 770,297 shares of Common Stock (including 555,250 shares issuable upon the exercise or conversion of outstanding options, warrants and convertible securities), have agreed with the Underwriters not to offer or sell, directly or indirectly, or otherwise reduce their risk in, any securities of the Company for a period of 90 days after the date of this Prospectus, subject to certain exceptions, without the prior written consent of Robertson, Stephens & Company. See "Shares Eligible For Future Sale." UNALLOCATED PROCEEDS OF OFFERING A significant portion of the estimated net proceeds of this Offering has not been designated for specific uses. Accordingly, management of the Company will have broad discretion with respect to the use of these funds. See "Use of Proceeds." 10 13 VOLATILITY OF COMMON STOCK PRICE Prior to this Offering, there have been significant fluctuations in the trading price of the Common Stock. No assurance can be given that such volatility will not continue following the completion of this Offering. See "Price Range of Common Stock." CERTAIN CHARTER PROVISIONS The Company's Certificate of Incorporation, as amended (the "Certificate of Incorporation"), contains provisions which require the favorable vote of the holders of not less than 80.0% of the outstanding shares of Common Stock for the approval of any merger, consolidation or other combination with, or sale, lease or exchange of all or substantially all of the assets of the Company to, another entity holding more than 10.0% of the Company's outstanding voting equity securities or any affiliate of such entity. These provisions could discourage potential acquisition proposals, delay or prevent a change in control of the Company and limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. The Board of Directors of the Company is empowered to issue shares of preferred stock without stockholder action. The existence of this "blank check" preferred stock could render more difficult or discourage an attempt to obtain control of the Company by means of a tender offer, merger, proxy contest or otherwise and may adversely affect the prevailing market price of the Common Stock. The Company currently has no plans to issue additional shares of preferred stock. In addition, Section 203 of the Delaware General Corporation Law prohibits certain persons from engaging in business combinations with the Company. See "Description of Capital Stock." 11 14 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,000,000 shares of Common Stock offered hereby (2,300,000 if the Underwriters' over-allotment option is exercised in full), at an assumed public offering price of $14.50 per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, are estimated to be $27.0 million ($31.0 million if the Underwriters' over-allotment option is exercised in full). The Company expects to use the net proceeds to increase its sales, marketing and customer support capabilities, to expand its facilities, to pursue possible acquisitions of, or investments in, complementary businesses, products or technologies and for general corporate purposes. From time to time, the Company evaluates potential acquisitions of such businesses, products or technologies in the ordinary course of business. The Company has no present understandings, commitments or agreements with respect to any material acquisitions of, or investments in, any such businesses, products or technologies. See "Risk Factors--Risks Associated with Potential Acquisitions." Pending the foregoing uses, the Company intends to invest the net proceeds from this Offering in short-term, interest bearing, investment-grade securities. PRICE RANGE OF COMMON STOCK Since November 12, 1996, the Common Stock has been included in the Nasdaq National Market under the symbol "BARR." Prior to that, the Common Stock was quoted in the Nasdaq SmallCap Market. The following table sets forth, for the periods indicated, the high and low bid quotations for the Common Stock as reported on the Nasdaq National Market or the Nasdaq SmallCap Market, as applicable, after giving effect to the one-for-four reverse stock split effected September 25, 1995. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
HIGH LOW ------- ------- Fiscal 1995 First quarter................................................... $ 6 7/8 $ 1 1/4 Second quarter.................................................. 5 2 Third quarter................................................... 4 1/4 2 1/4 Fourth quarter.................................................. 3 1/4 1/2 Fiscal 1996 First quarter................................................... $ 9/16 $ 5/16 Second quarter.................................................. 4 3/16 7/16 Third quarter................................................... 13 7/8 2 7/8 Fourth quarter.................................................. 10 5/8 6 5/8 Fiscal 1997 First quarter................................................... $10 3/4 $ 8 1/8 Second quarter.................................................. 15 9 3/8 Third quarter (through August 5, 1997).......................... 16 14 1/2
On August 5, 1997, the last reported sale price of the Common Stock on the Nasdaq National Market was $14.50 per share. As of August 1, 1997, the Company had approximately 1,000 stockholders of record. DIVIDEND POLICY The Company has never declared or paid cash dividends on its Common Stock. The Board of Directors currently intends to retain future earnings to support its growth strategy and does not anticipate paying dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Board of Directors after taking into account various factors, including the Company's financial condition, results of operations, current and anticipated cash needs and plans for expansion. The Company is prohibited from paying cash dividends on the Common Stock unless full cumulative dividends have been paid or set aside for payment on its Class A Convertible Preferred Stock and Class B Convertible Preferred Stock at an annual rate of $0.16 per share, which dividends, at the option of the Company, are payable in cash or shares of Common Stock. See "Description of Capital Stock." 12 15 CAPITALIZATION The following table sets forth, as of June 30, 1997, the actual capitalization of the Company and the capitalization of the Company as adjusted to give effect to the sale of the 2,000,000 shares of Common Stock offered hereby, at an assumed public offering price of $14.50 per share, and the application of the estimated net proceeds therefrom.
JUNE 30, 1997 ----------------------------- ACTUAL AS ADJUSTED ------------ ------------ Stockholders' equity: 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; 58,206 shares outstanding less discount of $45,000... $ 71,000 $ 71,000 730,000 shares designated as Class B Convertible Preferred Stock; 22,500 shares outstanding................................... 45,000 45,000 Common Stock, $0.01 par value; 20,000,000 shares authorized; 5,470,455 shares issued and outstanding; 7,470,455 shares, as adjusted(1).............................................. 55,000 75,000 Additional paid-in-capital.................................... 29,952,000 56,892,000 Accumulated deficit........................................... (12,268,000) (12,268,000) Foreign currency translation.................................. (417,000) (417,000) Less: Common Stock in treasury at cost, 31,000 shares......... (13,000) (13,000) ----------- ----------- Total stockholders' equity.................................. $ 17,425,000 $ 44,385,000 ----------- ----------- Total capitalization...................................... $ 17,425,000 $ 44,385,000 =========== ===========
- ---------------------- (1) Excludes 1,507,623 shares of Common Stock issuable upon exercise or conversion of options, warrants and convertible securities outstanding as of June 30, 1997. 13 16 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth for the periods and at the dates indicated certain financial data that should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere herein. The statements of operations data for the years ended December 31, 1994, 1995 and 1996, and the balance sheet data at December 31, 1995 and 1996 are derived from the consolidated financial statements of the Company that have been audited by BDO Seidman, LLP, independent certified public accountants, and are included elsewhere in this Prospectus. The statements of operations data for the years ended December 31, 1992 and 1993 and the balance sheet data at December 31, 1992, 1993 and 1994 are derived from audited consolidated financial statements of the Company not otherwise contained herein. The consolidated statements of operations data for the six months ended June 30, 1996 and 1997 and the consolidated balance sheet data as of June 30, 1997 are derived from unaudited consolidated financial statements of the Company included elsewhere herein. The unaudited consolidated financial statements have been prepared by the Company on a basis consistent with the Company's audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company's results of operations for such periods and financial condition at such dates. Results for the six months ended June 30, 1997 are not necessarily indicative of the results that can be expected for any other interim period or for the year ended December 31, 1997 as a whole.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ---------------------------------------------- --------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------ ------- ------- ------- ------ ------ (Unaudited) (In thousands, except per share data) CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1): Revenues................................................... $ 2,838 $7,770 $ 5,514 $ 6,374 $10,923 $5,012 $9,438 Cost of revenues........................................... 2,211 3,930 4,100 3,601 5,363 2,647 3,955 ------ ------ ------ ------ ------- ------ ------ Gross profit............................................. 627 3,840 1,414 2,773 5,560 2,365 5,483 ------ ------ ------ ------ ------- ------ ------ Operating expenses: Selling, general and administrative expenses............. 2,180 3,117 3,352 3,305 3,734 1,641 3,200 Product development...................................... 161 182 531 354 230 57 338 ------ ------ ------ ------ ------- ------ ------ Total operating expenses............................... 2,341 3,299 3,883 3,659 3,964 1,698 3,538 ------ ------ ------ ------ ------- ------ ------ Operating income (loss).................................... (1,714) 541 (2,469) (886) 1,596 667 1,945 Other (expense) income, net................................ (49) (101) (89) (292) 72 (103) 184 Income tax benefit (provision)............................. -- 153 (75) -- 391 -- 131 ------ ------ ------ ------ ------- ------ ------ Income (loss) from continuing operations................... (1,763) 593 (2,633) (1,178) 2,059 564 2,260 Income (loss) from operation held for sale................. (44) 2 68 351 -- -- -- ------ ------ ------ ------ ------- ------ ------ Net income (loss).......................................... (1,807) 595 (2,565) (827) 2,059 564 2,260 Preferred stock dividends.................................. (160) (114) (108) (82) (39) (24) (6) ------ ------ ------ ------ ------- ------ ------ Net income (loss) attributable to common stockholders...... $(1,967) $ 481 $(2,673) $ (909) $ 2,020 $ 540 $2,254 ====== ====== ====== ====== ======= ====== ====== Income (loss) per common share from continuing operations................................................. (0.90) 0.20 (0.97) (0.39) 0.48 0.16 0.36 Net income (loss) per common share: Primary.................................................. (0.92) 0.20 (0.95) (0.28) 0.48 0.16 0.36 ====== ====== ====== ====== ======= ====== ====== Fully diluted............................................ (0.92) 0.20 (0.95) (0.28) 0.44 0.15 0.35 ====== ====== ====== ====== ======= ====== ====== Weighted average common shares outstanding: Primary.................................................. 2,135 2,570 2,827 3,283 4,221 3,483 6,176 Fully diluted............................................ 2,135 2,570 2,827 3,283 4,607 3,854 6,388
DECEMBER 31, ---------------------------------------------- JUNE 30, 1992 1993 1994 1995 1996 1997 ------- ------ ------- ------- ------- ------------- (In thousands) (Unaudited) CONSOLIDATED BALANCE SHEET DATA: Working capital.............................................. $ 27 $2,912 $ 652 $ 370 $14,271 $16,414 Current assets............................................... 2,835 7,000 5,067 3,672 16,624 19,253 Total assets................................................. 4,805 8,939 6,792 4,735 17,323 20,385 Current liabilities.......................................... 2,808 4,088 4,415 3,302 2,353 2,839 Long-term liabilities........................................ 759 581 451 108 117 121 Stockholders' equity......................................... 709 3,646 1,186 1,325 14,853 17,425
- ---------------------- (1) Amounts for all periods ending prior to December 31, 1995 reflect Labco as a discontinued operation. The Company sold a portion of its equity interest in Labco in 1995 and the remainder of its interest in 1996. See "Certain Transactions--Sale of Subsidiary." 14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Barringer is the world's leading manufacturer (based on units sold) of high sensitivity equipment used for detecting and identifying trace amounts of plastic and other explosives and illegal drugs. The markets for the Company's IONSCAN(R) currently include aviation security, surface transportation security, facilities protection, forensics, military, correctional facilities, and customs and law enforcement agencies. The Company sold its first IONSCAN(R) in 1990 and, as of June 30, 1997, had sold over 500 units. From 1991 to 1995, the Company incurred losses as its business continued to develop, except during 1993 when the Company received a significant order for IONSCAN(R)s for deployment at the Eurotunnel. In 1996, the Company achieved profitability principally as a result of increased demand for and favorable market acceptance of the IONSCAN(R). Prior to 1996, the Company sold most of its IONSCAN(R)s for use in drug interdiction applications. However, in 1996, the Company's unit sales were more evenly distributed between explosives detection and drug interdiction applications. During the six months ended June 30, 1997, approximately half of the Company's unit sales were for explosives detection applications in the aviation security market. Management expects that the aviation security market will account for a substantial portion of the Company's future revenues. Revenues consist of (i) sales of IONSCAN(R)s, related accessories and consumable supplies, maintenance, training, and billable repairs, (ii) sales of other instruments and (iii) funded product development grants and contracts. Selling prices for the IONSCAN(R) average between $50,000 and $95,000 per unit, depending principally on the configuration of the unit and the purchaser's location. Profitability associated with any given sale, and the Company's gross margin for any given quarter, may vary substantially due to unit configuration, the geographic location of the purchaser and whether sales prices include a distributor mark-up. The Company recognizes revenues from the sale of IONSCAN(R)s upon shipment. Accordingly, changes in delivery dates for relatively few IONSCAN(R)s from one quarter to another may have a significant impact on the Company's quarterly results of operations. See "Risk Factors--Dependence on Large Orders; Customer Concentrations" and "--Fluctuations in Operating Results." Substantially all of the Company's revenues are denominated in U.S. dollars. However, the Company operates in several foreign countries, including Canada, the United Kingdom and France and, in those instances, the Company recognizes revenues and incurs expenses denominated in the local currency. To date, the Company has not experienced significant losses as a result of foreign currency fluctuations. The Company generally does not hedge its foreign currency exposure. Approximately 59.3% and 68.6% of the Company's total revenues for the six months ended June 30, 1997 and the year ended December 31, 1996, respectively, were derived from non-U.S. sources. Approximately 25.0% of total revenues in 1996 were derived from customers in Canada. See "Risk Factors--International Business; Risk of Changes in Foreign Regulations; Fluctuations in Exchange Rates." The Company manufactures to a sales forecast in order to have inventory available to meet anticipated demand promptly and historically has not had a backlog of orders. Management's sales forecast is determined by an analysis of a number of factors, including, among other things, the customer's need, the availability of budgeted funds, the status of equipment demonstrations, the status of any required approvals, the effects of competition and the complexity of the customer's procurement process. However, as a result of large orders received from the FAA and the U.S. Coast Guard in the second quarter of 1997, at June 30, 1997 the Company had a backlog of orders. See "Business--Backlog." 15 18 RESULTS OF OPERATIONS The following table sets forth certain income and expense items from the Company's consolidated statements of operations expressed as a percentage of revenues for the periods indicated.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------- --------------- 1994 1995 1996 1996 1997 ----- ----- ----- ----- ----- CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues............................... 74.4 56.5 49.1 52.8 41.9 ----- ----- ----- ----- ----- Gross profit................................ 25.6 43.5 50.9 47.2 58.1 ----- ----- ----- ----- ----- Operating expenses: Selling, general and administrative expenses.................................. 60.8 51.9 34.2 32.8 33.9 Product development......................... 9.6 5.5 2.1 1.1 3.6 ----- ----- ----- ----- ----- Total operating expenses.................. 70.4 57.4 36.3 33.9 37.5 ----- ----- ----- ----- ----- Operating income (loss)........................ (44.8) (13.9) 14.6 13.3 20.6 Other (expense) income, net.................... (1.6) (4.6) 0.7 (2.1) 1.9 Income tax benefit (provision)................. (1.4) -- 3.6 -- 1.4 ----- ----- ----- ----- ----- Income (loss) from continuing operations....... (47.8) (18.5) 18.9 11.2 23.9 Income from operation held for sale............ 1.3 5.5 -- -- -- ----- ----- ----- ----- ----- Net income (loss).............................. (46.5) (13.0) 18.9 11.2 23.9 Preferred stock dividends...................... (2.0) (1.3) (0.4) (0.5) (0.1) ----- ----- ----- ----- ----- Net income (loss) attributable to common stockholders................................ (48.5)% (14.3)% 18.5% 10.7% 23.8% ===== ===== ===== ===== =====
COMPARISON OF THE SIX-MONTH PERIOD ENDED JUNE 30, 1997 TO THE SIX-MONTH PERIOD ENDED JUNE 30, 1996 Revenues. For the six months ended June 30, 1997, revenues increased by $4.4 million, or 88.3%, to $9.4 million from $5.0 million in the comparable period ended June 30, 1996. Sales of IONSCAN(R)s and related products increased by $5.2 million, or 135%, due to an increase of 167% in the number of units sold, offset in part by a decline in average unit selling price. The increase in unit sales was due to significant IONSCAN(R) sales to the aviation security sector, primarily to the FAA, and, to a lesser extent, increased sales in other markets. The decrease in average selling prices resulted primarily from an increase in the number of IONSCAN(R)s sold to U.S. government agencies, which typically are at lower unit prices than sales to other customers. Sales of specialty instruments decreased by approximately $523,000, or 83.9%, in the six months ended June 30, 1997 as compared to the same period in 1996, principally due to the completion of a heavy water analyzer contract, which was awarded to the Company in mid-1995 and completed in the first half of 1996. Revenues derived from funded research and development decreased by approximately $227,000, or 42.0%, in the six months ended June 30, 1997 as compared to the same period in 1996. Funded research revenues declined as the Company redirected its research and development resources to product application and development and in support of increased production. As sales of its IONSCAN(R)s have increased, the Company has placed less emphasis on marketing of specialty instruments and contract research and development. As a result, management anticipates that revenues from those activities will become increasingly less important to the Company's overall results of operations. Gross Profit. For the six months ended June 30, 1997, gross profit increased by $3.1 million, or 132%, to $5.5 million from $2.4 million in the comparable 1996 period. As a percentage of revenues, gross profit increased to 58.1% in the 1997 period from 47.2% in the comparable 1996 period. The improvement was primarily attributable to higher margins on international sales, coupled with larger, 16 19 more efficient production runs of the IONSCAN(R), offset in part by lower margins on sales to U.S. government agencies. In addition, the Company has been able to reduce its cost of materials as a result of higher volume purchases. Selling, General and Administrative. For the six months ended June 30, 1997, selling, general and administrative expenses increased by $1.6 million, or 95.0%, to $3.2 million from $1.6 million in the comparable 1996 period. Selling and marketing expenses increased by approximately $1.0 million, of which $687,000 was due to increased sales commissions attributable to a larger percentage of sales originating through independent sales agents and distributors during the period. The remaining increase was attributable to the addition of sales and service personnel and related costs to handle increased business volume. General and administrative expenses increased by $553,000, primarily as a result of increased payroll and related costs and increased professional and consulting costs. As a percentage of revenues, selling, general and administrative expenses increased to 33.9% in the 1997 period from 32.8% in the comparable 1996 period. Product Development. For the six months ended June 30, 1997, product development expenses increased by $281,000, or 493%, to $338,000 from $57,000 in the comparable 1996 period. As a percentage of revenues, product development expenses increased to 3.6% (6.9% when combined with funded research and development) in the 1997 period from 1.1% (11.9% when combined with funded research and development) in the comparable 1996 period as a result of a higher level of new product development activity. Management expects to incur increased product development expenses in future periods in connection with the enhancement of existing products and the development of new products and applications. Other Income and Expense. For the six months ended June 30, 1997, interest expense decreased by $125,000, or 96.2%, to $5,000 from $130,000 in the comparable 1996 period as a result of the repayment of indebtedness out of the net proceeds of the Company's November 1996 public offering. Investment income for the six months ended June 30, 1997 was $212,000 as compared to $42,000 for the same period in 1996, primarily as a result of the investment of a portion of the net proceeds from the Company's November 1996 public offering. In the six months ended June 30, 1996, the Company recorded $42,000 of gains recognized on trading securities held for Canadian pension funding purposes. Income Taxes. In the six-month period ended June 30, 1997, the Company had a net tax benefit of $131,000, composed of current foreign taxes of $291,000, offset by a $422,000 net deferred tax benefit. Such deferred tax benefit was due in part to a reduction in the deferred tax valuation allowance as a result of changes in management's estimates of the utilization of both U.S. and Canadian tax loss carryforwards caused primarily by improved operating results. Management anticipates that further deferred tax benefits will be recognized in 1997. COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1996 TO THE FISCAL YEAR ENDED DECEMBER 31, 1995 Revenues. Revenues for the fiscal year ended December 31, 1996 increased by $4.5 million, or 71.4%, to $10.9 million from $6.4 million for the fiscal year ended December 31, 1995. Net sales of the IONSCAN(R) and related products increased by approximately $4.9 million, or 93.5%, due to an increase of 134% in the number of units sold. The increase in IONSCAN(R) sales was due to increased sales of the Model 400 which was introduced in the first quarter of 1995. Net sales of other instruments increased by approximately $223,000, or 41.6%, in 1996 as compared to 1995, principally due to work performed on a heavy water analyzer contract, which was awarded to the Company in mid-1995 and completed in the first half of 1996. In addition, net sales benefited from the sale of several other instruments. The markets for heavy water analyzers and other instruments are limited, and therefore management cannot predict whether the Company will receive any future orders. Revenues derived from funded research and development decreased by approximately $349,000, or 33.2%, in 1996 as compared to 1995. The reduced revenues were attributable to the Company's contract with the Emergencies 17 20 Science Division, Environment Canada to design and build an airborne laser fluorosensor system, a substantial portion of which was completed in 1995. Gross Profit. Gross profit increased by $2.8 million, or 101%, to $5.6 million from $2.8 million for fiscal 1995. As a percentage of revenues, gross profit increased to 50.9% from 43.5%. The improvement was primarily attributable to higher margins on international sales, coupled with larger, more efficient production runs of the IONSCAN(R) and related products. The sale at higher than expected prices of several Model 350 units during the first six months of 1996, the carrying value of which had been reduced in 1995, also attributed to the improvement. Selling, General and Administrative. Selling, general and administrative expenses increased by approximately $429,000, or 13.0%, to $3.7 million from $3.3 million for fiscal 1995. In 1995, the Company recognized an expense decrease of $337,000 attributable to a negotiated reduction in professional fees and $147,000 of additional expense reduction recognized on the termination of the Company's Canadian Pension Plan as of December 31, 1993. Excluding these items, selling, general and administrative expenses in 1996 decreased by $55,000, or 1.7%. As a percentage of revenues, selling, general and administrative expenses decreased to 34.2% from 51.9%. The decrease as a percentage of revenues was primarily attributable to spreading costs over increased revenues. Selling expenses increased by $108,000, or 4.6%, in 1996 as compared to 1995, primarily as a result of increased sales commissions on units sold in the fourth quarter of 1996. Product Development. Product development expenses decreased by approximately $124,000, or 35.0%, to approximately $230,000 from $354,000 for fiscal 1995. As a percentage of revenues, product development expenses decreased to 2.1% from 5.5%. The level of product development at any time is primarily a function of the availability of financial and personnel resources. Management expects product development expenses to increase significantly in 1997. Other Income and Expense. Equity in earnings of Labco represents the Company's share of Labco's operating results, in which the Company had a non-controlling ownership during most of 1996. Prior to December 31, 1995, the Company had a controlling interest in Labco, but from the first quarter of 1995 until the end of 1996, the Company presented Labco as an operation held for sale. The Company's share of Labco's net income for 1996 was $117,000, as compared to $258,000 for the same period in 1995 (where it is shown as Income from operations under the caption "Operation held for sale"). The Company sold its remaining interest in Labco in 1996. See "Certain Transactions -- Sale of Subsidiary." In 1996, the Company earned investment income of $72,000. Other expense, net of income, was $12,000 in 1996, as compared to $52,000 in 1995. In 1996, the Company recognized $44,000 of gains from trading securities held for Canadian pension funding purposes, partially offset by miscellaneous expenses, including $43,000 of foreign exchange losses realized in 1996. In 1995, the Company realized foreign exchange losses of $79,000. Income Taxes. For the year ended December 31, 1996, the Company had a net tax benefit of $391,000 primarily due to a reduction in the deferred tax valuation allowance as a result of changes in management's estimates of the utilization of both U.S. and Canadian tax loss carryforwards caused primarily by improved operating results. Management anticipates that further deferred tax benefits will be recognized in 1997. COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1995 TO THE FISCAL YEAR ENDED DECEMBER 31, 1994 Revenues. Revenues for the fiscal year ended December 31, 1995 increased by $860,000, or 15.6%, to $6.4 million from $5.5 million for the fiscal year ended December 31, 1994. Sales of IONSCAN(R) instruments and related products decreased by approximately $80,000, or 1.6%. The decrease was due, in part, to the lower selling price of the new Model 400 IONSCAN(R), which was introduced in the first quarter of 1995. This reduction in selling price, coupled with other improvements of the new model, contributed to a 36.6% increase in unit sales. 18 21 Sales of instruments other than IONSCAN(R) products increased in 1995 by approximately $114,000, or 33.0%, principally due to the award in 1995 of the contract to build four heavy water analyzers for use at a nuclear facility in Asia, which was completed in mid-1996. The introduction of the Model 400 resulted in reduced sales of the Model 350. As a result, the Company reduced the carrying value of the Model 350s remaining in inventory. Revenues of the research and development business increased by approximately $754,000, or 253%, in 1995 as compared to 1994. The improved revenues are attributable to work performed in 1995 under the Company's contract with the Emergencies Science Division, Environment Canada to design and build an airborne laser fluorosensor system. The Company introduced and made a limited distribution of DrugAlert(TM) in 1995. Sales of DrugAlert(TM) were not significant. Gross Profit. Gross profit increased by $1.4 million, or 96.1%, to $2.8 million from $1.4 million for fiscal 1994. As a percentage of sales, gross profit increased to 43.5% from 25.6%. As a percentage of sales, gross profit for the research and development business decreased to 5.1% from 12.1%. The decrease was due to lower margins on 1995 contracts. As a percentage of sales, gross profit for the instruments business increased to 53.1% from 26.4%. The 1995 gross profit was impacted by the write down of the carrying value of the Model 350 inventory which aggregated approximately $442,000, approximately $155,000 of which related to excess spare parts inventory and the balance to finished goods. In 1994, the Company took a $792,000 charge against its Model 350 inventory. The consumer products business had negative gross profit in 1995 due primarily to the expensing of tooling, software and other development costs. Selling, General and Administrative. Selling, general and administrative expenses decreased by approximately $47,000, or 1.4%, to $3.3 million from $3.4 million for fiscal 1994. As a percentage of revenues, selling, general and administrative expenses decreased to 51.9% from 60.8%. The decrease as a percentage of revenues was primarily attributable to such costs being spread over a higher revenue base. Selling expenses increased by $759,000, or 48.3%, in 1995 as compared to 1994. The increase was primarily attributable to the expenses associated with the Company's Paris, France and London, England offices being open for a full year and marketing expenses associated with the DrugAlert(TM) product. General and administrative expenses decreased by approximately $806,000, or 45.3%, in 1995 as compared to 1994. This reduction was attributable primarily to the recovery of $147,000 relating to the 1993 conversion of the Canadian pension plan from a defined benefit plan to a money purchase plan, a reduction in accounts payable of $226,000 relating to a settlement of professional fees and the effect of staff and expense reductions implemented in late 1994. Product Development. Product development expenses decreased by approximately $177,000, or 33.3%, to $354,000 from $531,000 in fiscal 1994. As a percentage of revenue, product development expenses decreased to 5.5% from 9.6%. The 1994 level was attributable to the completion of the development of the Company's new Model 400. Other Income and Expense. Interest expense increased by approximately $38,000, or 18.8%, in 1995 as compared to 1994. The increase resulted from higher levels of borrowing at higher interest rates. Other expense, net of income, in 1995 was approximately $52,000 as compared to other income, net of expense, in 1994 of approximately $113,000. The difference of $165,000 was attributable primarily to changes in exchange rates which generated a gain of $135,000 in 1994 compared to a loss of $79,000 in 1995. 19 22 QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain consolidated statements of operations data for the last two fiscal quarters of 1995, the four fiscal quarters of 1996 and the first two fiscal quarters of 1997. This data is unaudited but, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation of this information in accordance with generally accepted accounting principles. The operating results for any quarter are not necessarily indicative of results for any future period or for the entire fiscal year.
QUARTER ENDED ------------------------------------------------------------------------------ SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, 1995 1995 1996 1996 1996 1996 1997 1997 -------- -------- -------- -------- -------- -------- -------- -------- (In thousands, except per share data) Revenues.............................. $1,434 $1,830 $2,354 $2,658 $2,340 $3,571 $3,622 $5,816 Cost of revenues...................... 952 757 1,236 1,411 1,002 1,715 1,461 2,494 ------ ------ ------ ------ ------ ------ ------ ------ Gross profit........................ 482 1,073 1,118 1,247 1,338 1,856 2,161 3,322 ------ ------ ------ ------ ------ ------ ------ ------ Operating expenses: Selling, general and administrative.................... 656 1,349 809 832 919 1,174 1,295 1,905 Product development................. 29 221 17 40 34 139 175 163 ------ ------ ------ ------ ------ ------ ------ ------ Total operating expenses.......... 685 1,570 826 872 953 1,313 1,470 2,068 ------ ------ ------ ------ ------ ------ ------ ------ Operating income (loss)............... (203) (497) 292 375 385 543 691 1,254 Other (expense) income, net........... (99) (23) (103) 0 33 142 79 105 Income tax benefit.................... -- -- -- -- 125 266 75 56 ------ ------ ------ ------ ------ ------ ------ ------ Income (loss) from continuing operations.......................... (302) (520) 189 375 543 951 845 1,415 Operation held for sale............... 139 157 -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ Net income (loss)..................... $ (163) $ (363) $ 189 $ 375 $ 543 $ 951 $ 845 $1,415 ====== ====== ====== ====== ====== ====== ====== ====== Net income (loss) per common share (fully diluted)..................... $(0.05) $(0.11) $ 0.05 $ 0.10 $ 0.12 $ 0.18 $ 0.14 $ 0.22 ====== ====== ====== ====== ====== ====== ====== ====== Weighted average common shares outstanding (fully diluted)......... 3,412 3,415 3,479 3,489 4,619 5,376 6,109 6,418
The following table sets forth, as a percentage of revenues, certain consolidated statements of operations data for the last two fiscal quarters of 1995, the four fiscal quarters of 1996 and the first two fiscal quarters of 1997.
QUARTER ENDED ------------------------------------------------------------------------------------- SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, 1995 1995 1996 1996 1996 1996 1997 1997 -------- -------- -------- -------- -------- -------- -------- -------- Revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues.............. 66.4 41.4 52.5 53.1 42.8 48.0 40.3 42.9 ----- ----- ----- ----- ----- ----- ----- ----- Gross profit................ 33.6 58.6 47.5 46.9 57.2 52.0 59.7 57.1 ----- ----- ----- ----- ----- ----- ----- ----- Operating expenses: Selling, general and administration............ 45.7 73.7 34.4 31.3 39.3 32.9 35.8 32.8 Product development......... 2.0 12.1 0.7 1.5 1.5 3.9 4.8 2.8 ----- ----- ----- ----- ----- ----- ----- ----- Total operating expenses................ 47.7 85.8 35.1 32.8 40.8 36.8 40.6 35.6 ----- ----- ----- ----- ----- ----- ----- ----- Operating income (loss)....... (14.1) (27.2) 12.4 14.1 16.4 15.2 19.1 21.5 Other (expense) income, net... (6.9) (1.3) (4.4) 0.0 1.4 4.0 2.1 1.8 Income tax benefit............ -- -- -- -- 5.3 7.4 2.1 1.0 ----- ----- ----- ----- ----- ----- ----- ----- Income (loss) from continuing operations.................. (21.0) (28.5) 8.0 14.1 23.1 26.6 23.3 24.3 Operation held for sale....... 9.7 8.6 -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- Net income (loss)............. (11.3)% (19.9)% 8.0% 14.1% 23.1% 26.6% 23.3% 24.3% ===== ===== ===== ===== ===== ===== ===== =====
20 23 LIQUIDITY AND CAPITAL RESOURCES During 1995 and 1996, the Company used the net proceeds of private and public sales of securities to fund a portion of its cash flow needs. Since January 1, 1995, the Company has raised approximately $2.0 million from the private sales of warrants, convertible debentures and Common Stock. During 1995 and 1996, the Company also financed a portion of its working capital needs through the sale of its remaining interest in Labco, pursuant to which the Company received $874,000. See "Certain Transactions--Sale of Subsidiary." In November 1996, the Company completed a public offering of its Common Stock and Common Stock Purchase Warrants, resulting in net proceeds of $10.4 million. A portion of the net proceeds of that offering was used to repay the Company's long-term indebtedness. Cash used in operations was $1.3 million for the first six months of 1997, $1.4 million in 1996 and $711,000 in 1995. Cash used in the first six months of 1997 resulted primarily from a significant increase in accounts receivable and inventories, which more than offset net income of $2.3 million. Accounts receivable increased as a result of higher sales, particularly during the month of June. Inventories also increased substantially as the Company acquired the materials necessary to support increased IONSCAN(R) production during the second half of 1997. Cash used in operating activities during 1996 resulted primarily from increases in accounts receivable and inventory, which more than offset net income of $2.1 million for the year. Cash used in operating activities during 1995 resulted primarily from the loss of $827,000 recorded by the Company for 1995. Net cash used in investing activities was $240,000 for the first six months of 1997, $3.9 million in 1996 and $58,000 in 1995. Cash used in investing activities during the first half of 1997 resulted primarily from capital expenditures of $513,000, offset in part by the sale of investments. Cash used in investing activities during 1996 resulted primarily from the investment of a portion of the net proceeds of the Company's November 1996 public offering, offset in part by the receipt of $574,000 in connection with the Company's sale of its remaining interest in Labco. Cash used in investing activities during 1995 resulted primarily from the purchase of equipment, which was partially offset by the receipt of an additional $300,000 in connection with the Labco sale. Cash provided by financing activities was $155,000 for the first six months of 1997, $10.6 million in 1996 and $584,000 in 1995. Cash provided by financing activities during the first six months of 1997 resulted primarily from the net proceeds of certain option and warrant exercises, offset in part by the repayment of indebtedness. Cash provided by financing activities in 1996 resulted primarily from the Company's November 1996 public offering, as well as the conversion of $1.0 million of convertible subordinated debentures, offset in part by the repayment of indebtedness. Cash provided by financing activities in 1995 resulted primarily from the receipt of net proceeds from the private placement of securities, offset in part by the repayment of certain indebtedness. The Company's capital expenditures for the six months ended June 30, 1997 aggregated $513,000. Such expenditures consisted primarily of software upgrades to various manufacturing information systems, computer hardware modernization relating to the Company's network system and the acquisition of additional equipment. The Company anticipates that total capital expenditures will be approximately $500,000 for the remainder of 1997, substantially all of which will relate to equipment. Also, the Company believes that it will require approximately $1.0 million in additional investment in tooling, equipment, fixtures and facility to meet its anticipated production levels for 1998. The Company has substantial tax loss carryforwards to offset future tax liabilities in the U.S. As of June 30, 1997, the Company had cash and cash equivalents of $3.9 million and marketable securities of $4.1 million. The Company believes that its existing cash balances, marketable securities, income from operations in future periods and the net proceeds of this Offering will be sufficient to fund its working capital requirements for at least the next twelve months. 21 24 INFLATION Inflation was not a material factor in either the sales or the operating expenses of the Company during the periods presented herein. RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") which establishes standards for computing and presenting earnings per share. SFAS 128 replaces the presentation of primary earnings per share and fully diluted earnings per share with basic earnings per share and diluted earnings per share, respectively. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed similarly to fully diluted earnings per share. The standard is effective for financial statements for periods ending after December 15, 1997, with earlier application not permitted. Basic and diluted earnings per share using this standard would have been $0.26 and $0.22 and $0.42 and $0.35, respectively, for the three months and six months ended June 30, 1997, respectively, and $0.10 and $0.10 and $0.16 and $0.15, respectively, for the three months and six months ended June 30, 1996, respectively. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires disclosure of reportable operating segments and will be effective for financial statements issued for fiscal years beginning after December 31, 1997. The Company will be reviewing this pronouncement to determine its applicability to the Company, if any. 22 25 BUSINESS OVERVIEW Barringer is the world's leading manufacturer (based on units sold) of high sensitivity equipment used for detecting and identifying trace amounts of plastic and other explosives and illegal drugs. The Company designs and produces products that employ a proprietary application of ion mobility spectrometry ("IMS") technology that can detect and identify targeted compounds in amounts smaller than one-billionth of a gram in approximately six seconds. The Company's principal product, the IONSCAN(R), is a portable desktop system which had an installed base of over 500 units in 39 countries as of June 30, 1997. The Company's revenues have grown from $2.0 million for the year ended December 31, 1991 to $10.9 million for the year ended December 31, 1996, representing a compounded annual growth rate of 40.4% over the last five years. For the six months ended June 30, 1997, the Company's revenues and net income were $9.4 million and $2.3 million, respectively. The markets for the Company's IONSCAN(R) currently include aviation security, surface transportation security, facilities protection, forensics, military, correctional facilities and customs and law enforcement agencies. The Company's customers include the FAA, the U.S. Coast Guard, the DEA and the FBI, as well as customs agencies in France, Canada and Japan and various prison facilities in the U.S. and elsewhere. The IONSCAN(R) is also installed at over 40 airports and transportation centers around the world, including Gatwick and Heathrow airports in the United Kingdom, John F. Kennedy International Airport, certain British Rail terminals and the Eurotunnel. The Company believes that its principal competitive advantages are the detection capability, reliability, cost effectiveness, versatility, ease of use and portability of the IONSCAN(R). These advantages enable the IONSCAN(R) to be used both in lieu of and in conjunction with bulk imaging technologies, such as enhanced x-ray and CATSCAN. INDUSTRY BACKGROUND The Company believes that there are numerous potential applications for its trace detection technology. Currently, the principal applications are explosives detection and drug interdiction. Explosives Detection In the past several years, a number of events have contributed to increased public concern regarding the threat of terrorism and have focused government attention on the limited effectiveness of currently deployed x-ray and metal detection equipment and on the need for advanced explosives detection technology. As a result, several advanced technologies have been adapted for use in explosives detection applications. These technologies include bulk imaging techniques, such as enhanced x-ray and CATSCAN, as well as trace detection techniques, such as IMS, gas chromatography and chemoluminescence. Bulk imaging techniques offer certain advantages over conventional x-ray technology, but are generally expensive to deploy (as much as $1.0 million per installation), are non-portable and generally reject a large number of objects as a result of perceived anomalies that are later determined not to be explosives. By comparison, trace detection equipment is capable of detecting and identifying minute amounts of chemical substances and is generally more portable and less expensive than bulk imaging equipment. While implementation of advanced detection strategies has varied significantly around the world, aviation authorities, including the FAA and BAA plc, formerly the British Airport Authority (the "BAA"), have generally recognized that no one detection technology provides a complete solution to the problem of enhancing existing detection capabilities. Consequently, trace detection technology is frequently deployed as a complement to bulk imaging equipment to resolve anomalies identified by bulk detectors and in applications where it is impractical to use the larger, less mobile bulk imaging detectors, such as checking carry-on baggage. Trace detection technology is also deployed in lieu of 23 26 bulk imaging equipment in certain installations because of its relatively low cost, particularly in smaller airports and in less developed countries. The development and deployment of advanced explosives detection technology is being driven by recent government initiatives in the United States and elsewhere in the world. For example, in response to the recommendations of the White House Commission on Aviation Safety and Security (the "Gore Commission"), in October 1996, the U.S. Congress appropriated $144 million for the procurement of advanced explosives detection technology which the FAA is using to deploy such technology in a limited number of the 400 busiest U.S. airports. In addition, the BAA has installed enhanced detection technologies, including trace detectors, in airports throughout Britain. Also, since the enactment of the Aviation Security Act of 1990, the FAA has funded over $150 million for research and development of advanced explosives detection technologies. Trace detection technology has a broad range of other explosives detection uses, including surface transportation security, facilities protection, forensics, military and law enforcement agencies. For instance, trace detection equipment has been deployed by British Rail for use on trains traveling through the Eurotunnel. Government agencies, military forces and private businesses have deployed trace detection equipment at facilities, such as the World Trade Center, embassies and public utilities, such as nuclear power plants, that are perceived as potential targets of terrorist attacks. Law enforcement agencies, such as the FBI and the New York City Police Department, and military forces also use trace detection technology for forensic purposes. For example, the IONSCAN(R) was recently used in connection with the investigations of the crash of TWA Flight 800 and the 1995 Oklahoma City bombing. Drug Interdiction As a result of increased drug usage, a heightened public awareness regarding drug-related criminal activity generally and the use of more sophisticated techniques by drug traffickers, government agencies have increased their spending on drug interdiction efforts. For example, in fiscal year 1996, the U.S. government spent $1.4 billion on these drug interdiction efforts. The use of conventional x-ray scanning, random searches and canines has not measurably suppressed illegal drug trafficking. Accordingly, customs and law enforcement agencies have increasingly turned to advanced detection technology to assist in their drug detection and interdiction efforts. For example, the U.S. Coast Guard has deployed trace detection equipment onboard its ships to search vessels at sea for illegal drugs. Similarly, prisons in the U.S. and elsewhere are employing trace detection equipment to reduce drug use. THE BARRINGER ADVANTAGE The Company believes that its implementation of IMS technology gives the IONSCAN(R) a distinct competitive advantage over other detection techniques, including bulk imaging and other trace detection technologies. The IONSCAN(R) can detect and identify targeted compounds in amounts smaller than one-billionth of a gram. Existing bulk imaging technologies, in contrast, search for anomalies that might indicate the presence of explosive materials but are not presently capable of identifying specific compounds or detecting the presence of explosives with the same sensitivity as the IONSCAN(R). In addition, because bulk imaging technologies attempt to identify anomalies present in an object, they reject a significantly higher number of objects that do not contain explosives than the IONSCAN(R). The Company believes that the portability and low cost of the IONSCAN(R) make the IONSCAN(R) particularly attractive to customers seeking a cost-effective solution to their need for advanced detection technology. The portability of the IONSCAN(R) allows customers to deploy the equipment where needed. The low cost of the IONSCAN(R) relative to other existing detection technologies allows customers in smaller installations and in less developed countries to obtain advanced detection 24 27 technology without having to incur the significant capital expenses currently necessary to deploy bulk imaging technologies. The Company believes that the IMS technology used in the IONSCAN(R) also makes the IONSCAN(R) more versatile and easier to use than other detection technologies. For example, an IONSCAN(R) can be readily used in either an explosives detection or drug interdiction application without modification. Currently, trace detectors utilizing other detection technologies, such as gas chromatography, can only perform one such application. In addition the IONSCAN(R) has demonstrated its reliability in field use. For example, based on sampling data obtained from the FAA as of July 15, 1997, the IONSCAN(R)s deployed by the FAA to date have experienced a mean time between failures in excess of 6,000 hours. The Company believes that this level of reliability has not been duplicated by its competitors to date. The Company believes that the advantages of the IONSCAN(R) have been recognized by the Company's customers, as demonstrated by the large installed base of over 500 IONSCAN(R)s as of June 30, 1997. STRATEGY The Company's objective is to maintain its position as the world's leading provider of trace detection systems in its core markets and to become a leading supplier of other advanced technology security solutions. The Company's strategy for achieving this objective includes the following: Further Penetrate Existing Markets. The Company sells its IONSCAN(R) product in a variety of markets, including aviation security, surface transportation security, facilities protection, forensics, military, correctional facilities, and customs and law enforcement agencies. The Company intends to extend its leadership in its existing markets through continuous improvements to its IMS technology. In addition, the Company intends to adapt its core IMS technology to expand its use in existing markets. For example, the Company has received funding from the FAA for the development of a document scanner and a token scanner for the purpose of passenger screening at airports and an automated luggage screening system for the purpose of screening checked luggage. Leverage IMS Technology for New Applications. The Company believes that the requirement for high-precision detection capability creates opportunities for the Company's technology in applications other than explosives detection and drug interdiction. Accordingly, the Company intends to develop products for new applications such as quality monitoring, process control, and food and perishable goods inspection. The Company believes that its IMS technology can also be used to detect the presence of chemical and biological agents. Pursue Strategic Relationships and Acquisitions. An important element of the Company's growth strategy is to extend its existing technology and market expertise to attain leadership in other security markets through strategic relationships and acquisitions. As these markets evolve and customers in both commercial and government segments become more sophisticated, the Company believes the ability to offer a broader scope of detection capability for use in various current and emerging applications will become increasingly important. Moreover, the Company believes that numerous security technologies exist that are complementary to its own capabilities and for which the Company can provide enhanced access to distribution, management, manufacturing and financial resources. Expand Sales and Marketing Capabilities. The Company intends to continue to expand its sales and marketing capabilities both domestically and internationally to capitalize on opportunities in its existing markets for new installations as well as on opportunities in new markets. The Company intends to hire additional sales and customer service personnel in Europe, certain republics of the former Soviet Union, and the Middle East and to open an office in Malaysia by the end of 1997. Expanding its international sales and marketing presence will provide the Company with better access to growing foreign markets and to its existing international customer base. 25 28 IONSCAN(R) TECHNOLOGY The IONSCAN(R) is a portable, desktop system that utilizes a proprietary implementation of IMS technology to analyze samples for the presence of targeted chemical compounds in amounts smaller than one-billionth of a gram. An operator collects samples, either by utilizing a hand-held suction device that contains a special filter cartridge that collects the sampled matter or by swiping a cloth or glove across the surface to be tested and then transferring the sampled matter to the cartridge. After the sample has been collected, the filter cartridge is placed onto a slide tray on the front of the IONSCAN(R) and inserted into a heating chamber. The sample is then rapidly heated, causing the sample to vaporize. The molecules contained in the vapors from the sample are charged electrically, converting them into ions that are collected and then propelled through a testing chamber containing a controlled mixture of calibrant gases. The speed at which each ion travels through the testing chamber will vary depending upon its molecular structure. The IONSCAN(R) measures the time of flight of the ions through the testing chamber and, utilizing proprietary software containing Company-developed detection algorithms, determines whether the targeted chemicals are present and reports the results to the user. If traces of any of the targeted chemical compounds are present, the IONSCAN(R)'s alarm will ring, a red light on the IONSCAN(R) will flash and the screen will display a list of the targeted substances that were detected. If no traces of the targeted substances are detected, the IONSCAN(R) will display a green light. The IONSCAN(R) analyzes a sample in approximately six seconds. Because the IONSCAN(R)'s analysis takes place under high temperature, there is virtually no residue from the sample and, under normal operating conditions, additional sampling can take place almost immediately with no need to clean out the testing chamber. The Company also has developed the IONSCAN(R) Manager software for use in conjunction with the IONSCAN(R). The IONSCAN(R) Manager provides the user with enhanced graphic read-outs of test results enabling the user to view the data in more detail. Utilizing this software, a user can view multiple test results at the same time, switch back and forth between test results and highlight particular areas of interest to obtain greater detail. This software also can be used to print out or save data and to transfer test results onto a computer disk for storage, transportation or other uses, such as manipulation in chemical studies. In addition, the Company has developed the Barringer Link software, which allows a remote user to have access to the IONSCAN(R). Typically, this software is used by the customer to select different testing algorithms for the IONSCAN(R) or to troubleshoot problems with the unit. A customer has the capability to test for a different set of chemical compounds by remotely downloading the necessary algorithms onto its IONSCAN(R). For instance, if a U.S. Coast Guard vessel on patrol needs the capability to test a suspect vessel for a particular type of illegal drug, the required information can be downloaded to its unit. In addition, the Barringer Link allows the Company or the customer to run certain diagnostic programs to determine problems that may have occurred within a particular unit and to correct certain software problems. 26 29 CUSTOMERS The following is a list of representative end users and/or installations of the IONSCAN(R) as of June 30, 1997. Explosives Detection
MARKETS END USER/INSTALLATION - ----------------------------------- ---------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Aviation Security Manchester Airport plc, UK Aeroporti di Roma, Italy Heathrow Airport Ltd., UK Gatwick Airport Ltd., UK Birmingham International Airport plc, UK Bristol Airport plc, UK Kuala Lumpur International Airport, Malaysia John F. Kennedy International Airport (New York) Luton International Airport, UK - --------------------------------------------------------------------------------------------------------- Surface Transportation Security Societe Nationale Companie Maritime, France British Rail Eurostar, UK Societe Nationale des Chemins de Fer Francais (Le Shuttle) The Channel Tunnel Group Ltd. (Eurotunnel) Airmax, Inc. (Chicago) - --------------------------------------------------------------------------------------------------------- Facilities Protection Gaz de France Electricity de France New York World Trade Center Ronald Reagan Federal Office Building - --------------------------------------------------------------------------------------------------------- Forensics Federal Bureau of Investigation Department of Justice, Belgium Ministry of Defense, Italy Ministry of Justice, Taiwan Stadt Polizei Zurich, Switzerland - --------------------------------------------------------------------------------------------------------- Military Ministry of Defense, UK Gendarmerie Nationale, France Comando Generale Arma Dei Carabinieri, Italy Aeronautica Militare, Italy U.S. Army U.S. Navy U.S. Air Force - ---------------------------------------------------------------------------------------------------------
Drug Interdiction
MARKETS END USER/INSTALLATION - ----------------------------------- ---------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Correctional Facilities California Department of Corrections Pennsylvania Department of Corrections Departamento del Distrito Federal (Reclusiorios Prisiones Federales) Correctional Service Canada - --------------------------------------------------------------------------------------------------------- Customs U.S. Customs Service Revenue Canada, Customs and Excise HM Customs and Excise, UK French Customs (Douanes) Customs Bureau, Ministry of Finance, Japan Australia Customs Service Vietnam General Department of Customs Korea Customs Service - --------------------------------------------------------------------------------------------------------- Law Enforcement U.S. Coast Guard Japan Coast Guard U.S. Drug Enforcement Agency Port Authority of New York and New Jersey New York Police Department Police Nationale, France Home Office, UK Ministero dell' Interno, Italy Hong Kong Police Harris County Parole Program (Texas) Public Housing Authorities (Florida) Panama City Housing Authority (Florida) - ---------------------------------------------------------------------------------------------------------
27 30 SALES AND MARKETING The Company sells its products through a direct sales organization comprised of 18 sales people located at its headquarters in New Jersey and at offices in Toronto, London and Paris. The Company also intends to open an office in Malaysia by the end of 1997. In addition, the Company maintains a network of 49 independent sales and service representatives located in Europe, the Middle East, Africa, Asia, South America and Australia. See "--Facilities." The Company also has entered into sales representative agreements with Mitsubishi Heavy Industries for distribution of the IONSCAN(R) in Japan. The Company's sales and marketing efforts typically involve extensive customer visits, demonstrations and field testing. Sales prospects generally are targeted by the Company or its independent sales representatives, although the Company also responds to requests for proposals. Selling prices for the IONSCAN(R) average between $50,000 and $95,000 per unit, depending principally on the configuration of the unit and the purchaser's location. Once a sale is consummated, the Company provides training at a customer's location to teach operators how to use the IONSCAN(R), including proper sampling techniques. The Company generally provides a one-year parts and labor warranty on its IONSCAN(R) instruments, although from time to time the Company has provided extended warranties. To date, the Company's warranty claims experience has not been significant. 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 the first six months of 1997, each of the Company's three largest customers accounted for more than 10.0% of the consolidated revenues of the Company. During 1996, one customer accounted for more than 10.0% of the consolidated revenues of the Company. During 1995, no customer accounted for more than 10.0% of the consolidated revenues of the Company. See "Risk Factors--Dependence on Large Orders; Customer Concentrations." BACKLOG The Company measures its backlog of instrument revenues as orders for which contracts or purchase orders have been signed, but that have not yet been shipped and for which revenues have not yet been recognized. The Company includes in its backlog only those customer orders that are scheduled for delivery within the next 18 months. The Company typically ships its products within three months of receiving an order. For competitive purposes, the Company follows the practice of manufacturing to a sales forecast. As a result, the Company has not historically had a material backlog of orders for its instruments and, in the ordinary course of business, intends to have sufficient inventory of IONSCAN(R)s on hand to allow shipment upon receipt of an order. However, as a result of large orders received from the FAA and the U.S. Coast Guard in the second quarter of 1997, at June 30, 1997 the Company had a $2.6 million backlog of orders for its IONSCAN(R)s. There can be no assurance that the Company will have a material backlog of orders in any future period. Substantially all of the Company's backlog at June 30, 1997 is expected to be shipped during the current fiscal year. Any failure by the Company to meet an agreed-upon schedule could lead to the cancellation of the related order. All orders are subject to cancellation or delay by the customer and, accordingly, there can be no assurance that such backlog will eventually result in revenues. MANUFACTURING AND ASSEMBLY The Company manufactures and assembles IONSCAN(R)s at its facility in Toronto, Canada, and has recently expanded its capabilities to manufacture and assemble IONSCAN(R)s at its facility in New Providence, New Jersey. The Company assembles IONSCAN(R)s from components supplied to it by 28 31 various suppliers and parts manufactured internally. Once the IONSCAN(R) is assembled, the IONSCAN(R) is "burned in" for up to 400 hours using certain chemicals to calibrate and tune the unit and to assure its proper functioning. After successful completion of this procedure, the IONSCAN(R) is ready for shipment to a customer. Although many of the basic components of the IONSCAN(R), such as chipboards, resistors, capacitors, liquid crystal displays and other similar components, are readily available from a number of sources, the Company typically purchases such components from single suppliers. A limited number of components and sub-assemblies are manufactured for the Company, pursuant to the Company's proprietary specifications, but the Company does not believe it is dependent on any single source for these items. To date, the Company has not experienced any difficulty in obtaining any components or sub-assemblies. See "Risk Factors--Limited Number of Suppliers." COMPETITION The Company competes with other entities, including Thermedics Detection Inc. ("Thermedics"), InVision Technologies, Inc. and Vivid Technologies, Inc., a number of which have significantly greater financial, marketing and other resources than the Company. Principal competitive factors include selectivity (the ability of an instrument to identify the presence of a particular substance), sensitivity (the ability of an instrument to detect small amounts of a particular substance), false alarm rate, price, marketing, ease of use and speed of analysis. The Company believes that it competes effectively with respect to each of these factors. The Company competes for government expenditures with equipment manufacturers utilizing other types of detection technologies, including enhanced x-ray, CATSCAN and other bulk imaging technologies, as well as with manufacturers of other IMS equipment and manufacturers using other trace particle detection technologies, such as gas chromatography and chemoluminescence. Because trace particle detection equipment is used in certain instances to verify detection results obtained by bulk imaging systems, the IONSCAN(R) and other trace particle detection products are often used in conjunction with systems utilizing imaging and other detection technologies. As a result of recent government initiatives, the Company anticipates that additional technologies, including improved IMS technologies, will be developed and that new competitors will enter the Company's markets. See "Risk Factors--Dependence on and Effects of Government Regulation and Procurement Policies" and "--Competition." In the trace particle detection market, the Company's main competitor is Thermedics, which has greater financial, marketing and other resources than the Company. However, the Company believes that the IONSCAN(R) has certain advantages over Thermedics' instrument, including faster speed of analysis, lower cost, greater portability, lower power consumption and lower weight. Accordingly, the Company believes that it competes effectively with Thermedics and will continue to do so, although no assurance can be given. The Company also competes with the use of canines to locate the presence of explosives or drugs. Although canines have a highly developed sense of smell and are able to follow a trail, the Company believes that its IONSCAN(R) instruments are more effective and cost-efficient than canines, because they can operate 24 hours a day, have greater selectivity than canines and can identify the composition of the substance detected. GOVERNMENT REGULATION Although the Company's business is not subject to significant government regulation, government regulation plays a large role in determining the demand for the IONSCAN(R). In the U.S. and most foreign countries, the aviation industry is highly regulated and authorities, such as the FAA in the U.S., have the ability to recommend or mandate use of enhanced explosives detection equipment. 29 32 The FAA has adopted a certification protocol regarding the use of imaging detection systems for use on checked baggage. The FAA is currently developing a certification protocol for trace particle detection equipment. Once the protocol is adopted, the Company believes that only instruments meeting the FAA certification requirements will be approved for use by airlines subject to FAA regulation. Although the final protocol has yet to be adopted, based on early versions of the testing criteria, as well as discussions with representatives of the FAA, the Company believes that the IONSCAN(R) will meet the FAA's certification requirements, although no assurance can be given. The FAA has approved the IONSCAN(R) for screening of electronic carry-on items, such as cellular telephones, tape recorders and laptop computers. See "Risk Factors--Dependence on and Effects of Government Regulation and Procurement Policies." PRODUCT DEVELOPMENT The Company spent $651,000, $1.1 million and $1.4 million, respectively, on research and development activities for the six months ended June 30, 1997 and the years ended December 31, 1996 and 1995, respectively, of which $313,000, $858,000 and $1.1 million were funded under various research and development grants and contracts. Substantially all of the Company's research and development activities have related to the development and enhancement of the Company's IONSCAN(R) technology and the development of new IONSCAN(R) products. The Company received a development grant from the FAA in October 1996 to develop a document scanner that would scan boarding passes or other passenger documents for the presence of explosives prior to boarding. The Company delivered a prototype of the document scanner to the FAA in December 1996. As part of the October 1996 grant, the FAA also funded the development of a prototype token scanner system. The token scanner would sample tokens handled by passengers for the presence of explosives prior to boarding. The Company delivered a prototype of the token scanner to the FAA in the second quarter of 1997. The Company received a design grant from the FAA in March 1997 for the design of an automated luggage system that would scan checked baggage for the presence of drugs or explosives. The grant does not require the production of a prototype. However, under the contract, the Company is required to deliver detailed design drawings to the FAA in February 1998. In addition to these government funded activities, the Company also engages in internal product development activities. For example, the Company is currently developing a hand-held version of the IONSCAN(R). There can be no assurance that the Company will successfully complete the development of the products described above or that any such products would, if successfully developed, achieve market acceptance or a significant level of sales. See "Risk Factors--Dependence on New Product Development; Technological Advancement." PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS Certain of the technology used in the IONSCAN(R) is licensed by the Company from the Canadian government as described below. While the Company holds patents relating to certain components, systems and techniques used in the IONSCAN(R) and while certain other elements of the IONSCAN(R) are protected by other intellectual property rights, the Company has no comprehensive patent or similar exclusive intellectual property right covering the IONSCAN(R) in its entirety. In addition, the basic technology used in the IONSCAN(R) is not proprietary and is available in the public domain. Accordingly, present and potential competitors could use such basic technology to duplicate the performance of the IONSCAN(R). See "Risk Factors--Limited Proprietary Technology." The initial development of the IONSCAN(R) was funded in part by Transport Canada and Revenue Canada. Pursuant to an agreement with the Canadian government, the Company has a worldwide 30 33 license to use certain unpatented technology developed from such work and pays Revenue Canada a royalty equal to 1.0% of certain IONSCAN(R) sales. The initial term of this license agreement expires on March 31, 1999. However, the Company has entered into an agreement with Revenue Canada, pursuant to which the Company has obtained the right to renew such licensing arrangement on a year-by-year basis for up to ten additional years. Revenue Canada has retained the right to use the technology and to produce products incorporating such technology although, to date, Revenue Canada has not attempted to do so. The Company believes that the IONSCAN(R) registered trademark has gained recognition in the markets for the Company's products and is a valuable trademark. FACILITIES The Company does not own any real property and currently conducts its operations at the following leased premises:
APPROXIMATE SQUARE ANNUAL LEASE LOCATION DESCRIPTION OF FACILITY FOOTAGE LEASE COST EXPIRATION - -------------------------- ------------------------- ----------- ---------- --------------- 219 South Street.......... Corporate headquarters, 4,910 $ 78,000 March 1998 Murray Hill, New Jersey sales, customer support 07974 and assembly 1730 Aimco Boulevard...... Research, manufacturing 28,380 $ 76,000* September 2005 Mississauga, Ontario, and assembly, sales, Canada L4W 1V1 customer support and administrative Village Fret BAT-3453..... Sales and customer 2,500 $ 40,000 February 2000 BP 10614-4 support Rue du Te 95724, Roissy C.D.G. France Unit 3 at Manor Royal..... Sales and customer 1,560 $ 16,000 February 1998 Crawley, West Sussex support England RH10 2QU
- ---------------------- * Increases to $115,000 on September 1, 2000. The Company currently intends to relocate its New Jersey headquarters, sales, customer support and administrative offices to approximately 15,000 square feet of leased space in Warren, New Jersey. Although no lease has been entered into as of the date hereof, the Company anticipates that its rental expense for the new facility will be approximately $140,000 per annum. The Company anticipates relocating to this new facility in the fourth quarter of 1997. Management believes that the new facility will be sufficient to satisfy the Company's U.S. administrative and manufacturing needs for the foreseeable future. EMPLOYEES As of June 30, 1997, the Company had 106 full-time and 14 part-time employees, of whom 58 were engaged in manufacturing, 28 were engaged in product development activities and 34 were engaged in sales, service and general administration. Of those engaged in product development, 14 have advanced degrees (including 10 doctorates). None of the Company's employees is represented by any union, and the Company considers its relationships with its employees to be satisfactory. LITIGATION The Company is not a party to any material legal proceedings. 31 34 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding the Company's executive officers and directors as of August 1997.
NAME AGE POSITION ------------------------------- --- ------------------------------------------------ Stanley S. Binder(1)........... 55 Chairman of the Board, Chief Executive Officer and President John H. Davies(1).............. 60 Executive Vice President and Director, President and Chief Executive Officer of Barringer Research Limited ("BRL") Richard S. Rosenfeld........... 50 Vice President-Finance, Chief Financial Officer, Treasurer and Assistant Secretary Kenneth S. Wood................ 44 Vice President and Secretary, President of Barringer Instruments, Inc. ("BII") John D. Abernathy(1)(2)(3)..... 60 Director Richard D. Condon(2)........... 62 Director John J. Harte(1)(3)............ 55 Director James C. McGrath(2)(3)......... 55 Director
- ---------------------- (1) Member of Executive Committee. (2) Member of Audit and Finance Committee. (3) Member of Executive Compensation Committee. Mr. Stanley S. Binder joined the Company in July 1989 and has served as Chairman of the Board since February 1991, Chief Executive Officer since July 1990 and President since July 1989. Mr. Binder also is an independent general partner in the Special Situations Fund III, L.P. ("SSF III"), a substantial investor in the Company. See "Certain Transactions." Mr. Binder is chairman of the New Jersey Council of the American Electronics Association and a member of the Board of Directors of the American Electronics Association. Mr. John H. Davies has served as Executive Vice President of the Company since January 1992. Mr. Davies has been the President and Chief Executive Officer of BRL since August 1989. Mr. Richard S. Rosenfeld, a certified public accountant, joined the Company in January 1992 as Treasurer and Assistant Secretary. Since July 1993, he has been Vice President-Finance and Chief Financial Officer of the Company. Mr. Kenneth S. Wood joined the Company in April 1990 as Vice President of Operations of BII. Since January 1992, he has served as Vice President of the Company and the President of BII. He also has served as the Secretary of the Company since March 1993. From July 1978 until April 1990, he was Program Director for Lockheed Electronics, a company engaged in aerospace and defense electronics. Mr. John D. Abernathy, has served as a Director of the Company since October 1993. Mr. Abernathy is a certified public accountant. Since January 1995, he has been Executive Director of the law firm of Patton Boggs, LLP. From March 1994 to January 1995, he was an independent financial and management consultant. From March 1991 to March 1994, he was the Managing Director of Summit, Solomon & Feldesman, a law firm in dissolution since March 1993. From July 1983 until June 1990, Mr. Abernathy was Chairman and Chief Executive Partner of BDO Seidman, a public accounting firm. He also is a director of Oakhurst Company, Inc., a distributor of automotive parts and accessories. Mr. Richard D. Condon has served as a Director of the Company since February 1992. Since January 1996, Mr. Condon has been a consultant to and director of Amherst Process Instruments, Inc., a scientific instrumentation company. From 1989 until December, 1995, Mr. Condon was a consultant 32 35 to and director of Analytical Technology, Inc., Boston, Massachusetts, a scientific instrumentation company. Mr. John J. Harte has served as a Director of the Company since 1986. He was Vice President, Special Projects of the Company from 1991 until January 1997. He is a certified public accountant and, since 1978, has been a Vice President of Mid-Lakes Distributing Inc., a manufacturer and distributor of heating and air conditioning parts and equipment located in Chicago, Illinois. Mr. James C. McGrath, has served as a Director of the Company since January 1994. Mr. McGrath is an international security consultant. Since July 1989, he has been President of McGrath International, Inc., a management consulting firm specializing in the security field. All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. The Company's Directors are elected by the holders of the Company's Common Stock, Class A Convertible Preferred Stock and Class B Convertible Preferred Stock voting as a single class. There are no family relationships among any of the directors or executive officers. Outside directors are entitled to an annual retainer of $2,500 per quarter and a fee of $1,000 for each meeting attended and $500 for each committee meeting attended (unless the committee meeting is held on the same day as a meeting of the Board of Directors). In lieu of the annual retainer, Mr. Harte receives a fee of $2,000 per month for services he renders to the Company, and a fee of $1,000 for each meeting he attends in his capacity as a director. See "Employment Agreements and Compensation Arrangements." Pursuant to the terms of the Company's 1997 Stock Compensation Program (the "Stock Compensation Program"), each director who has not been a full-time employee of the Company or any subsidiary for at least the prior 12 months receives an option to purchase 3,000 shares of Common Stock each year on the earlier of (i) the date of the Company's annual meeting of stockholders, or (ii) June 1. Options granted to such directors under the Stock Compensation Program have an exercise price equal to the fair market value per share as of the date of grant. See "1997 Stock Compensation Program." 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, 1996, Mr. Harte was also the Vice President, Special Projects, of the Company. Messrs. Abernathy and McGrath were not officers or employees of the Company during fiscal 1996. Until November 1996, Mr. Harte was Chairman of the Board of Labco, and Mr. Binder was a Director of Labco. Mr. Binder also served on the compensation committee of Labco's Board of Directors. Except as described herein, no executive officer of the Company and no member of the Compensation Committee is a member of any other business entity that has an executive officer that sits on the Company's Board or on the Compensation Committee. In January 1996, Mr. Binder received an option to purchase 10,000 shares of Labco common stock at an exercise price equal to the fair market value of the Labco common stock on the date of grant. For certain other transactions between Labco and the Company, see "Certain Transactions--Sale of Subsidiary." 33 36 EXECUTIVE COMPENSATION The following table sets forth certain compensation paid to the President and Chief Executive Officer and each other executive officer of the Company whose total annual salary and bonus for the year ended December 31, 1996 exceeded $100,000 (collectively, the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION ----------------------------------- --------------------------------- RESTRICTED SECURITIES ALL OTHER NAME AND PRINCIPAL FISCAL SALARY BONUS OTHER ANNUAL STOCK UNDERLYING LTIP COMPENSATION POSITION YEAR ($) ($) COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS ($)(1) - ------------------------- ------ -------- ------- ------------ ---------- ------------ ------- ------------ Stanley S. Binder........ 1996 $171,491 $63,000 -- -- 55,000 -- -- President and Chief 1995 171,491 -- -- -- 45,000 -- -- Executive Officer 1994 167,757 -- -- -- -- -- -- John H. Davies........... 1996 125,275* 43,200* -- -- 38,250 -- -- Executive Vice President 1995 125,775* -- $ 12,149*(2) -- 31,250 -- -- of the Company 1994 120,582* -- -- -- -- -- -- Kenneth S. Wood.......... 1996 111,815 39,600 -- -- 33,750 -- -- President of Barringer 1995 111,815 -- -- -- 26,250 -- -- Instruments, Inc. 1994 109,751 -- -- -- -- -- -- Richard S. Rosenfeld..... 1996 96,000 34,200 -- -- 27,500 -- -- Vice President-Finance, 1995 96,000 -- -- -- 22,500 -- -- Chief Financial Officer 1994 90,400 -- -- -- -- -- --
- ---------------------- * Amounts converted to U.S. dollars at the average exchange rate for such year. (1) Represents amounts contributed by the Company pursuant to the Company's tax-qualified 401(k) deferred compensation plan ("401(k) Plan"). In 1996, the 401(k) Plan provided that the Company would make matching contributions to the participants in the 401(k) Plan equal to 100% of the first 2.0% of a participant's salary contributed and 50.0% of the next 5.0% of a participant's salary contributed, which contributions vested proportionately over a five-year period, commencing at the end of the participant's first year with the Company. (2) The other annual compensation for Mr. John Davies represented the payment of previously accrued and unpaid vacation pay. OPTION GRANTS The following table summarizes certain information relating to the grant of options to purchase Common Stock to each of the Named Executive Officers: OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
NUMBER OF PERCENT OF TOTAL SECURITIES OPTIONS/SARS UNDERLYING GRANTED TO OPTIONS/SARS EMPLOYEES IN EXERCISE OR NAME GRANTED(#)(2) FISCAL YEAR(3) BASE PRICE($/SH) - ----------------------------------------------- ------------ ---------------- ---------------- Stanley S. Binder.............................. 55,000 21.7% $ 1.00 John H. Davies................................. 38,250 15.1 1.00 Kenneth S. Wood................................ 33,750 13.3 1.00 Richard S. Rosenfeld........................... 27,500 10.9 1.00
- ---------------------- (1) The Company did not grant stock appreciation rights in 1996. (2) The stock options expire on April 25, 2001. Twenty-five percent of each option grant is exercisable immediately, 50.0% is exercisable after the first year, 75.0% is exercisable after the second year and 100% is exercisable after the third year. (3) Options covering a total of 253,000 shares of Common Stock were granted in 1996. 34 37 OPTIONS EXCERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth information with respect to the executives named in the Summary Compensation Table concerning the exercise of stock options during 1996 and unexercised options held by such executive officers as of December 31, 1996. AGGREGATED OPTION EXERCISES IN 1996 AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED SECURITIES UNDERLYING VALUE OF UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS SHARES AT YEAR-END(#) AT YEAR-END($)(1) ACQUIRED VALUE -------------------------- -------------------------- NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---------------------- -------------- ----------- ----------- ------------- ----------- ------------- Stanley S. Binder..... -- -- 31,750 68,250 $ 216,156 $ 476,344 John H. Davies........ -- -- 22,062 47,438 150,208 331,105 Kenneth S. Wood....... -- -- 33,937 41,063 129,161 287,089 Richard S. Rosenfeld .................... -- -- 22,125 34,125 108,078 238,172
- ---------------------- (1) Based on a closing bid price of $8.375 per share for the Common Stock as of December 31, 1996. STOCK OPTION PLANS 1990 Option Plan The Company maintained an option plan (the "1990 Option Plan") pursuant to which the Company was authorized to grant options covering a total of 100,000 shares of Common Stock. As of December 31, 1996, options covering a total of 23,750 shares of Common Stock were outstanding thereunder and no further options could be granted thereunder. All of such options expired in January 1997. 1997 Stock Compensation Program In May 1997, the Company adopted the Stock Compensation Program in order to promote the interests of the Company, its direct and indirect present and future subsidiaries and its stockholders by providing eligible persons with the opportunity to acquire an ownership interest, or to increase their ownership interest, in the Company as an incentive to remain in the service of the Company. The Stock Compensation Program authorizes the granting of incentive stock options, non-qualified stock options, stock appreciation rights, performance shares and stock bonus awards to employees and consultants of the Company and its subsidiaries, including those employees serving as officers or directors of the Company (the "Employee Plans"). The Stock Compensation Program also authorizes automatic option grants to directors who are not otherwise employed by the Company (the "Independent Director Plan"). In connection with the Stock Compensation Program, 600,000 shares of Common Stock are reserved for issuance, of which up to 500,000 shares may be issued under the Employee Plans and up to 100,000 shares may be issued under the Independent Director Plan. The Stock Compensation Program is administered by the Executive Compensation Committee of the Board of Directors. Options and awards granted under the Stock Compensation Program may have an exercise or payment price as established by the Executive Compensation Committee; provided that the exercise price of incentive stock options granted under the Employee Plans may not be less than the fair market value of the underlying shares on the date of grant. Options granted under the Independent Director Plan must have an exercise price equal to the fair market value of the underlying shares on the date of grant. 35 38 Unless otherwise provided at the date of grant, no option or award may vest within one year of the date of grant and no option or award may be exercised more than 10 years from the date of grant. Options granted under the Independent Director Plan vest one year following the date of grant and expire if not exercised on or before the fifth anniversary thereof. Unless otherwise specified by the Executive Compensation Committee, options and awards (other than pursuant to the Independent Director Plan) vest in four equal installments on the first, second, third and fourth anniversaries of the date of grant. Vesting of any option or award granted under the Stock Compensation Program may be accelerated in certain circumstances, including upon the occurrence of a "Change in Control Event" (as defined in the Stock Compensation Program). Options and awards granted under the Stock Compensation Program are nontransferable, except by will or by the laws of descent and distribution. However, the Executive Compensation Committee may permit the recipient of a non-incentive stock option granted under the Employee Plans and options granted under the Independent Director Plan to transfer the option to a family member or a trust created for the benefit of family members. During the lifetime of a participant, an option may be exercised only by the participant or a permitted transferee. In the event that a participant's employment or service terminates as a result of death, all vested awards will be paid to the participant's estate by the Company and the participant's estate or any permitted transferee will have the right to exercise vested options for a period ending on the earlier of the expiration dates of such options or one year from the date of death. If the participant's employment or service terminates as a result of retirement or a "disability" (as set forth in the Stock Compensation Program), all vested awards will be paid to the participant by the Company and the participant or any permitted transferee will have the right to exercise vested options for a period ending on the earlier of the expiration dates of such options or one year from the date of termination. If the participant's employment or service terminates for cause, all options and awards will automatically expire upon termination. If the participant's employment or service terminates other than as a result of death, disability, retirement or termination for cause, the participant will have the right to collect on vested awards immediately and the participant or any permitted transferee will have the right to exercise vested options for a period ending on the earlier of the expiration dates of such options or awards or 30 days from the date of termination, subject to extension at the discretion of the Administrator, or three months from the date of termination in the case of options granted pursuant to the Independent Director Plan. In all cases, any unvested options or awards will terminate as of the date of termination of employment or service. The Stock Compensation Program will terminate on February 28, 2007, unless earlier terminated by the Board of Directors. No options or awards may be granted under the Stock Compensation Program after its termination; however, termination of the Stock Compensation Program will not affect the status of any option or award outstanding on the date of termination. Incentive stock options exercisable for an aggregate of 135,500 shares of Common Stock have been granted to date under the Employee Plans. These options expire 10 years after the date of grant and have an exercise price, subject to adjustment, of $9.375 per share. Such options are exercisable annually in 25% increments beginning with the first anniversary of the date of grant. 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 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. 36 39 Pursuant to the Exercise Program, on April 21, 1994, Mr. Binder and Mr. Wood exercised options to purchase 37,500 shares of Common Stock and 10,000 shares of Common Stock, respectively, in exchange for which Mr. Binder and Mr. Wood executed notes payable to the Company in the amount of $203,000, and $71,600, respectively. In 1995, for the period in which no interest accrued to the Company (from January 1, 1995 through April 21, 1995), Mr. Binder and Mr. Wood received benefits of $5,469 and $1,929, respectively, under the Exercise Program, representing interest otherwise payable on such notes. EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS The Company has entered into an Employment Agreement with Mr. Binder, the President and Chief Executive Officer of the Company (the "Employment Agreement"), pursuant to which Mr. Binder receives $171,000 annually as compensation, subject to increases equal to percentage increases in the Consumer Price Index as well as by increases authorized by the Executive Compensation Committee. The Employment Agreement provides that it will be automatically renewed each year, unless either party gives the other six months' prior written notice of non-renewal. In addition, under the Employment Agreement Mr. Binder received an option to purchase 25,000 shares of Common Stock at an exercise price of $4.00 per share, which approximated market value at the time of grant. In addition, Mr. Binder received a non-qualified option to purchase 25,000 shares of Common Stock at an exercise price of $8.00 per share, subject to anti-dilution provisions, which option became exercisable immediately as to all shares subject thereto. Such non-qualified option has been exercised by Mr. Binder, pursuant to the Stock Option Exercise Program. See "Certain Transactions." The Company has entered into employment agreements with Messrs. Wood and Rosenfeld which run for a term of one year from November 1, 1996, subject to automatic renewal unless either the employee or the Company gives the other party to the employment agreement 90 days' prior written notice of non-renewal. Pursuant to the employment agreements, Messrs. Wood and Rosenfeld receive annual base salaries of $111,815 and $96,000, respectively, subject to periodic increases at the discretion of the Board of Directors, and are entitled to participate in any cash bonus plan maintained by the Company. Both of the employment agreements provide, among other things, that, in the event of a termination of employment by the Company without cause, or a termination by the employee in certain circumstances following a "change in control" of the Company, the employee will be entitled to receive certain severance benefits (payable in equal monthly installments) determined on a formula basis. Both of the employment agreements also contain certain confidentiality and non-competition provisions which continue in effect following the termination of the employee's employment by the Company. The Company has entered into a Consulting Agreement with Mr. Harte (the "Consulting Agreement") pursuant to which Mr. Harte receives $2,000 per month as compensation. The Consulting Agreement provides that it will be automatically renewed each year, unless either party gives the other six months' prior written notice of non-renewal. In addition, under the Consulting Agreement, Mr. Harte is entitled to participate in any grant of stock options to outside board members. INDEMNIFICATION OF THE DIRECTORS AND OFFICERS The Certificate of Incorporation and the Company's by-laws, as amended ("By-laws"), provide that the Company shall, to the fullest extent permitted by law, indemnify each person (including the heirs, executors, administrators and other personal representatives of such person) against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by such person in connection with any threatened, pending or actual suit, action or proceeding (whether civil, criminal, administrative or investigative in nature or otherwise) in which such person may be involved by reason of the fact that he or she is or was a director or officer of the Company or is serving any other incorporated or unincorporated enterprise in any of such capacities at the request of the Company. Such provisions may provide indemnification to the officers and directors of the Company for liability under the Securities Act. 37 40 Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 38 41 CERTAIN TRANSACTIONS GENERAL In May 1995, the Company sold to SSF III, which is controlled by Mr. Marxe and of which Mr. Binder is an independent general partner with approximately 0.01% interest in such partnership, and to the Special Situations Cayman Fund, LP, an affiliate of SSF III (collectively, with SSF III, "SSF"), an aggregate of 125 units at a purchase price of $6,000 per unit for an aggregate purchase price of $750,000. Each unit consisted of 2,500 shares of Common Stock and a five-year warrant to purchase 2,500 shares of Common Stock at $1.96 per share, subject to certain anti-dilution provisions. As an inducement to enter into the transaction and in lieu of a transaction fee, the Company also issued to SSF warrants, exercisable for three years, to purchase an aggregate of 37,500 shares of Common Stock at $1.96 per share, subject to certain anti-dilution provisions. In addition, in June 1995, the Company sold 22 units to certain officers and directors of the Company for an aggregate purchase price of $132,000. Such units were identical to those sold to SSF. For a description of certain transactions between Labco and the Company, see "--Sale of Subsidiary" and "Management--Compensation Committee Interlocks and Insider Participation." In July 1996, the Company sold to SSF $450,000 in principal amount of the Company's 6% Subordinated Convertible Debentures due 1997 (the "Debentures"). The Debentures bore interest at the rate of 6.0% per annum, were convertible into shares of Common Stock at a conversion rate of $2.75 and, pursuant to their terms, matured 30 days after the consummation of the Company's November 1996 public offering, unless converted prior thereto. Certain officers and directors of the Company purchased an additional $100,000 in aggregate principal amount of the Debentures. All of the Debentures were converted into shares of Common Stock in December 1996. Mr. Abernathy is currently the Executive Director of Patton Boggs, LLP, a Washington, D.C. law firm. During 1996, the Company retained Patton Boggs, LLP to represent the Company in various matters and has retained such firm in 1997. SALE OF SUBSIDIARY Prior to December 1995, the Company controlled 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. After giving effect to the sale, the Company continued to own 437,475 shares of Labco's common stock. However, under the terms of the Stock Purchase Agreement, Labco retained an additional 88,260 shares of Labco common stock owned by the Company (the "Retained Shares"), subject to the return of the Retained Shares to the Company upon Labco meeting certain pre-tax earnings goals for 1996. The Company also agreed to terminate all voting arrangements allowing it to vote shares of Labco common stock not owned by it and agreed for a period of 24 months not to enter into any such voting arrangements. See Note 2 of the Notes to Consolidated Financial Statements. In October 1996, the Company and Labco entered into a Termination Agreement (the "Termination Agreement") pursuant to which Labco agreed to waive its right of first refusal with respect to, and to terminate the other restrictions on, the transfer of the Company's remaining Labco shares. The Company agreed that, for a period of three months from the date of the Termination Agreement, it would sell such shares at a price of at least $1.6875 per share (the "Target Price") in a distribution in which it would not knowingly sell more than 75,000 shares to any one purchaser or group of related purchasers. Under the Termination Agreement, for such three-month period, the Company agreed to 39 42 sell its Labco shares as provided above upon receipt of an offer to acquire such shares at a price per share at least equal to the Target Price. The restrictions described above also applied to any shares of Labco common stock issuable to the Company upon the exercise of certain warrants held by the Company. Labco registered the Company's Labco shares for resale pursuant to the Securities Act to facilitate such sales. In the Termination Agreement, the Company also agreed to surrender to Labco the Retained Shares and to terminate all remaining inter-company arrangements. In addition, upon the disposition by the Company of at least 250,000 of its shares of Labco common stock, Messrs. Binder and Harte agreed to resign their positions with Labco. As of December 31, 1996, the Company had sold its entire interest in Labco and, pursuant to the terms of the Termination Agreement, Messrs. Binder and Harte had resigned their respective positions with Labco. 40 43 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth, as of August 1, 1997, the number of shares of Class A Convertible Preferred Stock, Class B Convertible Preferred Stock and Common Stock owned by each Named Executive Officer, each director and all directors and executive officers as a group and any persons (including any "group" as used in Section 13(d)(3) of the Exchange Act) known by the Company to own beneficially 5% or more of such securities. As of August 1, 1997, there were 5,470,455 shares of Common Stock, 58,206 shares of Class A Convertible Preferred Stock and 22,500 shares of Class B Convertible Preferred Stock issued and outstanding. As of that date, none of the executive officers and directors of the Company owned shares of the Company's Class A Convertible Preferred Stock or Class B Convertible Preferred Stock. The business address for all of the executive officers and directors of the Company is 219 South Street, Murray Hill, New Jersey 07974.
BENEFICIAL BENEFICIAL BENEFICIAL OWNERSHIP OWNERSHIP BENEFICIAL OWNERSHIP OWNER OF CLASS A OF CLASS B OF COMMON STOCK SHARES OF COMMON STOCK CONVERTIBLE CONVERTIBLE PRIOR TO BEING AFTER PREFERRED STOCK PREFERRED STOCK OFFERING(1)(2) OFFERED OFFERING(1) --------------- --------------- -------------------- ------ --------------- NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER NUMBER PERCENT OF OF OF OF OF OF OF OF OF NAME SHARES CLASS SHARES CLASS SHARES CLASS SHARES SHARES CLASS - ------------------------------ ------ ------- ------ ------- --------- ------- ------ ------ ------- Stanley S. Binder............. -- -- -- 133,136(3) 2.4% John H. Davies................ -- -- -- 109,107(4) 2.0 John J. Harte................. -- -- -- 49,600(5) * Richard D. Condon............. -- -- -- 22,000(6) * John D. Abernathy............. -- -- -- 24,704(7) * James C. McGrath.............. -- -- -- 20,750(8) * Kenneth S. Wood............... -- -- -- 46,261(9) * Richard S. Rosenfeld.......... -- -- -- 41,286(10) * All directors and executive officers as a group consisting of ten (10) persons..................... -- -- -- 467,747 8.2 Austin W. Marxe............... -- -- -- 1,026,822(11) 18.0 153 E. 53rd St. NY, NY 10022 Perkins Capital Management, Inc. ....................... -- -- -- 721,159(12) 13.5 708 East Lake Street Wayzata, MN 55391 Ronald and Kathleen Hanna..... 21,549 37.0% -- -- 7,795 * 135 South Horizon Circle Prescott, AZ 86303 Max Gerber.................... -- 12,500 55.6 4,447 * 26 Broadway New York, NY 10004-1776 Paul Spitzberg................ -- 10,000 44.4 3,558 * 16 Whiteowl Road Tenafly, NJ 07670
- ---------------------- * Less than 1% (1) Assumes the exercise of all outstanding warrants for Common Stock, the conversion of each outstanding share of Class A Convertible Preferred Stock and Class B Convertible Preferred Stock into Common Stock and the exercise of all options exercisable within 60 days of August 1, 1997 for each person or entity. (2) Certain amounts shown are subject to adjustment in certain circumstances. (3) Includes 54,500 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of August 1, 1997 and 12,500 shares of Common Stock issuable upon exercise of warrants owned by Mr. Binder. Excludes 558,561 shares of Common Stock owned by SSF III of which Mr. Binder is an independent general partner. Mr. Binder disclaims any beneficial interest in such shares. 41 44 (4) Includes 37,875 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of August 1, 1997 and 12,500 shares of Common Stock issuable upon the exercise of warrants owned by Mr. Davies. (5) Includes 12,000 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of August 1, 1997. (6) Includes 12,000 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of August 1, 1997 and 5,000 shares of Common Stock issuable upon the exercise of warrants owned by Mr. Condon. (7) Includes 12,000 shares of Common Stock issuable upon the exercise of options exercisable with 60 days of August 1, 1997 and 6,250 shares of Common Stock issuable upon the exercise of warrants owned by Mr. Abernathy. (8) Includes 12,000 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of August 1, 1997 and 3,750 shares of Common Stock issuable upon the exercise of warrants owned by Mr. McGrath. (9) Includes 32,625 shares of Common Stock issuable upon the exercise of options exercisable by Mr. Wood within 60 days of August 1, 1997. (10) Includes 27,250 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of August 1, 1997 and 5,000 shares of Common Stock issuable upon the exercise of warrants owned by Mr. Rosenfeld. Also includes 3,636 shares of Common Stock owned by Mr. Rosenfeld as custodian for a minor child. (11) Includes (i) 502,580 shares of Common Stock and 256,667 shares of Common Stock issuable upon the exercise of warrants owned by SSF III, and (ii) 174,242 shares of Common Stock and 93,333 shares of Common Stock issuable upon the exercise of warrants owned by Special Situations Cayman Fund, L.P. (the "Cayman Fund"). AWM Investment Company, Inc. ("AWM") is the sole general partner of the Cayman Fund and the sole general partner of MGP Advisors Limited ("MGP"), a general partner of SSF III. Mr. Marxe is the President and Chief Executive Officer of AWM and the principal limited partner of MGP. Accordingly, Mr. Marxe may be deemed to be the beneficial owner of all of the shares of Common Stock held by SSF III and the Cayman Fund. Mr. Binder is an independent general partner of SSF III. Mr. Binder disclaims beneficial ownership of all shares held by SSF III. (12) Consists of 421,159 shares of Common Stock owned by clients of Perkins Capital Management, Inc. ("Perkins Capital") and 300,000 shares of Common Stock held by The Perkins Opportunity Fund (the "Perkins Fund"), for which Perkins Capital acts as investment adviser. Perkins Capital disclaims any beneficial interest in the shares of Common Stock held by the Perkins Fund. 42 45 DESCRIPTION OF CAPITAL STOCK GENERAL The following is a brief summary of certain provisions of the capital stock of the Company. Such summary does not purport to be complete and is qualified in all respects by reference to the actual text of the Certificate of Incorporation, a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Company's authorized capital stock consists of 20,000,000 shares of Common Stock, par value $0.01 per share, 1,000,000 shares of Convertible Preferred Stock, par value $1.25 per share, and 4,000,000 shares of Preferred Stock, par value $2.00 per share, of which 270,000 shares are designated as Class A Convertible Preferred Stock and 730,000 shares are designated as Class B Convertible Preferred Stock. As of August 1, 1997, the Company had outstanding 5,475,179 shares of Common Stock, no shares of Convertible Preferred Stock, 45,146 shares of Class A Convertible Preferred Stock and 22,500 shares of Class B Convertible Preferred Stock. The Company currently intends to redeem the outstanding shares of Class A Convertible Preferred Stock and Class B Convertible Preferred Stock as soon as permitted under the terms thereof. Upon completion of this Offering, the Company will have outstanding 7,475,179 shares of Common Stock (7,775,179 shares if the Underwriters' over-allotment option is exercised in full). In addition, the Company will have 1,502,899 shares of Common Stock reserved for issuance pursuant to options, warrants and convertible securities outstanding as of August 1, 1997. See "Shares Eligible For Future Sale." As of August 1, 1997, there were approximately 1,000 record holders of Common Stock. COMMON STOCK The holders of shares of Common Stock are entitled to one vote for each share on all matters on which the holders of Common Stock are entitled to vote. Subject to the rights of the outstanding shares of Convertible Preferred Stock and Preferred Stock, the holders of the Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. Holders of Common Stock are entitled to share ratably in the net assets of the Company upon liquidation or dissolution after payment or provision for all liabilities and the preferential liquidation rights of the Convertible Preferred Stock and Preferred Stock then outstanding. The holders of Common Stock have no pre-emptive rights to purchase any shares of any class of stock of the Company. All outstanding shares of Common Stock are, and the shares of Common Stock to be issued by the Company pursuant to the Offering will be, upon payment therefor, fully paid and non-assessable. PREFERRED STOCK The Preferred Stock may be issued from time to time in one or more classes or series, and the Board of Directors is authorized, subject to any limitations prescribed by Delaware law, to fix the rights, preferences and privileges of the shares and the qualifications, limitations or restrictions thereon, the number of shares constituting such class or series and the designation thereof, without any further vote or action by the stockholders. Unless the designations establishing a particular series of Preferred Stock provide that the shares of such series of Preferred Stock rank junior to the Convertible Preferred Stock, all outstanding shares of Preferred Stock will rank pari passu with the Convertible Preferred Stock. One of the effects of undesignated Preferred Stock may be to enable the Board of Directors to render more difficult or to discourage an attempt to obtain control of the Company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of the Company's management. Depending upon the rights of such Preferred Stock, the issuance of additional Preferred Stock could adversely affect the holders of Common Stock. For example, Preferred Stock issued by the Company may rank senior to the Common Stock as to dividend rights, 43 46 liquidation preference or both, may have full or limited voting rights and may be convertible into shares of Common Stock. Accordingly, the issuance of shares of Preferred Stock may discourage bids for the Common Stock at a premium or may otherwise adversely affect the market price of the Common Stock. The Board of Directors has designated two series of Preferred Stock, the Class A Convertible Preferred Stock and the Class B Convertible Preferred Stock. As indicated above, the Company currently intends to redeem the outstanding shares of Class A Convertible Preferred Stock and Class B Convertible Preferred Stock as soon as permitted under the terms thereof. Based on the recent trading history for the Common Stock, the Company anticipates that it will be permitted to redeem the outstanding shares of Class A Convertible Preferred Stock and Class B Convertible Preferred Stock on or about September 18, 1997. Class A Convertible Preferred Stock Holders of Class A Convertible Preferred Stock are entitled to receive or have set apart for payment, when and as declared by the Board of Directors, cumulative dividends at an annual rate of $0.16 per share, payable semi-annually in cash or shares of Common Stock at the Company's option. Holders of shares of Class A Convertible Preferred Stock are entitled to convert each share of Class A Convertible Preferred Stock into 0.361745 of a share of Common Stock. The number of shares of Common Stock into which each share of Class A Convertible Preferred Stock is convertible is subject to adjustment in certain events. The Class A Convertible Preferred Stock is redeemable any time, at the Company's option, after the closing price of the Common Stock has been $12.00 or more for 90 consecutive trading days, in whole or in part, at $2.00 per share, plus accrued dividends. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, holders of Class A Convertible Preferred Stock will be entitled to a liquidation preference of $2.00 per share plus accrued dividends. Holders of Class A Convertible Preferred Stock are entitled to vote on all matters on which the holders of shares of Common Stock are entitled to vote, vote together with the holders of the Common Stock the Convertible Preferred Stock and the Class B Convertible Preferred Stock as a single class, and in such circumstances will be entitled to that number of votes which is equal to the number of shares of Common Stock into which each share of Class A Convertible Preferred Stock held by such holder is then convertible. Holders of Class A Convertible Preferred Stock also are entitled to vote as a class in certain limited circumstances. Class B Convertible Preferred Stock Holders of Class B Convertible Preferred Stock are entitled to receive or have set apart for payment, when and as declared by the Board of Directors, cumulative dividends at an annual rate of $0.16 per share, payable semi-annually in cash or shares of Common Stock at the Company's option. Holders of shares of Class B Convertible Preferred Stock are entitled to convert each share of Class B Convertible Preferred Stock at any time after the date of issuance thereof, into 0.355839 of a share of Common Stock. The number of shares of Common Stock into which each share of Class B Convertible Preferred Stock is convertible is subject to adjustment in certain events. The Class B Convertible Preferred Stock is redeemable any time, at the Company's option, after the closing price of the Common Stock has been $12.00 or more for 90 consecutive trading days, in whole or in part, at $2.00 per share, plus accrued dividends. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, holders of Class B Convertible Preferred Stock will be entitled to a liquidation preference of $2.00 per share, plus accrued dividends. Holders of Class B Convertible Preferred Stock are entitled to vote on all matters on which the holders of Common Stock are entitled to vote, together with the holders of Common Stock, the Convertible Preferred Stock and the Class A Convertible Preferred Stock as a single class, and in such circumstances will be entitled to that number of votes which is equal to the number of shares of Common Stock into which each share of Class B Convertible Preferred Stock held by such holder is then convertible. Holders of Class B Convertible Preferred Stock also are entitled to vote as a class in certain limited circumstances. 44 47 CONVERTIBLE PREFERRED STOCK No Convertible Preferred Stock is currently issued or outstanding, and the Company has no current plan to issue any shares of Convertible Preferred Stock. Holders of Convertible Preferred Stock, when and if issued, will be entitled to receive or have set apart for payment, when and as declared by the Board of Directors, cumulative dividends at an annual rate of $.10 per share, payable semi-annually in Common Stock. Holders of shares of Convertible Preferred Stock will be entitled to convert each share of Convertible Preferred Stock at any time prior to the fourth anniversary of the date of issuance thereof, into one share of Common Stock. The Company will be entitled to force a conversion of the Convertible Preferred Stock, but not with respect to less than all of the outstanding shares, upon the occurrence of certain events. The number of shares of Common Stock into which each share of Convertible Preferred Stock is convertible is subject to adjustment in certain events. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, holders of Convertible Preferred Stock will be entitled to a liquidation preference of $1.25 per share. Holders of Convertible Preferred Stock will be entitled to vote on all matters on which the holders of Common Stock vote, together with the Common Stock, the Class A Convertible Preferred Stock and the Class B Convertible Preferred Stock as a single class, and in such circumstances will be entitled to that number of votes which is equal to the number of shares of Common Stock into which each share of Convertible Preferred Stock held by such holder is then convertible. Holders of Convertible Preferred Stock will also be entitled to vote as a class in certain circumstances including, a merger, consolidation, a sale of substantially all of the Company's assets and the adoption of stock option or other incentive plans. CERTAIN CHARTER PROVISIONS The Certificate of Incorporation contains provisions which require the favorable vote by the holders of not less than 80.0% of the outstanding shares of Common Stock for the approval of any merger, consolidation or other combination with, or sale, lease or exchange of all or substantially all of the assets of the Company to, another entity holding more than 10.0% of the Company's outstanding voting equity securities or any affiliate of such entity. These provisions could discourage potential acquisition proposals, delay or prevent a change in control of the Company and limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW Section 203 of the Delaware General Corporation Law generally restricts a corporation from entering into certain business combinations with an interested stockholder (defined as any person or entity that is the beneficial owner of at least 15.0% of a corporation's voting stock) or its affiliates for a period of three years after the date of the transaction in which the person became an interested stockholder unless (i) the transaction is approved by the board of directors of the corporation prior to such business combination, (ii) the interested stockholder acquires 85.0% of the corporation's voting stock in the same transaction in which it exceeds 15.0%, or (iii) the business combination is approved by the board of directors and by a vote of two-thirds of the outstanding voting stock not owned by the interested stockholder. The Delaware General Corporation Law provides that a corporation may elect not to be governed by Section 203. At present, the Company does not intend to make such an election. Section 203 may render more difficult a change in control of the Company or the removal of incumbent management. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is American Stock Transfer & Trust Company, New York, New York. 45 48 COMMON STOCK PURCHASE WARRANTS In connection with its November 1996 public offering, the Company issued an aggregate of 1,437,500 Common Stock Purchase Warrants (the "Warrants"). Each Warrant entitles the registered holder thereof to purchase one-quarter of a share of Common Stock at an exercise price of $9.847 per share prior to November 12, 1999, subject to adjustment in certain circumstances. The Warrants are subject to redemption by the Company, at $0.25 per Warrant (subject to adjustment under certain circumstances), upon not less than 30 days' prior written notice, if the bid price of the Common Stock as reported by Nasdaq averages in excess of 200% of the exercise price of the Warrants for a period of 30 days ending within 15 days of the redemption notice date. The Company may, in its sole discretion, lower the exercise price of the Warrants for a period of not less than 30 days on not less than 30 days' prior written notice. Except as described above, modification of the number of securities purchasable upon the exercise of any Warrant, the exercise price and the expiration date with respect to any Warrant or any other modification to the Warrants requires the consent of the holders of two-thirds of the outstanding Warrants. In connection with the November 1996 public offering, the Company sold to Janney, Montgomery Scott, Inc. Underwriter's Warrants (the "Underwriter's Warrants") to purchase from the Company 125,000 shares of Common Stock at an exercise price of $10.276 per share and 125,000 Warrants at an exercise price of $0.06 per Warrant. The Underwriter's Warrants are exercisable with respect to the Common Stock for a period of four years commencing November 12, 1997 and with respect to the Warrants for a period of two years thereafter. 46 49 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, based on shares outstanding as of August 1, 1997, the Company will have outstanding approximately 7,475,179 shares of Common Stock assuming no exercise or conversion of options, warrants and convertible securities after August 1, 1997. All of the outstanding shares, including the 2,000,000 shares offered hereby (2,300,000 shares if the Underwriters' over-allotment option is exercised in full), will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. An additional 1,502,899 shares of Common Stock are issuable upon the conversion or exercise of outstanding stock options, warrants and convertible securities, 1,346,649 of which have been registered for resale by the holders thereof. As a result of lock-up agreements between certain security holders and the representatives of approximately 770,297 shares of Common Stock (excluding shares offered hereby) may not be sold (subject to certain exceptions) for a period of 90 days from the date of this Prospectus, which restriction may be waived at the sole discretion of Robertson, Stephens & Company. Following the lock-up period, all of the shares subject to the lock-up agreements will be available for immediate sale. Sales of substantial amounts of such shares in the public market, or the perception that such sales might occur, could adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. See "Risk Factors--Shares Eligible for Future Sale." 47 50 UNDERWRITING The Underwriters named below, acting through their representatives, Robertson, Stephens & Company LLC and Pacific Growth Equities, Inc. (the "Representatives"), have severally agreed with the Company, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company the numbers of shares of Common Stock set forth opposite their names below. The Underwriters are committed to purchase and pay for all such shares if any are purchased.
NUMBER OF UNDERWRITER SHARES - --------------------------------------------------------------------------------- --------- Robertson Stephens & Company LLC................................................. Pacific Growth Equities, Inc. ................................................... --------- Total........................................................................ 2,000,000 =========
The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Common Stock to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession of not more than $ per share, of which $ may be reallowed to other dealers. After the public offering, the public offering price, concession and reallowance to dealers may be reduced by the Representatives. No such reduction shall change the amount of proceeds to be received by the Company as set forth on the cover page of this Prospectus. The Company and certain Selling Stockholders have granted to the Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to 300,000 additional shares of Common Stock at the same price per share as the Company receives for the 2,000,000 shares that the Underwriters have agreed to purchase. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage of such additional shares that the number of shares of Common Stock to be purchased by it shown in the above table represents as a percentage of the 2,000,000 shares offered hereby. If purchased, such additional shares will be sold by the Underwriters on the same terms as those on which the 2,000,000 shares are being sold. The Underwriting Agreement contains covenants of indemnity between the Underwriters, the Company and the Selling Stockholders against certain civil liabilities, including liabilities under the Securities Act. Each executive officer and director of the Company has agreed with the Representatives for a period of 90 days from the date of this Prospectus (the "Lock-Up Period") not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase any shares of Common Stock, or any securities convertible into or exchangeable for shares of Common Stock, now owned or hereafter acquired directly by such holders or with respect to which such holders have or hereafter acquire the power of disposition (subject to certain exceptions) without the prior written consent of Robertson, Stephens & Company LLC, which may, in its sole discretion and at any time or from time to time, without notice, release all or any portion of the shares subject to the lock-up agreements. In addition, the Company has agreed that during the Lock-Up Period, it will not, without the prior written consent of Robertson, Stephens & Company LLC, issue, sell, contract to sell or otherwise dispose of any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for shares of Common Stock other than the issuance of Common Stock upon the exercise of outstanding options and warrants and the Company's issuance of options under existing employee stock option plans. The offering price of the Common Stock was determined by negotiations among the Company and the Representatives of the Underwriters, based in part upon the market price for the Common Stock as reported on the Nasdaq National Market. 48 51 In connection with this Offering, certain Underwriters and selling group members (if any) who are qualified market makers on The Nasdaq Stock Market may engage in passive market making transactions in the Common Stock on The Nasdaq Stock Market in accordance with Rule 103 of Regulation M under the Exchange Act during the business day prior to the pricing of this Offering before the commencement of offers or sales of the Common Stock. Passive market makers must comply with applicable volume and price limitations and must be identified as such. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market maker's bid, however, such bid must then be lowered when certain purchase limits are exceeded. Certain persons participating in this Offering may overallot or effect transactions which stabilize, maintain or otherwise affect the market price of the Common Stock at levels above those which might otherwise prevail in the open market, including by entering stabilizing bids or effecting syndicate covering transactions. A stabilizing bid means the placing of any bid or effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of the Common Stock. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with this Offering. Such transactions may be effected on The Nasdaq Stock Market, in the over-the-counter market or otherwise. Such stabilizing, if commenced, may be discontinued at any time. 49 52 LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., Roseland, New Jersey. Certain legal matters will be passed upon for the Underwriters by Alston & Bird LLP, Atlanta, Georgia. EXPERTS The consolidated financial statements included in the Prospectus of Barringer Technologies Inc. and subsidiaries as of December 31, 1995 and 1996 and each of the years in the three year period ended December 31, 1996, have been audited by BDO Seidman, LLP, independent certified public accountants, as stated in their reports appearing herein and elsewhere in the Registration Statement, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") in Washington, D.C. a Registration Statement on Form SB-2 under the Securities Act with respect to the securities offered hereby. This Prospectus, which constitutes part of the Registration Statement, omits certain of the information contained in the Registration Statement and the exhibits and schedules thereto on file with the Commission pursuant to the Securities Act and the rules and regulations of the Commission thereunder. Statements contained in this Prospectus as to the content of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, and each such statement is qualified in all respects by such reference. The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: Seven World Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the public reference section of the Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, or from the Commission's Internet web site at http://www.sec.gov. In addition, such materials also may be inspected and copied at the offices of The Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006. 50 53 BARRINGER TECHNOLOGIES INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ------ Report of Independent Certified Public Accountants................................... F-2 Consolidated Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (unaudited).......................................................... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996 and for the Six Months Ended June 30, 1996 (unaudited) and 1997 (unaudited)............................................................... F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1995 and 1996 and for the Six Months Ended June 30, 1997 (unaudited)......... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and for the Six Months Ended June 30, 1996 (unaudited) and 1997 (unaudited)............................................................... F-6 Notes to Consolidated Financial Statements........................................... F-7
F-1 54 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Barringer Technologies Inc. Murray Hill, New Jersey We have audited the accompanying consolidated balance sheets of Barringer Technologies Inc. as of December 31, 1995 and 1996 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barringer Technologies Inc. at December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein. /s/ BDO Seidman, LLP --------------------- Woodbridge, New Jersey BDO Seidman, LLP February 12, 1997 F-2 55 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
DECEMBER 31, --------------------- JUNE 30, 1995 1996 1997 -------- -------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents............................. $ 43 $ 5,276 $ 3,896 Marketable securities................................. -- 4,328 4,055 Trade receivables, less allowances of $41, $63 and $157............................................... 1,533 3,521 6,352 Inventories........................................... 1,621 2,270 3,424 Prepaid expenses and other............................ 250 498 495 Deferred tax asset (note 8)........................... 225 731 1,031 -------- -------- -------- Total current assets............................... 3,672 16,624 19,253 Equipment, net (note 4)................................. 586 595 1,066 Investment in unconsolidated subsidiary (note 2)........ 334 -- -- Other................................................... 143 104 66 -------- -------- -------- $ 4,735 $ 17,323 $ 20,385 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank indebtedness and other notes (note 5)............ $ 744 $ 174 -- Accounts payable...................................... 1,278 1,009 $ 1,266 Accrued liabilities................................... 696 536 717 Accrued payroll and related taxes..................... 257 522 410 Accrued commission.................................... 27 112 446 Current portion of long-term debt (note 6)............ 300 -- -- -------- -------- -------- Total current liabilities.......................... 3,302 2,353 2,839 Other non-current liabilities........................... 108 117 121 Commitments (notes 9 and 10) Stockholders' equity (notes 6 and 7): Preferred stock, $2.00 par value, 4,000 shares authorized. 270 shares designated class A convertible preferred stock, 83, 60 and 58 shares outstanding, less discount of $64, $47 and $45, respectively....................................... 101 74 71 730 shares designated class B convertible preferred stock, 258, 123 and 23 shares outstanding, respectively....................................... 515 245 45 Common stock, $0.01 par value, 5,000, 7,000 and 20,000 shares authorized, respectively and 3,479, 5,357 and 5,470 shares outstanding, respectively......... 35 54 55 Additional paid-in capital............................ 17,685 29,430 29,952 Accumulated deficit................................... (16,542) (14,522) (12,268) Cumulative foreign currency translation adjustment.... (456) (415) (417) -------- -------- -------- 1,338 14,866 17,438 Less: common stock in treasury, at cost, 31 shares.... (13) (13) (13) -------- -------- -------- Total stockholders' equity......................... 1,325 14,853 17,425 -------- -------- -------- $ 4,735 $ 17,323 $ 20,385 ======== ======== ========
See notes to consolidated financial statements. F-3 56 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, -------------------------------- ------------------ 1994 1995 1996 1996 1997 ------- ------ ------- ------ ------ (Unaudited) Revenues......................................... $ 5,514 $6,374 $10,923 $5,012 $9,438 Cost of revenues................................. 4,100 3,601 5,363 2,647 3,955 ------- ------ ------- ------ ------ Gross profit................................... 1,414 2,773 5,560 2,365 5,483 Operating expenses: Selling, general and administrative............ 3,352 3,305 3,734 1,641 3,200 Product development............................ 531 354 230 57 338 ------- ------ ------- ------ ------ 3,883 3,659 3,964 1,698 3,538 ------- ------ ------- ------ ------ Operating income (loss)...................... (2,469) (886) 1,596 667 1,945 Other income, (expense): Interest expense............................... (202) (240) (228) (130) (5) Equity in earnings of unconsolidated subsidiary................................... -- -- 117 20 -- Gain on sale of investment in unconsolidated subsidiary................................... -- -- 123 -- -- Investment income.............................. -- -- 72 42 212 Other, net..................................... 113 (52) (12) (35) (23) ------- ------ ------- ------ ------ (89) (292) 72 (103) 184 Income (loss) before income tax (provision) benefit................................... (2,558) (1,178) 1,668 564 2,129 Income tax (provision) benefit (note 8).......... (75) -- 391 -- 131 ------- ------ ------- ------ ------ Income (loss) from continuing operations..... (2,633) (1,178) 2,059 564 2,260 Operation held for sale (note 2): Income from operations......................... 68 258 -- -- -- Gain on sale of portion of investment.......... -- 93 -- -- -- ------- ------ ------- ------ ------ 68 351 0 0 0 ------- ------ ------- ------ ------ Net income (loss)....................... (2,565) (827) 2,059 564 2,260 Preferred stock dividends........................ (108) (82) (39) (24) (6) ------- ------ ------- ------ ------ Net income (loss) attributable to common stockholders................................... $(2,673) $ (909) $ 2,020 $ 540 $2,254 ======= ====== ======= ====== ====== Primary per share data (note 1): Continuing operations.......................... $ (0.97) $(0.39) $ 0.48 $ 0.16 $ 0.36 Income from operation held for sale............ 0.02 0.08 -- -- -- Gain on sale of operation held for sale........ -- 0.03 -- -- -- ------- ------ ------- ------ ------ $ (0.95) $(0.28) $ 0.48 $ 0.16 $ 0.36 ======= ====== ======= ====== ====== Fully diluted per share data (note 1): Continuing operations.......................... $ (0.97) $(0.39) $ 0.44 $ 0.15 $ 0.35 Income from operation held for sale............ 0.02 0.08 -- -- -- Gain on sale of operation held for sale........ -- 0.03 -- -- -- ------- ------ ------- ------ ------ $ (0.95) $(0.28) $ 0.44 $ 0.15 $ 0.35 ======= ====== ======= ====== ====== Weighted average common and common equivalent shares outstanding: Primary........................................ 2,827 3,283 4,221 3,483 6,176 ======= ====== ======= ====== ====== Fully diluted.................................. 2,827 3,283 4,607 3,854 6,388 ======= ====== ======= ====== ======
See notes to consolidated financial statements. F-4 57 BARRINGER TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
COMMON STOCK PREFERRED CLASS A STOCK PFD. STK. TOTAL -------------- ------------- ------------- EQUITY SHRS AM'T SHRS AM'T SHRS AM'T ------- ----- ---- ---- ---- ---- ---- Balance--January 1, 1994.................................. $ 3,646 2,762 $28 445 $555 83 $101 Exercise of stock options/warrants...................... 168 72 1 Issuance of common stock pursuant to settlement of 1993 litigation............................................ 70 12 1994 dividend on preferred stock........................ 0 26 Net loss................................................ (2,565) Translation adjustment.................................. (133) ------- ------ --- ---- ----- --- ---- Balance--December 31,1994................................. 1,186 2,872 29 445 555 83 101 Sale of units in private placement, net................. 888 383 4 Conversion of preferred stock........................... 0 159 2 (445) (555) Change in warrant exercise price in payment of debt..... 10 1995 dividend on preferred stock........................ 0 65 Net loss................................................ (827) Translation adjustment.................................. 68 ------- ------ --- ---- ----- --- ---- Balance--December 31, 1995................................ 1,325 3,479 35 0 0 83 101 Sale of securities, net of expense ($741)............... 10,401 1,437 14 Conversion of preferred stock........................... 0 55 1 (23) (27) Exercise of stock options and warrants.................. 42 15 Conversion of debentures................................ 1,000 364 4 Preferred stock dividends............................... (15) 7 Net income.............................................. 2,059 Translation adjustment.................................. 41 ------- ------ --- ---- ----- --- ---- Balance--December 31, 1996................................ 14,853 5,357.. 54 0 0 60 74 Conversion of preferred stock........................... 0 37 (2) (3) Exercise of stock options and warrants.................. 249 76 1 Repayment of stockholder loan........................... 71 Net income for the period............................... 2,260 Translation adjustment.................................. (2) Preferred stock dividends............................... (6) ------- ------ --- ---- ----- --- ---- Balance--June 30, 1997 (unaudited)........................ $17,425 5,470.. $55 0 $ 0 58 $71 ======= ====== === ==== ===== === ==== CLASS B PFD. STK. --------------- PAID IN ACCUM. FOREIGN TREAS. SHRS AM'T CAPITAL DEFICIT TRANSL STOCK ---- ----- ------- -------- ------- ------ Balance--January 1, 1994.................................. 318 $ 635 $15,683 $(12,960) $ (391) $ (5) Exercise of stock options/warrants...................... 167 Issuance of common stock pursuant to settlement of 1993 litigation............................................ 78 (8) 1994 dividend on preferred stock........................ 108 (108) Net loss................................................ (2,565) Translation adjustment.................................. (133) --- ----- ------- -------- ----- ---- Balance--December 31,1994................................. 318 635 16,036 (15,633) (524) (13) Sale of units in private placement, net................. 884 Conversion of preferred stock........................... (60) (120) 673 Change in warrant exercise price in payment of debt..... 10 1995 dividend on preferred stock........................ 82 (82) Net loss................................................ (827) Translation adjustment.................................. 68 --- ----- ------- -------- ----- ---- Balance--December 31, 1995................................ 258 515 17,685 (16,542) (456) (13) Sale of securities, net of expense ($741)............... 10,387 Conversion of preferred stock........................... (135) (270) 296 Exercise of stock options and warrants.................. 42 Conversion of debentures................................ 996 Preferred stock dividends............................... 24 (39) Net income.............................................. 2,059 Translation adjustment.................................. 41 --- ----- ------- -------- ----- ---- Balance--December 31, 1996................................ 123 245 29,430 * (14,522) (415) (13) Conversion of preferred stock........................... (100) (200) 203 Exercise of stock options and warrants.................. 248 Repayment of stockholder loan........................... 71 Net income for the period............................... 2,260 Translation adjustment.................................. (2) Preferred stock dividends............................... (6) --- ----- ------- -------- ----- ---- Balance--June 30, 1997 (unaudited)........................ 23 $ 45 $29,952* $(12,268) $ (417) $(13) === ===== ======= ======== ===== ====
- ------------ * At December 31, 1996 and June 30, 1997, net of notes receivable of $274 and $203, respectively, from the sale of stock. See notes to consolidated financial statements. F-5 58 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, -------------------------- ------------------- 1994 1995 1996 1996 1997 ------- ------ ------- ------- ------- (Unaudited) Net income (loss)....................................... $(2,565) $ (827) $ 2,059 $ 564 $ 2,260 Items not affecting cash: Depreciation and amortization......................... 711 362 115 75 80 Inventory write-down and receivable reserves.......... 1,210 656 22 -- 94 Minority interest..................................... (76) -- -- -- -- Income from and gain on sale of investment in Labco... -- (351) (240) (20) -- Pension recovery...................................... -- (147) -- -- -- Deferred tax (benefit), expense....................... 75 -- (506) -- (300) Prepaid pension cost.................................. 132 (78) -- -- -- Other................................................. 235 71 50 19 (13) (Increase) decrease in non-cash working capital balances.............................................. 206 (397) (2,947) (1,083) (3,416) ------- ------ ------- ------- ------- Cash used in operating activities................... (72) (711) (1,447) (445) (1,295) ------- ------ ------- ------- ------- Investing activities: Purchase of machinery and equipment................... (847) (358) (124) (47) (513) Escrowed cash on sale of Canadian subsidiary.......... 225 -- -- -- -- Sale of (investment in) marketable securities......... -- -- (4,328) -- 273 Proceeds on sale of investment in Labco............... -- 300 574 -- -- Increase in investment in operation held for sale..... -- -- -- (21) -- ------- ------ ------- ------- ------- Cash (used in) investing activities................. (622) (58) (3,878) (68) (240) ------- ------ ------- ------- ------- Financing activities: Proceeds on issuance of Convertible Subordinated Debentures.......................................... -- -- 1,000 -- -- Reduction in long-term debt........................... (184) -- (300) -- -- Increase (decrease) in bank debt and other............ 488 (412) (570) 487 (174) Proceeds on issuance of equity securities............. 171 888 10,443 -- 264 Repayment of stockholder loan......................... -- -- -- -- 71 Rent inducement....................................... -- 108 -- -- -- Payment of dividends on preferred stock............... -- -- (15) -- (6) ------- ------ ------- ------- ------- Cash provided by financing activities............... 475 584 10,558 487 155 ------- ------ ------- ------- ------- Increase (decrease) in cash and cash equivalents........ (219) (185) 5,233 (26) (1,380) Cash and cash equivalents--beginning of period.......... 486 267 43 43 5,276 Less cash held for sale................................. -- (39) -- -- -- ------- ------ ------- ------- ------- Cash and cash equivalents--end of period................ $ 267 $ 43 $ 5,276 $ 17 $ 3,896 ======= ====== ======= ======= ======= Changes in components of non-cash working capital balances related to operations: Trade receivables..................................... $ 1,249 $ 38 $(2,010) $(1,125) $(2,925) Inventories........................................... (987) (281) (649) (31) (1,154) Other current assets.................................. (58) 60 (248) (26) 3 Other assets.......................................... -- (12) 39 -- -- Accounts payable and accrued liabilities.............. 2 (202) (79) 99 660 ------- ------ ------- ------- ------- Decrease (increase) in operating assets net of operating liabilities arising from cash transactions............ $ 206 $ (397) $(2,947) $(1,083) $(3,416) ======= ====== ======= ======= =======
See notes to consolidated financial statements. F-6 59 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements comprise the accounts of the Company and its continuing subsidiary companies. All intercompany transactions have been eliminated. Principles of Translation Assets and liabilities of the Company's foreign subsidiaries are translated by using year-end exchange rates and statement of operation items are translated at average exchange rates for the year. Translation adjustments are accumulated in a separate component of stockholders' equity. Inventories Materials and supplies are carried at the lower of average cost or replacement cost. Finished goods and work-in process are carried at the lower of average cost or net realizable value. Property and Equipment Property and equipment are carried at cost. Depreciation of owned equipment is computed on a straight-line basis over the estimated useful lives of the related assets, generally from three to ten years. Leasehold improvements are amortized over the term of the related lease, generally from five to ten years, which approximates the useful lives of these improvements. Equipment under capital leases is amortized on a straight-line basis over the term of the lease, generally four to ten years, which approximates the estimated useful lives of the leased equipment. Per Share Data Net income (loss) per share is computed by dividing net income (loss), less preferred stock dividends, by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of the dilutive effect, if any, of unissued shares under options and warrants, computed using the treasury stock method (using the average stock prices for primary basis and the higher of average or period-end stock prices for fully diluted basis). Fully diluted income (loss) per share is computed assuming the conversion of convertible preferred stock and subordinated debentures at the beginning of the period or the date of issuance, whichever is later. Statement of Cash Flows For purposes of the Statement of Cash Flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Revenue Recognition The Company recognizes revenue on the percentage of completion method for its research and development contracts with progress measured based on the ratio of costs incurred to the total estimated cost, and generally, when product is shipped for all other sales. Where the Company receives contracts for the design and construction of specialty instruments that require long manufacturing times, the Company will also recognize revenue on the percentage of completion method similar to its recognition method in the research and development business. F-7 60 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) For the years ended December 31, 1994, 1995 and 1996, the Company had recognized revenues of $17,000, $264,000 and $49,000 respectively, on jobs in process and had incurred related costs of $10,000, $183,000 and $25,000 respectively, of which $5,000, $210,000 and $0 respectively, were billed to customers. For the six months ended June 30, 1997, the Company did not have any significant contracts in progress. Financial Instruments and Credit Risk Concentration Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. Concentrations of credit risk with respect to such receivables are limited to primarily governmental agencies. Marketable securities consists primarily of investments in U.S. government and agency obligations and commercial paper. Long-Lived Assets Long-lived assets, such as property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. If and when any such impairment exists, the related assets will be written down to fair value. This policy is in accordance with Statement of Financial Accounting Standards No. 121, ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of", which the Company adopted effective for the year ended December 31, 1996. No write-downs have been necessary through June 30, 1997 as a result of SFAS 121. Stock-Based Compensation The Company has adopted the disclosure only provisions of SFAS 123, "Accounting for Stock-Based Compensation", but applies Accounting Principle Board Opinion No. 25 in accounting and measuring compensation expense related to stock option plans. There was no compensation expense related to the issuance of stock options for the years ended December 31, 1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997. (see note 7 for pro-forma disclosure required by SFAS 123). Fair Value of Financial Instruments The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, marketable securities, accounts receivable, accounts payable, accrued liabilities and notes payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company has the ability and intent to hold all marketable securities through their respective maturity dates. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Many of the Company's estimates and assumptions used in the financial statements relate to the Company's products, which are subject to technology and market changes. It is reasonably possible that changes may occur in the near term that would affect management's estimates with respect to accounts receivable, inventories, equipment and deferred income taxes. F-8 61 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Unaudited Information The consolidated balance sheet of the Company as of June 30, 1997, the consolidated statements of operations and cash flows for the six months ended June 30, 1996 and 1997, the consolidated statement of stockholders' equity for the six months ended June 30, 1997 and the notes to such financial statements, are unaudited. However, in the opinion of management, such financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for any other interim or annual period. 2. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY During the first quarter of 1995, the Company started to actively seek a purchaser for its then 47% interest in Barringer Laboratories, Inc ("Labco"). Accordingly, the financial statements had been reclassified, where appropriate, to reflect Labco as an operation held for sale. Pursuant to the terms of a Stock Purchase Agreement, dated December 8, 1995 ("Agreement"), by and between the Company and Labco, on December 13, 1995 the Company sold to Labco 647,238 shares of Labco's common stock for an aggregate purchase price of $809,000, resulting in a gain of $93,000. The purchase price consisted of $300,000 in cash, cancellation of all amounts owed by the Company to Labco pursuant to certain intercompany agreements (aggregating $452,000) and cancellation of $57,000 in accounts receivable due to Labco. After giving effect to the sale of the Labco shares, the Company continued to own 432,475 shares of Labco stock representing a 26% ownership interest. In October 1996, the Company and Labco entered into a Termination Agreement (the "Termination Agreement") pursuant to which, among other things, the Company agreed that, for a period of three months from the date of the Termination Agreement, it would sell its remaining shares in Labco at a price of at least $1.6875 per share. During 1996, the Company sold all of its remaining shares and warrants in Labco and recognized a gain on such sales of $123,000. In addition to the gain on the sale of its Labco investment, the Company recorded $117,000 of income representing its proportionate share of Labco's net income for 1996. 3. INVENTORIES At December 31, 1995 and 1996 and June 30, 1997, the Company had parts, subassemblies and work in process of $1,010,000, $1,483,000, and $2,953,000 and finished goods of $611,000, $787,000, and $471,000, respectively. 4. MACHINERY AND EQUIPMENT The major categories of machinery and equipment are as follows:
DECEMBER 31, JUNE 30, --------------------------- ----------- 1995 1996 1997 ----------- ----------- ----------- Office equipment.......................... $ 350,000 $ 395,000 $ 772,000 Machinery and equipment................... 1,687,000 1,857,000 1,569,000 Leasehold improvement..................... 64,000 64,000 67,000 ---------- ---------- ---------- 2,101,000 2,316,000 2,408,000 Accumulated depreciation.................. (1,515,000) (1,721,000) (1,342,000) ---------- ---------- ---------- Totals...................................... $ 586,000 $ 595,000 $ 1,066,000 ========== ========== ==========
F-9 62 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. BANK INDEBTEDNESS AND OTHER NOTES PAYABLE The Company's Canadian subsidiary, Barringer Research Ltd. ("BRL"), had a financing arrangement with the Ontario Development Corporation ("ODC") for a $730,000 export line of credit. The rate of interest was adjusted quarterly and was 10% at December 31, 1996 and outstanding borrowings totaled $150,000. The ODC has informed the Company that this facility will no longer be available due to the phasing out of the ODC by the Canadian government. In January 1997, the Company paid all amounts owed to the ODC and the facility was terminated. BRL's line of credit arrangement with the Toronto-Dominion Bank ("Bank") was terminated by BRL in December 1996 upon the payment of all amounts due to the Bank. During December 1996, the Company placed in an interest bearing account $280,000 in order to secure a performance bond that was previously issued by the Bank. At December 31, 1996, this deposit was restricted. On February 12, 1997, the bond was canceled and the deposit released. 6. CURRENT PORTION OF LONG-TERM DEBT AND OTHER NON-CURRENT LIABILITIES (a) Current portion of long-term debt at December 31, 1995, consisted of amounts due on the 12 1/2% Convertible Subordinated Debentures which were repaid on July 15, 1996 with a portion of the net proceeds from the sale of $1,000,000 of 6% Convertible Subordinated Debentures due 1997 (see note 7). (b) Other non-current liabilities represent rents payable on the Company's Canadian facility. 7. STOCKHOLDERS' EQUITY Public Offering On November 12, 1996, the Company completed the sale of 1,250,000 shares ("Shares") of common stock and 1,250,000 Common Stock Purchase Warrants ("Warrants") in a public underwriting. On December 12, 1996, the underwriters exercised their over-allotment option and acquired an additional 187,500 Shares and 187,500 Warrants. The aggregate net proceeds to the Company, after all expenses of the offering, was approximately $10,401,000. Private Offerings On May 9, 1995, the Company completed the private placement of its securities to two institutional investors. The private placement consisted of 125 units priced at $6,000 each for an aggregate sales price of $750,000. Each unit ("Unit") consisted of 2,500 shares of the Company's common stock and a five-year warrant to purchase 2,500 shares of the Company's common stock at $1.96 per share. In addition, in order to induce the institutional investors to enter into this transaction, an additional three-year warrant to acquire 37,500 shares of the Company's common stock at $1.96 per share was issued. On June 30, 1995, the Company completed an additional private placement in which it sold an additional 28 Units, including 22 Units to 17 members of senior management and the Company's Board of Directors, for proceeds aggregating $168,000. This private placement did not include the additional three-year warrant. On July 10, 1996, the Company completed the sale of $1,000,000 of its 6% Convertible Subordinated Debentures, ("Debentures") due 1997, in a private transaction to private investors including members of management. These debentures are convertible into shares of the Company's Common Stock at the rate of $2.75 per share and mature on the earlier of (i) 30 days after the completion of an underwritten public offering or a private placement by the Company of its equity securities pursuant F-10 63 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) to which the Company receives net proceeds in an aggregate amount in excess of $5,000,000, or (ii) July 9, 1997. Interest is payable semi-annually. A portion of the net proceeds of the sale of these debentures were used to repay the 12 1/2% Subordinated Convertible Debentures due 1996. All of the Debentures were converted into 363,628 shares of common stock in December 1996, as a result of the public offering. Due from Officers/Shareholders In connection with the exercise of options to acquire 190,000 shares of the Company's Common Stock, two officers of the Company signed full recourse interest bearing (no interest the first year, prime rate thereafter) unsecured promissory demand notes aggregating $274,000 that was available to them under the Company's stock option purchase program. Under that program the Company has arranged for a market-maker in the Company's Common Stock, to coordinate the orderly sale in the open market of a portion of the Common Stock to be received by the employees upon the exercise of their options in an amount sufficient to repay the loan and related interest. As of June 30, 1997, $203,000 was still outstanding. Common Stock Outstanding or Reserved for Issuance The following table sets forth the number of shares of Common Stock outstanding as of December 31, 1996 as well as the number of shares of Common Stock that would be outstanding in the event that all of the options and warrants are exercised and all Series of Convertible Preferred Stock and Debentures are converted into Common Stock.
COMMON STOCK OUTSTANDING EXERCISE, OR CONVERSION OR RESERVED FOR OPTION PRICE ISSUANCE ---------------- ------------ Common stock................................. 5,357,852 Class A convertible preferred stock.......... 0.361745 21,764 Class B convertible preferred stock.......... 0.355839 43,590 Stock options (i)............................ $1.00 to $14.00 461,000 Private placement warrants (ii).............. $1.96 412,499 Public warrants (iii)........................ $9.847 359,375 Underwriter's warrants (iii)................. $10.276 125,000 Underlying warrants (iii).................... $9.847 31,250 Other warrants (iv).......................... $4.82 to $12.46 55,000 --------- Total........................................ 6,867,330 =========
All outstanding warrants expire between January 23, 1997 and April 25, 2001. (i) Stock Compensation Plans From time to time, the Company has granted non-qualified options to various employees and directors. The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees", and related Interpretations in accounting for the plans. Under APB Opinion 25, because the exercise price of the Company's stock options issued to employees equals the market price of the underlying stock on the date of grant, no compensation is recognized. SFAS 123, "Accounting for Stock-Based Compensation", requires the Company to provide pro forma information regarding net income (loss) and earnings (loss) per share as if compensation cost F-11 64 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) for the Company's stock option plans had been determined in accordance with the fair value based method prescribed in SFAS 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-price model with the following weighted average assumptions used for grants in 1995 and 1996, respectively: no dividend yield; expected volatility of 30%; risk-free interest rates of 7.11% and expected lives of 5 years for the options. Under the accounting provisions of SFAS 123, the Company's net income (loss), primary earnings (loss) per share and fully diluted earnings (loss) per share would have been reduced (increased) to the pro-forma amounts indicated below.
YEAR ENDED DECEMBER 31, ---------------------- 1995 1996 --------- ---------- Net income (loss): As reported......................................... $(827,000) $2,059,000 Pro-forma........................................... $(884,000) $1,986,000 Primary earnings (loss) per share from continuing operations: As reported......................................... $ (0.39) $ 0.48 Pro-forma........................................... $ (0.40) $ 0.47 Fully diluted earnings (loss) per share from continuing operations: As reported......................................... $ (0.39) $ 0.44 Pro-forma........................................... $ (0.40) $ 0.43
At the May 13, 1997 Annual Meeting of Stockholders, the Company's stockholders approved the adoption of the Company's 1997 Stock Compensation Program ("Program"). The Program authorizes the granting of incentive stock options, non-qualified supplementary options, stock appreciation rights, performance shares and stock bonus awards to employees and consultants of the Company and its subsidiaries, including those employees serving as officers or directors of the Company ("Employee Plans"). The Program also authorizes automatic option grants to directors who are not otherwise employed by the Company ("Independent Director Plan"). In connection with the Program, 600,000 shares of Common Stock are reserved for issuance, of which up to 500,000 shares may be issued under the Employee Plans and up to 100,000 shares may be issued under the Independent Director Plan. In the event that an option or award granted under the Program expires, is terminated or forfeited or certain performance objectives with respect thereto are not met prior to exercise or vesting, then the number of shares of Common Stock covered thereby will again become eligible for grant under the Program. The Company will receive no consideration for grants of options or awards under the Program. F-12 65 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of the status of the Company's outstanding options as of December 31, 1995 and 1996 and June 30, 1997 and changes during the periods ending on those dates is presented below:
YEAR ENDED DECEMBER 31, ----------------------------------------- SIX MONTHS ENDED 1995 1996 JUNE 30, 1997 ------------------- ------------------- ------------------ WEIGHTED WEIGHTED WEIGHTED NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE OF EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE -------- -------- -------- -------- ------- -------- Outstanding-- beginning of period................ 58,750 $12.38 240,125 $ 4.54 461,000 $ 2.19 Granted.......................... 181,375 2.00 253,000 1.00 147,500 9.74 Exercised........................ 0 (1,250) 2.00 (16,312) 1.21 Forfeited........................ 0 (30,875) 10.66 (29,250) 10.88 -------- -------- ------- Outstanding--end of period......... 240,125 4.54 461,000 2.19 562,938 3.75 ======== ======== ======= Options exercisable--period-end.... 126,800 $ 6.38 164,200 $ 3.49 230,619 $ 1.94 Fair value of options granted during the period................ $ 0.70 $ 0.40 $ 5.39 ======== ======== =======
On February 28, 1997, options to acquire 135,500 shares of the Company's common stock at $9.375 per share, which was the market value at date of grant, were issued to officers and key employees of the Company, pursuant to the Employee Plan. These options expire on February 28, 2007 and are exercisable as to 25% of the optioned shares after the first year, 50% after the second year, 75% after the third year and 100% after the fourth year. On May 13, 1997, options to acquire 12,000 shares of the Company's common stock at $13.875 per share, which was the market value at date of grant, were issued to the Company's independent directors pursuant to the Independent Director Plan. These options expire on May 13, 2002 and are exercisable as to 100% after the first year. The options issued in 1996 expire on April 25, 2001 and are exercisable as to 25% of the optioned shares immediately, 50% after the first year, 75% after the second year and 100% after the third year. The options issued in 1995 expire on March 10, 2000 and are exercisable as to 40% of the optioned shares after the first year, 60% after the second year, 80% after the third year and 100% after the fourth year. The following table summarizes information about stock options outstanding at June 30, 1997.
OPTIONS EXERCISABLE OPTIONS OUTSTANDING ------------------------ -------------------------------------------- NUMBER NUMBER WEIGHTED-AVERAGE EXERCISABLE EXERCISE OUTSTANDING AT REMAINING EXERCISE AT EXERCISE PRICE JUNE 30, 1997 CONTRACTUAL LIFE PRICE JUNE 30, 1997 PRICE - ------------------------- -------------- ---------------- -------- ------------- -------- $ 1.00 239,438 3.8 years $ 1.00 119,719 $ 1.00 2.00 170,250 2.7 years 2.00 102,150 2.00 9.38 132,500 9.8 years 9.38 0 9.38 13.88 12,000 4.8 years 13.88 0 13.88 14.00 8,750 0.7 years 14.00 8,750 14.00 ------- ------- 1.00 to 14.00 562,938 4.8 years $ 3.75 230,619 $ 1.94 ======= =======
F-13 66 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes information about stock options outstanding at December 31, 1996.
OPTIONS OUTSTANDING -------------------------------------------- OPTIONS EXERCISABLE NUMBER ---------------------------- OUTSTANDING AT WEIGHTED-AVERAGE NUMBER EXERCISE DECEMBER 31, REMAINING EXERCISE EXERCISABLE AT EXERCISE PRICE 1996 CONTRACTUAL LIFE PRICE DECEMBER 31, 1996 PRICE - -------------------------- -------------- ---------------- -------- ----------------- -------- $ 1.00 253,000 4.3 years $ 1.00 63,250 $ 1.00 2.00 175,500 3.2 years 2.00 70,200 2.00 12.00 23,750 0.1 years 12.00 23,750 12.00 14.00 8,750 1.2 years 14.00 7,000 14.00 ------- ------- 1.00 to 14.00 461,000 3.6 years $ 2.19 164,200 $ 3.49 ======= =======
(ii) Private Placement Warrants In connection with the Company's private placement (see above) warrants to purchase 420,000 shares of the Company's common stock at $1.96 per share were sold to a group of private investors and senior management. The warrants expire between May 9, 1998 and June 29, 2000. (iii) Public Warrants The public warrants (see above) are exercisable for three years and entitle the registered holder to purchase one-quarter of a share of Common Stock at an exercise price of $9.847 per share. The Warrant exercise price and the number of shares issuable upon exercise of the Warrants are subject to adjustment under certain circumstances. The Company may redeem outstanding Warrants commencing six months from November 12, 1996 on not less than 30 days notice at a price of $0.25 per Warrant (subject to adjustment under certain circumstances) if the closing bid price of the Common Stock averages in excess of 200% of the exercise price for a period of 30 days' ending within 15 days of the redemption notice date. In connection with the November 1996 public offering, the underwriter received a warrant ("Underwriter's Warrant") to purchase from the Company 125,000 shares of Common Stock at an exercise price of $10.276 per share ("Exercise Price") and 125,000 Warrants ("Underlying Warrant") at an exercise price of $0.06 per Warrant. Each Underlying Warrant entitles the holder to purchase one-quarter of a share of Common Stock at an exercise price of $9.847 per share. The Underwriter's Warrants are exercisable with respect to the Common Stock for a period of four years commencing from November 12, 1997 and with respect to the Underlying Warrants for a period of two years commencing from November 12, 1997. These warrants contain certain registration rights. (iv) Other warrants In September 1994, the Company issued a warrant to purchase 6,250 shares of the Company's common stock at $5.25 per share to the Ontario Development Corporation in connection with their increase in the export financing facility available to the Company's Canadian subsidiary, from $365,000 to $730,000) See Note 5 for additional information. The warrant was exercised in 1997. On December 31, 1991, the Board of Directors adopted the 1991 Directors Warrant Plan ("Plan"). Pursuant to the Plan, each non-employee director will be sold a five-year warrant to purchase 3,750 shares of Common Stock at an exercise price to be determined by the Board at the time of such sale, but shall not be less than the current market price for such shares at the time of issuance of the F-14 67 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) warrant. During 1997, 3,750 warrants were exercised. During 1996, 3,750 warrants expired. During 1995, no warrants were issued under the Plan. On April 7, 1995, the Company issued warrants to purchase 6,250 shares of the Company's common stock at $4.00 per share to Barringer Laboratories in connection with their extending an intercompany obligation, which has subsequently been paid. The warrant was exercised in 1996. The other warrants expire between March 1, 1997 and January 12, 1999. Increase in Authorized Shares At the reconvened 1995 Annual Meeting of Stockholders, the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of capital stock of the Company from 7,000,000 to 12,000,000, comprised of 7,000,000 shares of Common Stock, 1,000,000 shares of Convertible Preferred Stock, par value $1.25 per share and 4,000,000 shares of Preferred Stock, par value $2.00 per share. The stockholders also approved a one-for-four reverse stock split of the Company's common stock. At the May 13, 1997 Annual Meeting of Stockholders, the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of common stock of the Company from 7,000,000 to 20,000,000. 8. INCOME TAXES The provision (benefit) for income taxes related to continuing operations are as follows:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------- ----------------------- 1994 1995 1996 1996 1997 ------- ---- ----------- --------- --------- (UNAUDITED) Current tax expense: U.S....................... -- -- -- -- -- Foreign (primarily Canadian).............. -- -- $ 115,000 $ 44,000 $ 291,000 ------- -- ----------- --------- --------- Total current.......... $ 0 $ 0 115,000 44,000 291,000 ------- -- ----------- --------- --------- Deferred tax expense: U.S....................... -- -- 574,000 4,000 394,000 Foreign (primarily Canadian).............. -- -- 90,000 192,000 33,000 ------- -- ----------- -------- --------- Total deferred......... 0 0 664,000 196,000 427,000 ------- -- ----------- -------- --------- Change in valuation allowance: U.S....................... -- -- (726,000) (4,000) (449,000) Foreign (primarily Canadian).............. 75,000 -- (444,000) (236,000) (400,000) -------- -- ----------- --------- --------- Total change........... 75,000 0 (1,170,000) (240,000) (849,000) -------- -- ----------- --------- --------- Total income tax provision (benefit)................. $75,000 $ 0 $ (391,000) $ 0 $(131,000) ======= == ========== ======== =========
F-15 68 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred tax assets are comprised of the following temporary differences and carryforwards at December 31:
1995 1996 ----------- ----------- Nondeductible allowances against trade receivables............................. $ 15,000 $ 24,000 Nondeductible inventory reserves.......... 90,000 106,000 Nondeductible expense accruals............ 50,000 72,000 Machinery and equipment................... 706,000 787,000 Tax benefit of Canadian operating loss and investment credit carry forwards........ 401,000 217,000 Tax benefit of U.S. operating loss carry forwards................................ 4,621,000 4,019,000 Other..................................... 41,000 35,000 ------- -------- Gross deferred tax assets............... 5,924,000 5,260,000 Deferred tax assets valuation allowance... (5,699,000) (4,529,000) ------- -------- Net deferred tax assets......... $ 225,000 $ 731,000 ======= ========
As a result of the Company's historical trend of losses, a valuation allowance has been provided for a substantial portion of the U.S. and Canadian deferred tax assets. At December 31, 1995, the net deferred tax asset of $225,000 related to the Company's Canadian subsidiary, which had available tax credits and loss carryforwards. The Canadian subsidiary has a history of profitability, despite the consolidated losses of the Company through December 31, 1995. At December 31, 1996, the net deferred tax asset of $731,000, included approximately $525,000 and $206,000 related to the Company's Canadian and U.S. operations, respectively. At June 30, 1997, the net deferred tax asset of $1,031,000, included approximately $525,000 and $506,000 related to the Company's Canadian and U.S. operations, respectively. Based on historical results and estimated 1997 and 1998 earnings, which include earnings from certain contracts, as well as available tax planning strategies, management considers realization of the unreserved deferred tax asset more likely than not. Additional reductions to the valuation allowance will be recorded when, in the opinion of management, the Company's ability to generate taxable income is considered more likely than not. F-16 69 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 YEAR ENDED DECEMBER ENDED 31, JUNE 30, --------------------- ------------- 1994 1995 1996 1996 1997 ----- ----- ----- ----- ----- (UNAUDITED) Income taxes (benefit) computed at the U.S. statutory rate................................. $(821) $(280) $ 567 $ 192 $ 724 Income not subject to U.S. tax, net.............. (154) (126) (112) (184) (296) U.S. losses and expenses for which no tax benefit has been recognized............................ 943 398 25 13 30 Utilization of U.S. net operating losses......... -- -- (340) (4) (314) Change in net deferred tax assets................ 75 -- (506) -- (300) Other............................................ 32 8 (25) (17) 25 ----- ----- ----- ----- ----- Provision (benefit) for income taxes............. $ 75 $ 0 $(391) $ 0 $(131) ===== ===== ===== ===== =====
At December 31, 1996, the Company has net operating loss carry forwards in the U.S. of approximately $10,500,000 and $5,000,000 for federal and state income tax purposes, respectively, which expire in varying amounts through 2011. Canadian research and development investment tax credits of approximately $217,000 will expire in varying amounts through 2006. 9. COMMITMENTS The Company rents facilities, automobiles and equipment under various operating leases. Rental expenses under such leases amounted to $325,000, $280,000, and $191,000 for 1996, 1995 and 1994, respectively. At December 31, 1996, the aggregate minimum commitments pursuant to operating leases are as follows: YEAR ENDING DECEMBER 31, 1997............................................... $298,000 1998............................................... 203,000 1999............................................... 149,000 2000............................................... 98,000 2001 and thereafter................................ 543,000
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 $206,000 in 1993, representing the excess of the Plan's projected benefit obligation over the accumulated benefit obligation and recognized an additional gain in 1995 of $172,000, representing the excess of the Plan's assets over the cost of providing the annuities to the participants for the value of their termination F-17 70 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) benefits. This excess was placed into a money purchase contract and used by the Company to provide for its matching contributions under the new arrangement. This amount is being carried as a deferred pension expense asset on the consolidated balance sheet. The Company maintains a 401(k) salary deferral plan instituted for all U.S. employees with more than one year of service. As a money purchase plan, it does not establish any Company liability other than a matching formula to employee contributions. The aggregate cost of the plan for 1994, 1995, and 1996 and for the six months ended June 30, 1996 and 1997 was $16,000, $15,700, $20,000, $9,000 and $20,000, respectively. 11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION The Company made cash payments for interest of $239,000, $189,000, $246,000, $107,000 and $2,000, for the years ended December 31, 1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997, respectively. Additionally, income taxes of $190,000, $0, $3,500, $0 and $158,000, were paid for the years ended December 31, 1994, 1995 and 1996, and for the six months ended June 30, 1996 and 1997, respectively. In the three years ended December 31, 1996, the Company issued Preferred Stock dividends in the amount $108,000, $82,000, and $24,000 in the form of 25,291, 65,417, and 7,949 shares of common stock, respectively. None were issued in 1997. In December 1996, the entire $1,000,000 of the Company's 6% Convertible Subordinated Debentures were converted into 363,628 shares of the Company's common stock as a result of the public offering (see note 7). 12. INFORMATION CONCERNING THE COMPANY'S PRINCIPAL ACTIVITIES A summary of the Company's continuing operations by geographic area for each of the three years in the period ended December 31, 1996 and the six months ended June 30, 1996 and 1997 is as follows in thousands:
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, ------------------------------- ------------------- 1994 1995 1996 1996 1997 ------- ------- ------- ------- ------- (UNAUDITED) Revenues: United States.......................... $ 1,862 $ 1,867 $ 4,122 $ 1,394 $ 5,030 Canada................................. 5,593 5,110 7,887 3,690 6,429 Europe................................. -- 1,599 2,577 1,590 2,421 Eliminations........................... (1,941) (2,202) (3,663) (1,662) (4,442) ------- ------- ------- ------- ------- Totals......................... $ 5,514 $ 6,374 $10,923 $ 5,012 $ 9,438 ======= ======= ======= ======= =======
F-18 71 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------- ----------------- 1994 1995 1996 1996 1997 ------- ------- ------- ------- ------- (UNAUDITED) Income (loss) from continuing operations: United States........................ $(2,653) $(1,548) $ 1,152 $ (146) $ 1,241 Canada............................... 20 270 869 577 746 Europe............................... -- 100 38 133 273 ------- ------- ------- ------- ------- $(2,633) $(1,178) $ 2,059 $ 564 $ 2,260 ======= ======= ======= ======= ======= Identifiable assets: United States........................ $ 6,400 $ 4,253 $16,650 $ 4,158 $17,978 Canada............................... 4,422 6,248 7,750 7,366 9,444 Europe............................... -- 696 1,256 1,210 1,530 Eliminations......................... (4,030) (6,462) (8,333) (6,853) (8,567) ------- ------- ------- ------- ------- Totals....................... $ 6,792 $ 4,735 $17,323 $ 5,881 $20,385 ======= ======= ======= ======= =======
For the year ended December 31, 1996, export sales, including sales from Canada to other countries, comprised 53.0% of total revenues and were made primarily to Western Europe, Asia and Central and South America. A summary of the Company's continuing operations by principal activity for the years ended December 31, 1994 and 1995 is as shown below. Starting in 1996 no segment, other than the Instruments segment, was material to the Company's consolidated operations and accordingly, segment reporting is no longer required.
TOTAL ELIMINATION RES. & DEV. INSTRUMENTS CORP. & OTHER ------- ----------- ----------- ----------- ------------- 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-19 72 BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
TOTAL ELIMINATION RES. & DEV. INSTRUMENTS CORP. & OTHER ------- ----------- ----------- ----------- ------------- 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 ======= ========== ========== ========== ============
13. SALES TO MAJOR CUSTOMERS During 1996, one customer accounted for approximately 11% of consolidated revenues of the Company. During 1995, no customer accounted for more than 10% of the consolidated revenues of the Company. During 1994, one customer accounted for approximately 22% of consolidated revenues. 14. FOURTH QUARTER ADJUSTMENTS During the fourth quarter of 1996, the Company recorded a deferred tax benefit related to a decrease in the deferred tax asset valuation allowance of $266,000. During the fourth quarter of 1995, the Company recorded adjustments for estimated losses on inventories and receivables of approximately $450,000 and $200,000, respectively. During the fourth quarter of 1994, the Company recorded adjustments for estimated losses on inventories and receivables of approximately $800,000 and $515,000, respectively. F-20 73 SCHEDULE III BARRINGER TECHNOLOGIES INC VALUATION AND QUALIFYING ACCOUNTS
BALANCE BALANCE -- -- BEGINNING OF END OF PERIOD ADDITION DEDUCTION RECOVERY PERIOD ------------ -------- --------- -------- --------- Allowance for doubtful accounts and sales allowances: Six months ended June 30, 1997 (Unaudited)...................... $ 63,000 $100,000 $ 6,000 -- $157,000 Year ended December 31, 1996....... 41,000 52,000 30,000 -- 63,000 Year ended December 31, 1995....... 539,000 221,000 719,000 -- 41,000 Year ended December 31, 1994....... 25,000 526,000 17,000 $5,000 539,000
F-21 74 Graphic Description Inside Back Cover Photo 1 shows a schematic of the IONSCAN(R) heating and testing chambers under the heading "IONSCAN(R) Technology at Work" surrounded by five additional pictures. Picture 1 is headed "1 Particle Collected" and shows a security agent collecting a sample from a briefcase. Picture 2 is headed "2 Sample Inserted" and shows a sample being inserted into the IONSCAN(R). Picture 3 is headed "3 IONSCAN(R) Analyzes" and shows the IONSCAN(R) processing a sample. Picture 4 is headed "4 Pass" and shows the IONSCAN(R)'s alarm indicating "pass." Picture 5 is headed "5 Passenger Proceeds" and shows a female passenger about to pick up her bag from the security station. Photo 2 is a schematic drawing of a proposed automated luggage system under the heading "New Product Development." The caption to the schematic reads as follows: "The FAA has recently awarded Barringer a contract to develop an automated luggage trace explosives detection system. If successfully developed, this product would provide high throughput testing of checked luggage with minimal operator intervention." Photo 3 shows a prototype of the Company's document scanner system. The caption to the photograph reads as follows: "Barringer has developed a Document Scanner under contract with the FAA which could potentially provide passenger screening capabilities in airports throughout the world." 75 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Certificate of Incorporation, as amended (the "Certificate of Incorporation"), and the Company's by-laws, as amended ("By-laws"), provide that the Company shall, to the fullest extent permitted by law, indemnify each person (including the heirs, executors, administrators and other personal representatives of such person) against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by such person in connection with any threatened, pending or actual suit, action or proceeding (whether civil, criminal, administrative or investigative in nature or otherwise) in which such person may be involved by reason of the fact that he or she is or was a director or officer of the Company or is serving any other incorporated or unincorporated enterprise in any of such capacities at the request of the Company. Section 145 of the General Corporation Law of the State of Delaware (the "GCL") permits a corporation, under specified circumstances, to indemnify its directors, officers, employees or agents against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties by reason of the fact that they were or are directors, officers, employees or agents of the corporation, if such directors, officers, employees or agents acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. In a derivative action, i.e., one by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors, officers, employees or agents in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been judged liable to the corporation unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant directors, officers, employees or agents are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability. The Certificate of Incorporation also contains a provision limiting the personal liability of directors to the fullest extent permitted or authorized by the GCL or other applicable law. Under the GCL, such provision would not limit liability of a director for (i) breach of the director's duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases or redemptions of stock other than from lawfully available funds, or (iv) any transactions from which the director derives an improper benefit. II-1 76 ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth an itemized statement of all expenses to be incurred in connection with the issuance and distribution of the securities that are the subject of this Registration Statement, other than underwriting discounts and commissions. All expenses incurred with respect to the distribution will be paid by the Company, and such amounts, other than the Securities and Exchange Commission registration fee and the NASD filing fee, are estimates only.
EXPENSE -------- Securities and Exchange Commission registration fee............... $ 10,586 National Association of Securities Dealers, Inc. filing fee....... 3,994 Nasdaq National Market listing fee................................ 17,500 Accounting fees and expenses...................................... 35,000 Legal fees and expenses........................................... 85,000 Blue Sky fees and expenses........................................ 5,000 Printing and engraving expenses................................... 125,000 Miscellaneous..................................................... 17,920 ------- Total................................................... $300,000 =======
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES The following information relates to securities of the Company issued or sold within the past three years which were not registered under the Securities Act (all share and per share amounts have been adjusted to reflect the one-for-four reverse stock split of the Common Stock, $.01 par value 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. All of the Debentures were converted into 363,628 shares of Common Stock in December 1996, as a result of the Company's November 1996 public offering. (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 May 1997, the Company granted stock options to retain employees of the Company covering an aggregate of 434,375 shares of Common II-2 77 Stock. These grants were exempt from registration pursuant to Securities Act Release No. 33-6188 (Feb. 1, 1980). No underwriter was involved in these grants. ITEM 27. EXHIBITS The following exhibits are filed as part of this Registration Statement: 1.1 Form of Underwriting Agreement.* 3.1 Certificate of Incorporation of the Company, as amended. 3.2 By-laws of the Company (previously filed as Exhibit 3.2A to the Company's Annual Report on Form 10-K/A-2 for the fiscal year ended December 31, 1994 (File No. 0-3207) and incorporated herein by reference). 5.1 Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.* 10.1 Employment Agreement, dated as of July 10, 1989, between the Company and Stanley S. Binder (previously filed as Exhibit 10.15 to the Company's Registration Statement on Form S-1 (File No. 33-3162) and incorporated herein by reference). 10.2 Employment Agreement, dated November 1, 1996, between the Company and Richard S. Rosenfeld (previously filed as Exhibit 10.2 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 10.3 Employment Agreement, dated November 1, 1996, between the Company and Kenneth S. Wood (previously filed as Exhibit 10.3 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 10.4 Consulting Agreement, dated as of January 1, 1991, between the Company and John J. Harte (previously filed as Exhibit 10.4 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 10.5 Form of 1995 nonqualified stock option agreement (previously filed as Exhibit 10.6 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 10.6 Form of 1996 nonqualified stock option agreement (previously filed as Exhibit 10.3 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 10.7 Description of 1991 Warrant Plan (previously filed as Exhibit 10.8 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 10.8 Description of Exercise Plan (previously filed as Exhibit 10.9 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 10.9 Barringer Technologies Inc. 1997 Stock Compensation Program. 10.10 License Agreement, dated February 27, 1989, between Canadian Patents and Development Limited -- Societe Canadienne Des Brevets Et D'Exploitation Limite and Barringer Instruments Limited (the "License Agreement"), Supplement #1, dated March 4, 1991, Assignment of License Agreement, dated January 2, 1992, to Her Majesty the Queen in Right of Canada, as Represented By the Minister of National Revenue and Supplemental Letter Agreement, dated October 7, 1996 (previously filed as Exhibit 10.10 to the Company's Registration Statement on Form B-2 (File No. 333-13703) and incorporated herein by reference). 10.11 Letter Agreement, dated July 25, 1997, by and between Barringer Research Limited and Her Majesty the Queen in Right of Canada, as Represented By the Minister of National Revenue. 10.12 Termination Agreement, dated October 7, 1996, between the Company and Barringer Laboratories Inc. (previously filed as Exhibit 10.11 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference).
II-3 78 10.13 Warrant Agreement by and between the Company and American Stock Transfer & Trust Company (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 10.14 Form of Warrant issued to Janney Montgomery Scott Inc. (previously filed as Exhibit 4.2 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 10.15 Lease, dated as of February 17, 1993, between the Company and Murray Hill Associates (previously filed as Exhibit 10.17 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 10.16 Lease, dated as of July 27, 1995, between Barringer Research Limited and Lehndorff Management Limited (previously filed as Exhibit 10.18 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 11.1 Computation of Earnings Per Share. 21.1 List of the Company's Subsidiaries (previously filed as Exhibit 21 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference). 23.1 Consent of BDO Seidman, LLP, independent certified public accountants. 23.2 Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. (included in Exhibit 5.1 to this registration statement).* 24.1 Power of Attorney (included on the signature page). 27.1 Financial Data Schedule.
- ------------ * To be filed by amendment. ITEM 28. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) For the purpose of determining any liability under the Securities Act of 1933, as amended (the "Securities Act"), the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act, shall be deemed a part of this Registration Statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions on indemnification, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 79 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 Borough of New Providence, State of New Jersey, on August 7, 1997. 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 August 7, 1997. Each of the undersigned hereby constitutes and appoints Stanley S. Binder and Richard S. Rosenfeld, and each of them, his true and lawful attorneys-in-fact and agents, 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, any additional registration statement filed pursuant to Rule 462 under the Securities Act of 1933 relating hereto, and any and all amendments (including post-effective amendments) thereto, 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 Director Stanley S. Binder /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 Accounting Financial Richard S. Rosenfeld Officer)
II-5 80 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------------------------------------------------------------------------- ---- 1.1 Form of Underwriting Agreement.*............................................. 3.1 Certificate of Incorporation of the Company, as amended...................... 3.2 By-laws of the Company (previously filed as Exhibit 3.2A to the Company's Annual Report on Form 10-K/A-2 for the fiscal year ended December 31, 1994 (File No. 0-3207) and incorporated herein by reference)...................... 5.1 Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.*................. 10.1 Employment Agreement, dated as of July 10, 1989, between the Company and Stanley S. Binder (previously filed as Exhibit 10.15 to the Company's Registration Statement on Form S-1 (File No. 33-3162) and incorporated herein by reference)................................................................ 10.2 Employment Agreement, dated November 1, 1996, between the Company and Richard S. Rosenfeld (previously filed as Exhibit 10.2 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)................................................................... 10.3 Employment Agreement, dated November 1, 1996, between the Company and Kenneth S. Wood (previously filed as Exhibit 10.3 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)................................................................... 10.4 Consulting Agreement, dated as of January 1, 1991, between the Company and John J. Harte (previously filed as Exhibit 10.4 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)................................................................... 10.5 Form of 1995 nonqualified stock option agreement (previously filed as Exhibit 10.6 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)............................. 10.6 Form of 1996 nonqualified stock option agreement (previously filed as Exhibit 10.3 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)............................. 10.7 Description of 1991 Warrant Plan (previously filed as Exhibit 10.8 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)............................................ 10.8 Description of Exercise Plan (previously filed as Exhibit 10.9 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)............................................ 10.9 Barringer Technologies Inc. 1997 Stock Compensation Program.................. 10.10 License Agreement, dated February 27, 1989, between Canadian Patents and Development Limited -- Societe Canadienne Des Brevets Et D'Exploitation Limite and Barringer Instruments Limited (the "License Agreement"), Supplement #1, dated March 4, 1991, Assignment of License Agreement, dated January 2, 1992, to Her Majesty the Queen in Right of Canada, as Represented By the Minister of National Revenue and Supplemental Letter Agreement, dated October 7, 1996 (previously filed as Exhibit 10.10 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)......................................................... 10.11 Letter Agreement, dated July 25, 1997, by and between Barringer Research Limited and Her Majesty the Queen in Right of Canada, as Represented By the Minister of National Revenue.................................................
81
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------------------------------------------------------------------------- ---- 10.12 Termination Agreement, dated October 7, 1996, between the Company and Barringer Laboratories Inc. (previously filed as Exhibit 10.11 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)............................................ 10.13 Warrant Agreement by and between the Company and American Stock Transfer & Trust Company (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)................................................................... 10.14 Form of Warrant issued to Janney Montgomery Scott Inc. (previously filed as Exhibit 4.2 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)............................. 10.15 Lease, dated as of February 17, 1993, between the Company and Murray Hill Associates (previously filed as Exhibit 10.17 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)................................................................... 10.16 Lease, dated as of July 27, 1995, between Barringer Research Limited and Lehndorff Management Limited (previously filed as Exhibit 10.18 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)............................................ 11.1 Computation of Earnings Per Share............................................ 21.1 List of the Company's Subsidiaries (previously filed as Exhibit 21 to the Company's Registration Statement on Form SB-2 (File No. 333-13703) and incorporated herein by reference)............................................ 23.1 Consent of BDO Seidman, LLP, independent certified public accountants........ 23.2 Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. (included in Exhibit 5.1 to this registration statement).*................................ 24.1 Power of Attorney (included on the signature page)........................... 27.1 Financial Data Schedule......................................................
- --------------- * To be filed by amendment. EX-3.1 2 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1A CERTIFICATE OF INCORPORATION OF BARRINGER RESEARCH INC. THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY as follows: FIRST: The name of the corporation is BARRINGER RESEARCH INC. (hereinafter called the "Corporation"). SECOND: Its registered office in the State of Delaware is located at No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name and address of its registered agent is The Corporation Trust Company, No. 100 West Tenth Street, Wilmington, Delaware 19899. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock that the Corporation shall have authority to issue is two million (2,000,000) shares of Common Stock, of the par value of $.01 per share. FIFTH: The name and mailing address of the incorporator is Denis Pinkernell, 277 Park Avenue, New York, New York 10017. SIXTH: The names and mailing addresses of the persons who are to serve as directors of the Corporation until the first annual meeting of stockholders or until their successors are elected and qualify are as follows: 2 Dr. Anthony R. Barringer 304 Carlingview Drive Rexdale, Ontario, Canada Dr. D. Richard Clews 304 Carlingview Drive Rexdale, Ontario, Canada Mr. Robert J. Armstrong 366 Bay Street Toronto 1, Ontario, Canada SEVENTH: Subject to the provisions of the General Corporation Law of the State of Delaware, the number of directors of the Corporation shall be determined as provided in the By-laws. EIGHTH: All corporate powers of the Corporation shall be exercised by the Board of Directors. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized: 1. To make, alter or repeal the By-laws of the Corporation. 2. By a suitable By-law or by a resolution passed by a majority of the entire Board of Directors to designate two or more of their number to constitute a committee or committees with such name or names as may be determined from time to time by resolution of the Board of Directors, which committee or committees, to the extent provided in such resolution or resolutions or in the By-laws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. 3. To fix and determine and vary from time to time the amount of working capital and reserve funds of the Corporation; to determine whether any and if any, what part of the net profits of the Corporation or of its surplus or of its net assets in excess of its capital shall be declared in dividends and paid to the stockholders, and to direct and determine the use and disposition of any such net profits or of any such surplus or of any such net assets in excess of capital. 4. To remove at any time, for cause or without cause, any officer or employee of the Corporation, or to confer such power on any committee or officer; provided, however, that any officer elected or appointed by the Board of Directors may be removed only by the affirmative vote of a majority of the Board of Directors then in office. 5. Subject to the provisions of the statutes of Delaware, to exercise any and all other powers, in addition to the powers expressly conferred by law and by this Certificate of Incorporation which may be conferred upon it by the Corporation through appropriate by-law provisions. NINTH: The board of directors may from time to time offer for subscription, or otherwise issue or sell, or grant rights, warrants, or options for the subscription to or purchase of, any and all of the authorized stock of the corporation not then issued or which may have been issued and reacquired as treasury stock by the corporation, and any or all of any increased stock of any class that may hereafter by authorized, for such consideration as the directors may determine. The board of directors may, at the time of such issue and sale, or at the time of granting of such rights, warrants or options, specify in amount or value the part of the consideration received on such issue and sale over and above the par value of such stock, which shall be capital and which shall be surplus, respectively. Bonds, debentures, certificates of indebtedness or other securities may be issued, sold or disposed of pursuant to resolution of the board of directors for such consideration and upon such terms and conditions as may be deemed advisable by the board of directors in the exercise of its discretion. 3 TENTH: Each director and each officer of the Corporation shall be indemnified by the Corporation to the full extent permitted under the General Corporation Law of the State of Delaware. THE UNDERSIGNED, being the incorporator hereinbefore named for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, DOES MAKE this Certificate, hereby declaring and certifying that the facts herein stated are true and, accordingly, has hereunto set his hand this 6th day of September, 1967. /s/ Denis Pinkernell _______________________________ Denis Pinkernell STATE OF NEW YORK: ss.: COUNTY OF NEW YORK : BE IT REMEMBERED, that on this 6th day of September, 1967, personally came before me, _______________, a Notary Public for the State of New York, DENIS PINKERNELL, the party to the foregoing Certificate of Incorporation, known to me personally to be such, and acknowledged said Certificate to be the act and deed of the signer and that the facts therein stated are truly set forth. GIVEN under my hand and seal of office the day and year aforesaid. /s/ John D. Viener _______________________________ Notary Public 4 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF BARRINGER RESEARCH INC. (Pursuant to 242 of the General Corporation Law) THE UNDERSIGNED, D. RICHARD CLEWS and ROBERT J. ARMSTRONG, being the duly elected Executive Vice President and Secretary, respectively, of BARRINGER RESEARCH INC., a Delaware corporation (the "Corporation"), for the purpose of amending the Certificate of Incorporation of the Corporation pursuant to 242 of the General Corporation Law, DO HEREBY CERTIFY THAT: FIRST: The name of the Corporation is BARRINGER RESEARCH INC. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on September 7, 1967. SECOND: The Board of Directors of the Corporation, at a meeting thereof duly called and held on March 12, 1980, duly adopted and approved and declared advisable the following resolution with respect to the amendment of Article. FOURTH of the Certificate of Incorporation of the Corporation to increase the authorized capitalization to ten million shares of Common Stock, par value $.01 per share, in accordance with the provisions of 242 of the General Corporation Law: RESOLVED that, subject to the approval of stockholders of the Corporation at the Annual Meeting thereof to be held on May 14, 1980, Article FOURTH of the Certificate of Incorporation of the Corporation be amended to read and provide in its entirety as follows: "FOURTH: The total number of shares of stock that the Corporation shall have authority to issue is ten million (10,000,000) shares of Common Stock of the par value of $.01 per share. THIRD: At the annual meeting of stockholders of the Corporation duly called and held on May 14, 1980, in accordance with 242 of the General Corporation Law of the State of Delaware the holders of a majority of the outstanding Common Stock of the Company voted in favor of the Amendment of the Certificate of Incorporation as herein set forth in accordance with the provisions of 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 14th day of May, 1980. /s/ D. Richard Clews _______________________________ D. Richard Clews Executive Vice President 5 ATTEST: /s/ Robert J. Armstrong _______________________________ Robert J. Armstrong Secretary 6 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF BARRINGER RESEARCH INC. (Pursuant to 242 of the General Corporation Law) THE UNDERSIGNED, D. RICHARD CLEWS and ROBERT J. ARMSTRONG, being the duly elected Executive Vice President and Secretary, respectively, of BARRINGER RESEARCH INC., a Delaware corporation (the "Corporation"), for the purpose of amending the Certificate of Incorporation of the Corporation pursuant to Section 242 of the General Corporation Law, DO HEREBY CERTIFY THAT: FIRST: The name of the Corporation is BARRINGER RESEARCH INC. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on September 7, 1967. SECOND: The Board of Directors of the Corporation, at a meeting thereof duly called and held on May 22, 1980, duly adopted and approved and declared advisable the following resolution with respect to the amendment of Article. FIRST of the Certificate of Incorporation of the Corporation to change the name of the corporation in accordance with the provisions of Section 242 of the General Corporation Law: RESOLVED that, subject to approval of stockholders of the Corporation, Article FIRST of the Certificate of Incorporation of the Corporation be amended to read and provide in its entirety to read as follows: "FIRST: The name of the Corporation is BARRINGER RESOURCES INC. (hereinafter called the "Corporation")." THIRD: The holders of a majority of the outstanding shares of Common Stock ($.01 par value) of the Corporation, the only outstanding class of stock of the Corporation, by written consent pursuant to Section 228 of the General Corporation Law of the State of Delaware, consented to the amendment of the Certificate of Incorporation as herein set forth in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 30th day of May, 1980. /s/ D. Richard Clews ________________________________ D. Richard Clews Executive Vice President 7 ATTEST: /s/ Robert J. Armstrong _________________________________ Robert J. Armstrong Secretary 8 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF BARRINGER RESOURCES INC. (Pursuant to Section 242 of the General Corporation Law) THE UNDERSIGNED, D. RICHARD CLEWS and ROBERT J. ARMSTRONG, being the duly elected and acting Executive Vice President and Secretary, respectively, of BARRINGER RESOURCES INC., a Delaware corporation (the "Corporation"), for the purpose of amending the Certificate of Incorporation of the Corporation pursuant to Section 242 of the General Corporation Law, DO HEREBY CERTIFY THAT: FIRST: The name of the Corporation is BARRINGER RESOURCES INC. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on September 7, 1967, under the name of BARRINGER RESEARCH INC. SECOND: The Board of Directors of the Corporation at a meeting thereof called and held on April 30, 1981, duly adopted and approved and declared advisable the following resolution with respect to the amendment of the Certificate of Incorporation by the addition of Articles ELEVENTH and TWELFTH thereto relating to higher voting requirements required with respect to certain transactions in accordance with the provisions of Section 242 of the General Corporation Law: RESOLVED, that subject to the approval of the stockholders of the Corporation, the Certificate of Incorporation of the Corporation be amended to add Articles ELEVENTH and TWELFTH to the Certificate of Incorporation of the Corporation to read and provide in their entirety as follows: "ELEVENTH: The affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of Common Stock entitled to vote thereon shall be required to authorize, adopt or approve any of the following: (i) any plan of merger or consolidation of the Corporation with or into any other corporation holding more than ten percent (10%) of the Corporation's voting stock (such corporation hereinafter referred to as a "Related Company") or any affiliate of a Related Company; or (ii) any sale, lease or exchange or other disposition of all or substantially all of the assets of the Corporation to any Related Company or any affiliate of a Related Company." "TWELFTH: Article ELEVENTH and this Article TWELFTH may not be amended, except by the affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of Common Stock of the Corporation entitled to vote thereon." THIRD: The foregoing amendment to the Certificate of Incorporation of the Corporation was approved by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock ($.01 par value) of the Corporation, the only outstanding class of stock of the Corporation, at the Annual Meeting of the Corporation held June 10, 1981 in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. 9 IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 10th day of June, 1981. /s/ D. Richard Clews ___________________________ D. Richard Clews Executive Vice President ATTEST: /s/ Robert J. Armstrong ____________________________ Robert J. Armstrong Secretary 10 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF BARRINGER RESOURCES INC. (Pursuant to 242 of the General Corporation Law) THE UNDERSIGNED, ANTHONY R. BARRINGER and ROBERT J. ARMSTRONG, being the duly elected President and Secretary, respectively, of BARRINGER RESOURCES INC., a Delaware corporation (the "Corporation"), for the purposes of amending the Certificate of Incorporation pursuant to Section 242 of the General Corporation Law, DO HEREBY CERTIFY THAT: FIRST: The name of the Corporation is BARRINGER RESOURCES INC. The original Certificate of Incorporation was filed with the Secretary of State of Delaware on September 7, 1967, under the name of BARRINGER RESEARCH INC. SECOND: The Board of Directors of the Corporation at a meeting thereof duly called and held on January 21, 1983, duly adopted and approved and declared advisable the following resolution with respect to the amendment of Article FOURTH of the Certificate of Incorporation of the Corporation to increase the authorized capitalization to 10,100,000 shares comprised of 10,000,000 shares of Common Stock, par value $.01 per share, and 100,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock"), in accordance with the provisions of Section 242 of the General Corporation Law: RESOLVED, that subject to the approval of the Stockholders of the Corporation at the Annual Meeting thereof to be held on May 11, 1983, Article FOURTH of the Certificate of Incorporation of the Corporation be amended to read and provide in its entirety as follows: FOURTH: Section 1. Authorized Shares The total number of shares of stock the Corporation shall have authority to issue is ten million one hundred thousand (10,100,000) shares comprised of 10,000,000 shares of Common Stock, par value $.01 per share ("Common Stock"), and 100,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock"). Section 2. Rights of the Classes The shares of Common Stock and Class B Common Stock shall be identical in every respect and shall be entitled to all of the rights and privileges pertaining to common stock without limitations, prohibitions, restrictions or qualifications, except as otherwise expressly set forth in this Article. Section 3. Voting Powers The holders of Common Stock shall be entitled to one (1) vote per share on all matters on which holders of common stock are entitled to vote. The holders of Class B common stock shall be entitled to one hundred (100) votes per share on all matters on which holders of common stock of the Corporation are entitled to vote. The holders of Common Stock and Class B Common Stock shall vote as a single class on all matters, except as otherwise required by law. No holder of 11 Common Stock or Class B Common Stock shall have any preemptive or preferential rights of subscription to any shares of any class of stock in this Corporation, whether now or hereafter authorized. Section 4. Conversion of Class B Common Stock into Common Stock Any holder of Class B Common Stock may, at any time and from time to time, by written notice to the Secretary of the Corporation, convert said shares into a like number of shares of Common Stock. Section 5. Restrictions on the Right to Transfer or Hypothecate Class B Common Stock No holder of Class B Common Stock shall have the right or power to sell, transfer, assign, pledge, hypothecate, or otherwise dispose of any share of Class B Common Stock, provided, however, that in the event the Board of Directors of the Corporation, at a meeting thereof duly called and held or by unanimous written consent, shall consent to a sale, transfer, assignment, pledge, hypothecation or other disposition, upon the recording thereof in the minutes of such meeting or the filing of a copy of such written consent with the Secretary of the Corporation, such sale, transfer, assignment, pledge, hypothecation or other disposition of shares of Class B Common Stock may be effected in accordance with the terms of such consent, and such shares of Class B Common Stock shall remain outstanding. In the event that any holder of Class B Common Stock shall sell, assign, transfer, pledge, hypothecate or otherwise dispose of any share of Class B Common Stock without such consent, such shares shall automatically and immediately upon the occurrence of such event be converted into, and shall be, an equal number of shares of Common Stock. THIRD: At the Annual Meeting of Stockholders of the Corporation duly called and held on May 11, 1983, in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware the holders of the majority of the outstanding Common Stock of the Corporation, the only outstanding class of stock of the Corporation, voted in favor of the amendment of the Certificate of Incorporation as set forth herein. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 11th day of May, 1983. /s/ Anthony R. Barringer __________________________________ Anthony R. Barringer President Attest: /s/ Robert J. Armstrong ___________________________________ Robert J. Armstrong Secretary 12 CERTIFICATE FOR RENEWAL AND REVIVAL OF CHARTER Barringer Resources Inc, a corporation organized under the laws of Delaware, the certificate of incorporation of which was filed in the office of the Secretary of State on the 7th day of September 1967, and recorded in the office of the Recorder of Deeds for ______________ County, the charter of which was voided for non-payment of taxes, now desires to procure a restoration, renewal and revival of its charter, and hereby certifies as follows: 1. The name of this corporation is Barringer Resources Inc. 2. Its registered office in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, City of Wilmington, Zip Code 19801 County of New Castle the name and address of the registered agent is The Corporation Trust Company. 3. The date when the restoration, renewal, and revival of the charter of this company is to commence is the 28th day of February, name being prior to the date of the expiration of the charter. This renewal and revival of the charter of this corporation is to be perpetual. 4. This corporation were duly organized and carried on the business authorized by its charter until the 1st day of March A.D. 1986, at which time its charter became inoperative and void for non-payment of taxes and this certificate for renewal and revival if filed by authority of the duly elected directors of the corporation in accordance with the laws of the State of Delaware. IN TESTIMONY WHEREOF, and in compliance with the provisions of Section 312 of the General Corporation Law of the State of Delaware, as amended, providing for the renewal, estimates and restoration of charters, A.R. Barringer the last and acting President, and R.J. Armstrong, the last and acting Secretary of Barringer Resources Inc., have hereunto set their hands to this certificate this 30th day of July 1986. /s/ A. R. Barringer _______________________________ Last and Acting President /s/ R.J. Armstrong ___________________________________ Attest: Last and Acting Secretary 13 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF BARRINGER RESOURCES INC. (Pursuant to Section 242 of the General Corporation Law) THE UNDERSIGNED, ANTHONY R. BARRINGER and DENIS R. PINKERNELL, being the duly elected President and Assistant Secretary, respectively, of BARRINGER RESOURCES INC., a Delaware corporation (the "Corporation"), for the purposes of amending the Certificate of Incorporation pursuant to Section 242 of the General Corporation Law, DO HEREBY CERTIFY THAT: FIRST: The name of the Corporation is BARRINGER RESOURCES INC. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on September 7, 1967, under the name of BARRINGER RESEARCH INC. SECOND: The Board of Directors of the Corporation at a meeting thereof duly called and held on January 20, 1988, duly adopted and approved and declared advisable the following resolution with respect to the amendment of Article. FOURTH of the Certificate of Incorporation of the Corporation to increase the authorized capitalization to 11,100,000 shares comprised of 10,000,000 shares of Common Stock, par value $.01 per share, and 100,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock"), and 1,000,000 shares of Preferred Stock, per value $1.25 per share, in accordance with the provisions of Section 242 of the General Corporation Law: RESOLVED, that subject to the approval of the Stockholders of the Corporation, Article FOURTH of the Certificate of Incorporation of the Corporation be amended to read and provide in its entirety as follows: FOURTH: Section 1. Authorized Shares. The total number of shares of stock the Corporation shall have authority to issue is eleven million one hundred thousand (11,100,000) shares comprised of 10,000,000 shares of Common Stock, par value $.01 per share ("Common Stock"), and 100,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock") and 1,000,000 of Preferred Stock, par value $l.25 per share ("Preferred Stock"). Section 2. Preferred Stock The designations, voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the Preferred Stock are as follows: A. Dividends. The holders of the Preferred Stock shall be entitled to receive or have set apart for payment dividends thereon at the rate of $.10 per share per annum, and no more, payable semi-annually for the last preceding dividend period on the last days of June and December in each year in shares of Common Stock valued for such purpose-at the average closing price of the Common Stock in the over-the-counter market over the 20 trading days immediately prior to the record date for each semi-annual payment as quoted by NASDAQ in 14 the over-the-counter market (or organized exchange). No dividend shall be paid or set apart for payment on the Common Stock or Class B Common Stock of the Corporation or any other class of stock or series thereof ranking junior to the Preferred Stock, unless and until dividends at the rate of $.10 per share per annum on the Preferred Stock shall have been paid or set apart for payment in full. B. Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation under any circumstances or any voluntary liquidation or winding up of the Corporation, which shall be deemed to have occurred upon the sale of all or substantially all of its assets, the holders of Preferred Stock will be entitled to receive, prior to and in preference to any distribution of the assets or surplus funds of the Corporation to the holder of any other shares of Capital Stock by reason of the ownership thereof, an amount equal to $1.25 per share and no more (the "Preferential Amount"). If, upon the occurrence of such an event, the assets and funds thus distributed among the holders of Preferred Stock shall be insufficient to permit the payment to such holder of the full Preferential Amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of Preferred Stock. After the payment or setting apart of the full Preferential Amount required to be paid to the holders of the Preferred Stock, the holders of Capital Stock ranking in liquidation junior to the Preferred Stock shall be entitled to receive all remaining assets or surplus funds of the Corporation. C. Consents of Preferred Stock. Without the affirmative vote or written consent of the holders of a majority of the shares of Preferred Stock at the time outstanding, the Corporation shall not: (a) agree to be acquired, directly or indirectly, by another entity by means of merger, consolidation or otherwise, resulting in the exchange of outstanding shares of Capital Stock for securities or other consideration issued or paid by the acquiring corporation or its subsidiaries, or sell all, or substantially all, of its assets; or (b) alter, change or amend the preferences, rights or privileges of holders of the Preferred Stock contained herein or in the Certificate of Incorporation or By-Laws of the Corporation or elsewhere as in effect on the date that this Certificate of Amendment is filed with the Secretary of the State of Delaware; or (c) alter, change or amend the Certificate of Incorporation or the By-Laws of the Corporation or otherwise to provide for the authorization and issuance of any additional class or series of Capital Stock, including additional shares of Preferred Stock having any rights, preferences or priorities equivalent to or greater than (either in any particular aspect or in the aggregate) the Preferred Stock; or (d) agree to a voluntary liquidation, dissolution, or winding up of the Corporation; or (e) adopt and/or implement any stock option or similar employee stock bonus or incentive plan, except the Permitted Stock Plans. D. Voting Rights. In addition to the voting rights granted to the holders of the Preferred Stock by the laws of the State of Delaware and by Section C hereof, each holder of Preferred Stock shall be entitled at each meeting of the stockholders of the Corporation to that number of votes which is equal to the number of shares of Common Stock into which each share of Preferred Stock is convertible on the record date with respect to such meeting for each share of such stock standing in his name on the books of the Corporation. 15 E. Conversion. (a) Conversion by Holder. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time prior to the fourth anniversary of the date of issuance thereof, into fully paid and nonassessable shares of Common Stock, in accordance with the Conversion Formula (as defined below). Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, the holder shall (i) surrender the certificate(s) therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Common Stock, or (ii) notify the Corporation or any transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation against any loss incurred by it in connection therewith, and shall give written notice to the Corporation at such office that the holder elects to convert the same and shall state therein the number of shares of Preferred Stock being converted. Thereupon, the Corporation shall promptly issue and deliver at such office to such holder(s) of Preferred Stock a certificate(s) for the number of shares of Common Stock to which the holder shall be entitled. Such conversion shall be deemed to have been made immediately prior to the closing of business on the date of such surrender of the shares of Preferred Stock to be converted or delivery of the aforementioned indemnification agreement, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (b) Conversion by the Corporation. The Corporation may require the conversion of all (but not less than all) of the Preferred Stock in accordance with the Conversion Formula (as defined below) (i) at any time after the fourth anniversary of the date of issuance of such Preferred Stock, or (ii) immediately upon a consolidation, merger or sale of substantially all of the assets of the Corporation under circumstances where the Corporation is not the surviving entity, or (iii) upon the repurchase by the Corporation of all of its then outstanding Class A Warrants or all of its Class B Warrants issued by the Corporation in connection with the sale of Units under a certain Purchase Agreement dated May 10, 1988 between the Corporation and Purchasers named therein. Upon the occurrence of such an event specified in this Section E, and upon the election of the Corporation to require the conversion of all of the Preferred Stock, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent. The Corporation, however, shall give prompt written notice of such conversion to each holder of Preferred Stock at his last address listed in the Corporation records. The Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing shares of the Preferred Stock being converted are either delivered to the Corporation or any transfer agent, as hereinafter provided, or the holder notifies the Corporation or any transfer agent that such certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation against any loss incurred by it in connection therewith. Thereupon, there shall be issued and delivered to such holder, promptly at such office in the holder's name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of 16 the Preferred Stock surrendered were convertible on the date on which such conversion occurred. (c) Conversion Price and Conversion Formula. The Purchase Price per share (the "Purchase Price Per Share") shall be $l.25 and the initial Conversion Price per share for Preferred Stock (the "Conversion Price") shall be $l.25, subject to adjustment from time to time as provided herein. Each share of the Preferred Stock shall be convertible into that number of shares of Common Stock that results from dividing the Purchase Price Per Share by the Conversion Price in effect at the time of conversion (the "Conversion Formula"). (d) Adjustment of Conversion Price for Stock Splits and Combinations. If the Corporation shall at any time, or from time to time, after the date of the issuance of the Preferred Stock, effect a subdivision of the outstanding Common Stock, the Conversion Price in effect immediately before that subdivision shall be proportionately decreased, and conversely, if the Corporation shall at any time or from time to time after the original issue date of the Preferred Stock combine the outstanding shares of Common Stock, the Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection (d) shall become effective at the close of business on the date the subdivision or combination becomes effective. (e) Adjustment of Conversion Price for Certain Dividends and Distributions. If the Corporation at any time, or from time to time, after the date of the issuance of the Preferred Stock, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then, and in each such event, the Conversion Price then in effect shall be decreased as of the date of such issuance or, at the time or upon the event such a record date shall have been fixed, as of the close of business on such record date (the "Record Date"), by multiplying the Conversion Price then in effect by a fraction, determined as follows: (i) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the Record Date; and (ii) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the Record Date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such Record Date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the closing of the business on such Record Date, and thereafter the Conversion Price for such Preferred Stock shall be adjusted pursuant to this section (e) as of the time of each action, or payment of such dividends or distributions. (f) Adjustment for Reclassification, Exchange or Substitution. If the Common Stock issuable upon the conversion of the Preferred Stock shall be changed into the same or a different number of shares of a different class or classes of stock, or other securities or property, whether by reclassification, exchange, substitution or other transaction having similar effect (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provided for elsewhere in this Section E) then and in each such event the holder of each share of Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reclassification, exchange, substitution or other transaction having similar effect, as did or shall the holders of shares of Common Stock, as if such shares of Preferred Stock had been converted into Common Stock 17 immediately prior to the Record Date with respect to such reclassification, exchange or substitution, all subject to further adjustment as provided herein. (g) Reorganization, Mergers, Consolidations, or Sales of Assets. If at any time, or from time to time, there shall be (other than a subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section E) a capital reorganization involving a merger or consolidation of the Corporation with or into another corporation, or the sale or transfer of all or substantially all of the Corporation's properties and assets to any other person (a "sale"), then, as a part of such reorganization, merger, consolidation or sale, due and adequate provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock, the number of shares or other securities or property of the Corporation, or of the successor corporation resulting from such merger reorganization, consolidation or sale, as to which a holder of Common Stock deliverable upon conversion would have been entitled to receive as a result of such reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in respect to the rights of the holders of the Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section E (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (h) Sale of Shares Below Conversion Price. If at any time, or from time to time, after the date of issuance of the Preferred Stock and while any shares of the Preferred Stock are outstanding, the Corporation shall issue or sell Additional Shares of Common Stock (as hereinafter defined) or options, warrants, convertible securities or other rights to acquire Common Stock other than as (i) a dividend or other distribution on any class of stock permitted by (e), (ii) a subdivision or combination of shares of Common Stock as provided for in (d) hereof, or (iii) a reclassification, exchange, substitution or other transaction having similar effect as provided for in (f) hereof, for a consideration per share less than the Conversion Price in effect immediately prior to the event, or without consideration, then, and thereafter successively upon each such issuance, the Conversion 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 Conversion Price in effect immediately prior to such issuance, plus (ii) the consideration, if any, received by the Company upon such issuance by (b) the total number of shares of Common Stock outstanding immediately after such issuance provided, however, that no adjustment otherwise required hereunder, shall be made unless the reduction in Conversion Price required by this Section, together with all prior reductions which have not resulted in an adjustment to the Conversion Price, shall result in a reduction of the Conversion Price by at least $0.05 per share. For purposes of this (h), the price received by the Corporation for such Additional Shares of Common Stock shall be computed as follows: (x) Cash and Property. If such consideration consists of: (a) cash, the consideration shall be aggregate amount of cash received by the Corporation; (b) property (including intellectual property) other than cash, the consideration shall be the fair market value thereof at the time of such issue, as determined in good faith by the Board; and 18 (c) part of cash or part property and/or stock or other securities of the Corporation or both, the consideration shall be the amount equal to the sum of cash and fair market value of the property actually received by the Corporation computed consistently with the prior paragraphs herein and determined in good faith by the Board. (y) Options. Shares of the Corporation called for pursuant to options and warrants which are held as of the date of a conversion of Preferred Stock by option or warrant holders, and which are not exercised, and have not terminated or lapsed, at the time of such conversion, will be deemed to have been issued, for purposes of the definitions and calculations hereof, at a price per share determined by dividing: (a) the total amount, if any, received and receivable by the Corporation as consideration for the issuance of such options or warrants, plus the minimum aggregate amount of additional consideration (as set forth in the instrument relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such options or warrants, by (b) the maximum number of such shares (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such options or warrants. (i) Definitions. The terms "Additional Shares of Common Stock" as used herein shall mean all shares of Common Stock issued or deemed issued by the Corporation after the issuance date of the Preferred Stock, whether or not subsequently reacquired or retired by the Corporation, other than shares of Common Stock issued (i) upon conversion of the Preferred Stock, (ii) upon conversion of $696,000 principal amount of the Corporation's 12 1/2% Convertible Subordinated Debentures due in 1996, or any options or warrants or (iii) upon exercise of options granted to purchase up to 1,197,500 shares of Common Stock of the Corporation under its stock option plans. (j) Accountants' Certificate of Adjustment. In each case of an adjustment of readjustment of the Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Preferred Stock, the Corporation, at its expense, shall cause independent certified public accountants of recognized standing selected by the Corporation (who may be the independent certified Public accountants then auditing the books of the Corporation) to compute such adjustment or readjustment in accordance herewith and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder or Preferred Stock at the holder's address as shown in the Corporation's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or to be received by the Corporation for any Additional Shares of Common Stock issued or sold, (ii) the Conversion Price both before and after such adjustment or readjustment, and (iii) the number of Additional Shares of Common Stock and the type and amount, if any, of other property which at the time would be received upon conversion of the Preferred Stock. (k) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay, in cash, an amount equal to the product of (i) such fraction of a share, multiplied by (ii) the fair market value of one share of the Corporation's Common Stock on the date of conversion, as determined in good faith by the Board. 19 (1) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock, and if at any time the number of authorized but unissued, shares of Common Stock shall not be sufficient to effect the conversion of all the outstanding shares of Preferred Stock, the Corporation will, subject to the requirements of applicable state law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares of Common Stock as shall be sufficient for such purposes. F. Nonassessable Status of Stock. All the share of Preferred Stock for which the full consideration determined by the Board of Directors (which shall be not less than the par value of such shares) has been paid or delivered, in cash or property in accordance with the resolutions of the Board of Directors authorizing the issuance of such shares, shall be deemed fully paid-stock and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon. Section 3. Rights of the Classes of Common Stock. The shares of common Stock and Class B Common Stock shall be identical in every respect and shall be entitled to all of the rights and privileges pertaining to common stock without limitations, prohibitions, restrictions or qualifications, except as otherwise expressly set forth in this Article Fourth. Section 4. Voting Powers. The holders of Common Stock shall be entitled to one (1) vote per share on all matters on which holders of common stock are entitled to vote. The holders of Class B Common Stock shall be entitled to one hundred (100) votes per share on all matters on which holders of common stock of the Corporation are entitled to vote. The holders of Common Stock, Class B Common Stock and the Preferred Stock shall vote as a single class on all matters, except as otherwise required herein or by law. No holder of Common Stock or Class B Common Stock shall have preemptive or preferential rights of subscription to any shares of any class of stock in this Corporation, whether nor or hereafter authorized. Section 5. Conversion of Class B Common Stock into Common Stock. Any holder of Class B Common Stock may, at any time and from time to time, by written notice to the Secretary of the Corporation, convert said shares into a like number of shares of Common Stock. Section 6. Restrictions on the Right to Transfer or Hypothecate Class B Common Stock. No holder of Class B Common Stock shall have the right or power to sell, transfer, assign, pledge, hypothecate, or otherwise dispose of any share of Class B Common Stock, provided, however, that in the event the Board of Directors of the Corporation, at a meeting thereof duly called and held or by unanimous written consent, shall consent to a sale, transfer, assignment, pledge, hypothecation or other disposition, upon the recording thereof in the minutes of such meeting or the filing of a copy of such written consent with the Secretary of the Corporation, such sale, transfer, assignment, pledge, hypothecation or other disposition of shares of Class B Common Stock may be effected in accordance with the terms of such consent, and such shares of Class B Common Stock shall remain outstanding. 20 In the event that any holder of Class B Common Stock shall sell, assign, transfer, pledge, hypothecate or otherwise dispose of any share of Class B Common Stock without consent, such shares shall automatically and immediately upon the occurrence of such event be converted into, and shall be, an equal number of shares of Common Stock. THIRD: In accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware the holders of the majority of the outstanding Common Stock and Class B Common Stock of the Corporation, authorized the amendment of the Certificate of Incorporation as set forth herein, by written consent pursuant to Section 228 of the General Corporation Law. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 15th day of June, 1988 /s/ Anthony R. Barringer ______________________________ Anthony R. Barringer President /s/ Denis R. Pinkernell ______________________________ Denis R. Pinkernell Assistant Secretary 21 CERTIFICATE OF RESTORATION, RENEWAL AND REVIVAL OF CERTIFICATE OF INCORPORATION OF BARRINGER RESOURCES INC. UNDER SECTION 312 OF THE DELAWARE GENERAL CORPORATION CODE The last acting President and assistant secretary of Barringer Resources Inc., a corporation organized and existing under the laws of the State of Delaware, HEREBY CERTIFY AS FOLLOWS: 1. The name of the corporation is Barringer Resources Inc. The date of filing of its original Certificate of Incorporation in the office of the Secretary of State is September 7, 1967. 2. The registered office of the corporation in the State of Delaware is located at 1209 Orange Street, City of Wilmington, County of New Castle, and the name of its registered agent at said address is the Corporation Trust Company. 3. The date when the restoration, renewal and revival of the certificate of incorporation of the corporation is to be effective is the 28th day of February, 1989, same being prior to the date of the expiration of the certificate of incorporation of said corporation and its becoming void by operation of law and by proclamation of the Governor. The restoration, renewal and revival of the certificate of incorporation of this corporation is to be for a perpetual term. 4. The corporation was organized under the laws of the State of Delaware. 5. The corporation was duly organized and was authorized to engage in the business activities set forth in its Certificate of Incorporation until the 1st day of March, 1989, at which time its charter became inoperative and void by operation of law and was subsequently repealed by proclamation of the Governor for non-payment of taxes. 6. This Certificate for Restoration, Renewal and Revival is filed by the authority of the last acting Director of the corporation in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, we have signed this certificate this _____ day of October, 1989. /s/ Frank J. Abella ______________________________ Frank J. Abella, Jr., Last Acting President ATTEST: /s/ Denis R. Pinkernell ________________________ Denis R. Pinkernell, Last Acting Assistant Secretary 22 Denis R. Pinkernell, Last Acting Assistant Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF BARRINGER RESOURCES INC. (Pursuant to Section 242 of the General Corporation Law) THE UNDERSIGNED, STANLEY S. BINDER and DENIS R. PINKERNELL, being the duly elected President and Assistant Secretary, respectively, of BARRINGER RESOURCES INC., a Delaware corporation (the "Corporation"), for the purposes of amending the Certificate of Incorporation pursuant to Section 242 of the General Corporation Law, DO HEREBY CERTIFY THAT: FIRST: The name of the Corporation is BARRINGER RESOURCES INC. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on September 7, 1967, under the name of BARRINGER RESEARCH INC. SECOND: The Board of Directors of the Corporation at a meeting thereof duly called and held on January 4, 1990, duly adopted and approved and declared advisable the following resolution with respect to the amendment of Article FOURTH of the Certificate of Incorporation of the Corporation to: RESOLVED, that subject to the approval of the Stockholders of the Corporation, Article FOURTH of the Certificate of Incorporation of the Corporation be amended to read and provide in its entirety as follows: FOURTH: Section 1. Authorizing Shares. The total number of shares of stock the Corporation shall have authority to issue is twenty-two million shares (22,000,000) comprised of 20,000,000 shares of Common Stock, par value S.01 per share ("Common Stock"), and 1,000,000 shares of Convertible Preferred Stock, par value $l.25 23 per share ("Convertible Preferred Stock") and 1,000,000 shares of Preferred Stock, par value $2.00 per share ("Preferred Stock"). Section 2. Convertible Preferred Stock The designations, voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the Convertible Preferred Stock are as follows: A. Dividends. The holders of the Convertible Preferred Stock shall be entitled to receive or have set apart for payment dividends thereon at the rate of $.10 per share per annum, and no more, payable semi-annually for the last preceding dividend period on the last days of June and December in each year in shares of Common Stock valued for such purpose at the average closing price of the Common Stock in the over-the-counter market over the 20 trading days immediately prior to the record date for each semi-annual payment as quoted by NASDAQ in the over-the-counter market (or set apart for payment on the Common Stock of the Corporation or any other class of stock or series thereof ranking junior to the Preferred Stock, unless and until dividends at the rate of $.10 per share per annum on the Convertible Preferred Stock shall have been paid or set apart for payment in full. B. Liquidating Preferences. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation under any circumstances or any voluntary liquidation or winding up of the Corporation, which shall be deemed to have occurred upon the sale of all or substantially all of its assets, the holders of Convertible Preferred Stock will be entitled to receive, prior to and in preference to any distribution of the assets or surplus funds of the Corporation to the holder of any other shares of Capital Stock by reason of the ownership thereof, an amount equal to $1.25 per share and no more (the "Preferential Amount"). If, upon the occurrence of such an event, the assets and funds thus distributed among the holders of Convertible Preferred Stock shall be insufficient to permit the payment to such holder of the full Preferential Amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of Convertible Preferred Stock. After the payment or setting apart of the full Preferential Amount required to be paid to the holders of the Convertible Preferred Stock, the holders of Convertible Preferred Stock shall be entitled to receive all remaining assets or surplus funds of the Corporation. C. Consents of Convertible Preferred Stock. Without the affirmative vote or written consent of the holders of a majority of the shares of Convertible Preferred Stock at the time outstanding, the Corporation shall not: (a) agree to be acquired, directly or indirectly, by another entity by means of merger, consolidation or otherwise, resulting in the exchange of outstanding shares of Capital Stock for securities or other consideration issued or paid by the acquiring corporation or its subsidiaries, or sell all, or substantially all, of its assets; or 24 (b) alter, change or amend the preferences, rights or privileges of holders of the Convertible Preferred Stock contained herein or in the By-Laws of the Corporation or elsewhere as in effect on the date that this Certificate of Amendment is filed with the Secretary of the State of Delaware; or (c) alter, change or amend the Certificate of Incorporation or the By-Laws of the Corporation or otherwise to provide for the authorization and issuance of any additional class or series of Capital Stock, including additional shares of preferred stock having any rights, preferences or priorities equivalent to or greater than (either in any particular aspect or in the aggregate) the Convertible Preferred Stock; or (d) agree to a voluntary liquidation, dissolution, or winding up of the Corporation; or (e) adopt and/or implement any stock option or similar employee stock bonus or incentive plan, except the Permitted Stock Plans. D. Voting Rights. In addition to the voting rights granted to the holders of the Convertible Preferred Stock by the laws of the State of Delaware and by Section C hereof, each holder of Convertible Preferred Stock shall be entitled at each meeting of the stockholders of the Corporation to that number of votes which is equal to the number of shares of Common Stock into which each share of Convertible Preferred Stock is convertible on the record date with respect to such meeting for each share of such stock standing in his name on the books of the Corporation. E. Conversion. (a) Conversion by Holder. Each share of Convertible Preferred Stock shall be convertible, at the option of the holder thereof, at any time prior to the fourth anniversary of the date of issuance thereof, into fully paid and nonassessable shares of Common Stock, in accordance with the Conversion Formula (as defined below). Before any holder of Convertible Preferred Stock shall be entitled to convert the same into shares of Common Stock, the holder shall (i) surrender the certificate(s) therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Common Stock, or (ii) notify the Corporation or any transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation against any loss incurred by it in connection therewith, and shall give written notice to the Corporation at such office that the holder elects to convert the same and shall state therein the number of shares of Convertible Preferred Stock being converted. Thereupon, the Corporation shall promptly issue and deliver at such office to such holder(s) of Convertible Preferred Stock a certificate(s) for the number of shares of Common Stock to which the holder shall be entitled. Such conversion shall be deemed to have been made immediately prior to the closing of business on the date of such surrender of the shares of Convertible Preferred Stock to be converted or delivery of the aforementioned indemnification agreement, and the 25 person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (b) Conversion by the Corporation. The Corporation may require the conversion of all (but not less than all) of the Convertible Preferred Stock in accordance with the Conversion Formula (as defined below) (i) at any time after the fourth anniversary of the date of issuance of such Convertible Preferred Stock, or (ii) immediately upon a consolidation, merger or sale of substantially all of the assets of the Corporation under circumstances where the Corporation is not the surviving entity, or (iii) upon the repurchase by the Corporation of all of its then outstanding Class A warrants or all of its Class B Warrants issued by the Corporation in connection with the sale of Units under a certain Purchase Agreement dated May 10, 1988 between the Corporation and Purchasers named therein. Upon the occurrence of such an event specified in this Section E, and upon the election of the Corporation to require the conversion of all of the Convertible Preferred Stock, the outstanding shares of Convertible Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent. The Corporation, however, shall give prompt written notice of such conversion to each holder of Convertible Preferred Stock at his last address listed in the Corporation's records. The Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing shares of the Convertible Preferred Stock being converted are either delivered to the Corporation or any transfer agent, as hereinafter provided, or the holder notifies the Corporation or any transfer agent that such certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation against any loss incurred by it in connection therewith. Thereupon, there shall be issued and delivered to such holder, promptly at such office in the holder's name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of the Convertible Preferred Stock surrendered were convertible on the date on which such conversion occurred. (c) Conversion Price and Conversion Formula. The Purchase Price per share (the "Purchase Price Per Share") shall be $1.25 and the initial Conversion Price per share for Convertible Preferred Stock (the "Conversion Price") shall be $1.25, subject to adjustment from time to time as provided herein. Each share of the Convertible Preferred Stock shall be convertible into that number of shares of Common Stock that results from dividing the Purchase Price Per Share by the Conversion Price in effect at the time of conversion (the "Conversion Formula"). (d) Adjustment of Conversion Price for Stock splits and Combinations. If the Corporation shall at any time, or from time to time, after the date of the issuance of the Convertible Preferred Stock, effect a subdivision of the outstanding Common Stock, the Conversion Price in effect immediately before that 26 subdivision shall be proportionately decreased, and conversely, if the Corporation shall at any time or from time to time after the original issue date of the Convertible Preferred Stock combine the outstanding shares of Common Stock, the Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection (d) shall become effective at the close of business on the date the subdivision or combination becomes effective. (e) Adjustment of Conversion Price for Certain Dividends and Distributions. If the Corporation at any time, or from time to time, after the date of the issuance of the Convertible Preferred Stock, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then, and in each such event, the Conversion Price then in effect shall be decreased as of the date of such issuance or, at the time or upon the event such a record date shall have been fixed, as of the close of business on such record date (the "Record Date"), by multiplying the Conversion Price then in effect by a fraction, determined as follows: (i) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the Record Date; and (ii) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the Record Date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided however, if such Record Date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the closing of the business on such Record Date, and thereafter the Conversion Price for such Convertible Preferred Stock shall be adjusted pursuant to this section (e) as of the time of each action, or payment of such dividends or distributions. (f) Adjustment for Reclassification, Exchange or Substitution. If the Common Stock issuable upon the conversion of the Convertible Preferred Stock shall be changed into the same or a different number of shares of a different class or classes of stock, or other securities or property, whether by reclassification, exchange, substitution or other transaction having similar effect (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provided for elsewhere in this Section E) then and in each such event the holder of each share of Convertible Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reclassification, exchange, substitution or other transaction having similar effect, as did or shall the holders of shares of Common Stock, as if such shares of Convertible Preferred Stock had been converted into Common Stock immediately prior to the Record Date with respect to such reclassification, exchange or substitution, all subject to further adjustment as provided herein. (g) Reorganization, Mergers Consolidations, or Sales of Assets. If at any time, or from time to time, there shall be 27 (other than a subdivision combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section E) a capital reorganization involving a merger or consolidation of the Corporation with or into another corporation, or the sale or transfer of all or substantially all of the Corporation's properties and assets to any other person (a "sale"), then, as a part of such reorganization, merger, consolidation or sale, due and adequate provision shall be made so that the holders of the Convertible Preferred Stock shall thereafter be entitled to receive upon conversion of the Convertible Preferred Stock, the number of shares or other securities or property of the Corporation, or of the successor corporation resulting from such merger, reorganization, consolidation or sale, as to which a holder of Common Stock deliverable upon conversion would have been entitled to receive as a result of such reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in respect to the rights of the holders of the Convertible Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section E (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Convertible Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (h) Sale of Shares Below Conversion Price. If at any time, or from time to time, after the date of issuance of the Convertible Preferred Stock and while any shares of the Convertible Preferred Stock are outstanding, the Corporation shall issue or sell Additional Shares of Common Stock (as hereinafter defined) or options, warrants, convertible securities or other rights to acquire Common Stock other than as (i) a dividend or other distribution on any class of stock permitted by subsection (e) above, (ii) a subdivision or combination of shares of Common Stock as provided for in subsection (d) above, or (iii) a reclassification, exchange, substitution or other transaction having similar effect as provided for in subsection (f) above, for a consideration per share less than the Conversion Price in effect immediately prior to the event, or without consideration, then, and thereafter successively upon each such issuance, the Conversion 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 Conversion Price in effect immediately prior to such issuance, plus (ii) the consideration, if any, received by the Corporation upon such issuance by (b) the total number of shares of Common Stock outstanding immediately after such issuance provided, however, that no adjustment otherwise required hereunder, shall be made unless the reduction in Conversion Price required by this subsection (h), together with all prior reductions which have not resulted in an adjustment to the Conversion Price, shall result in a reduction of the Conversion Price by at least $0.05 per share. For purposes of this subsection (h), the price received by the Corporation for such Additional Shares of Common Stock shall be computed as follows: (x) Cash and Property. If such consideration 28 consists of: (a) cash, the consideration shall be aggregate amount of cash received by the Corporation; (b) property (including intellectual property) other than cash, the consideration shall be the fair market value thereof at the time of such issue, as determined in good faith by the Board; and (c) part of cash or part property and/or stock or other securities of the Corporation or both, the consideration shall be the amount equal to the sum of cash and fair market value of the property actually received by the Corporation computed consistently with the prior paragraphs herein and determined in good faith by the Board. (y) Options. Shares of the Corporation called for pursuant to options and warrants which are held as of the date of a conversion of Convertible Preferred Stock by option or warrant holders, and which are not exercised, and have not terminated or lapsed, at the time of such conversion, will be deemed to have been issued, for purposes of the definitions and calculations hereof, at a price per share determined by dividing: (a) the total amount, if any, received and receivable by the Corporation as consideration for the issuance of such options or warrants, plus the minimum aggregate amount of additional consideration (as set forth in the instrument relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such options or warrants, by (b) the maximum number of such shares (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such options or warrants. (i) Definitions. The terms "Additional Shares of Common Stock" as used herein shall mean all shares of Common Stock issued or deemed issued by the Corporation after the issuance date of the Convertible Preferred Stock, whether or not subsequently reacquired or retired by the Corporation, other than shares of Common Stock issued (i) upon conversion of the Convertible Preferred Stock, (ii) upon conversion of $693,000 principal amount of the Corporation's 12 1/2% Convertible Subordinated Debentures due in 1996, or any options or warrants or (iii) upon exercise of options granted to purchase up to 1,197,500 shares of Common Stock of the Corporation under its stock option plans. (i) Accountants' Certificate of Adjustment. In each case of an adjustment of readjustment of the Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Convertible Preferred Stock, the Corporation, at its expense, shall cause independent certified public accountants of recognized standing selected by the Corporation (who may be the independent certified public accountants then auditing the books of the Corporation) to compute such adjustment or readjustment in accordance herewith and prepare a certificate showing such adjustment or readjustment, and shall 29 mail such certificate by first class mail, postage prepaid, to each registered holder or Convertible Preferred Stock at the holder's address as shown in the Corporation's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or to be received by the Corporation for any Additional Shares of Common Stock issued or sold, (ii) the Conversion Price both before and after such adjustment or readjustment, and (iii) the number of Additional Shares of Common Stock and the type and amount, if any, of other property which at the time would be received upon conversion of the Convertible Preferred Stock. (k) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Convertible Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay, in cash, an amount equal to the product of (i) such fraction of a share, multiplied by (ii) the fair market value of one share of the Corporation's Common Stock on the date of conversion, as determined in good faith by the Board. (1) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Convertible Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all the outstanding shares of Convertible Preferred Stock, the Corporation will, subject to the requirements of applicable state law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares of Common Stock as shall be sufficient for such purposes. F. Nonassessable Status of Stock. All the share of Convertible Preferred Stock for which the full consideration determined by the Board of Directors (which shall be not less than the par value of such shares) has been paid or delivered, in cash or property in accordance with the resolutions of the Board of Directors authorizing the issuance of such shares, shall be deemed fully paid stock and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon. SECTION 3. Preferred Stock The Preferred Stock may be issued from time to time in one or more series with such designations, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof, as shall be stated in the resolutions adopted by the Board of Directors providing for the issuance of such Preferred Stock or series thereof; and the Board of Directors is hereby expressly vested with authority to fix such designations, preferences and relative participating, optional or other special rights or qualifications, limitations or restrictions for each series, including, but not by way of limitation, the power to fix the redemption and liquidation preferences, the rate of dividends payable and the time for and priority of payment thereof and 30 to determine whether such dividends shall be cumulative or not and to provide for and fix the terms of conversion of such Preferred Stock or any series thereof into Common Stock of the Corporation and fix the voting power, if any, of shares of Preferred Stock or any series thereof. THIRD: At a Special Meeting of the Stockholders of the Corporation duly called and held on February 13, 1990, in accordance with the provisions of Section 242 of the General Corporation law of the State of Delaware, the holders of the majority of the outstanding Common Stock and Convertible Preferred Stock of the Corporation voted in favor of the amendment of the Certificate of Incorporation as set forth herein. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 13th day of February, 1990 and affirm that the statements made therein are true and correct under the penalties of perjury. /s/ Stanley S. Binder ---------------------------- Stanley S. Binder President /s/ Denis R. Pinkernell ---------------------------- Denis R. Pinkernell Assistant Secretary CERTIFICATE OF DESIGNATION OF CLASS A CONVERTIBLE PREFERRED STOCK (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) BARRINGER RESOURCES INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, HEREBY CERTIFIES: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation as amended, the Board of Directors on February 13, 1990 adopted the following resolution creating a series of 500,000 shares of Preferred Stock designated as Class A Convertible Preferred Stock: 31 RESOLVED, that pursuant to the authority conferred upon the Board of Directors of the Corporation by Article FOURTH of the Amended Certificate of Incorporation of the Corporation, there is hereby established a Class A Convertible Preferred Stock of the par value of $2.00 per share (hereinafter called the "Class A Convertible Preferred Stock") consisting of 500,000 shares and designated Class A Convertible Preferred Stock, and that, subject to the limitations provided by law and by Article FOURTH of the Amended Certificate of Incorporation, the designations, voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the Class A Convertible Preferred Stock are as follows: A. Dividends. The holders of shares of Class A Convertible Preferred Stock shall be entitled to receive or have set apart for payment dividends thereon at the rate of $.16 per share per annum, payable semiannually for the last preceding dividend on the last days of June and December in each year in, at the option of the Corporation, cash or shares of Common Stock valued for such purpose at the average closing price of the Common Stock in the over-the-counter market over the twenty (20) trading days immediately prior to the recorded date for each semiannual payment as quoted on NASDAQ, as the average of the bid and offer prices quoted for such period in the pink sheets published by the National Quotation Bureau. The amount of dividends payable per share for each dividend period will be computed by dividing by two the $.16 annual rate. B. Liquidating Preferences. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation under any circumstances or any voluntary liquidation or winding-up of the Corporation, which shall be deemed to have occurred upon the sale of all or substantially all of its assets, the holders of Class A Convertible Preferred Stock will be entitled to receive, prior to and in preference to any distribution of the assets of surplus funds of the Corporation to the holder of any other shares of Capital Stock by reason of the ownership thereof, but on a parity with the holders of the Convertible Preferred Stock, an amount equal to $2.00 per share plus accrued and unpaid dividends up to and inclusive of the date of liquidation (the "Class A Preferential Amount"). If, upon the occurrence of such an event, the assets and funds thus distributed among the holders of Class A Convertible Preferred Stock shall be insufficient to permit the payment to such holder of the full Class A Preferential Amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of Class A Convertible Preferred Stock and the Convertible Preferred Stock. After 32 payment or setting apart of the full Class A Preferential Amount required to be paid to the holders of the Class A Convertible Preferred Stock, the holders of the Class A Convertible Preferred Stock shall be entitled to receive all remaining assets or surplus funds of the Corporation on a parity with the holders of the Convertible Preferred Stock. C. Consents of Class A Convertible Preferred Stock. Without the affirmative vote or consent of the holders of the majority of the shares of Class A Convertible Stock at the time outstanding, the Corporation shall not: (a) Alter, change or amend the preferences, rights or privileges of holders of the Class A Convertible Preferred Stock contained herein or in the By-laws of the Corporation or elsewhere as in effect on the date that this Certificate of Designation is filed with the Secretary of the State of Delaware; or (b) Alter, change or amend the Certificate of Incorporation or the By-laws of the Corporation or otherwise to provide for the authorization and issuance of any additional class or series of Capital Stock, including additional shares of Preferred Stock having any rights, preferences or priorities equivalent to or any greater than (either in any particular aspect or in the aggregate) the Class A Convertible Preferred Stock; or (c) Agree to a voluntary liquidation, dissolution, or winding-up of the Corporation. D. Voting Rights. In addition to the voting rights granted to the holders of the Class A Convertible Preferred Stock by the laws of the state of Delaware and by Section C hereof, each holder of Class A Convertible Preferred Stock shall be entitled at each meeting of the stockholders of the Corporation to that number of votes which is equal to the number of shares of Common Stock into which each share of Convertible Preferred Stock is convertible on the record date with respect to such meeting for each share of such stock outstanding in his name on the books of the Corporation. E. Conversion. (a) Conversion by Holder. Each share of Class A Convertible Preferred Stock shall be convertible, at the option of the holder thereof, at any time after (i) one (1) year after the date of issuance of the Class A Convertible Preferred Stock; or (ii) the closing price of Common Stock shall have been $3.00 or more per share for sixty (60) consecutive trading days, in accordance with the conversion formula (as defined below), subject to adjustment as described below. Before any holder of Class A Convertible Preferred 33 Stock shall be entitled to convert the same into shares of Common Stock, the holders shall (i) surrender the Certificate(s) therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Common Stock, or (ii) notify the Corporation or any transfer agent that such certificate has been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation against any loss incurred by it in connection therewith, and shall give written notice to the Corporation at such office that the holder elects to convert the same and shall state therein the number of shares of Class A Convertible Preferred Stock being converted. Thereupon, the Corporation shall promptly issue and deliver at such office to such holder(s) of Class A Convertible Preferred Stock a certificate(s) for the number of shares of Common Stock to which the holder shall be entitled. Such conversion shall be deemed to have been made immediately prior to the closing of business on the date of such surrender of the shares of Class A Convertible Preferred Stock to be converted or delivery of the aforementioned Indemnification Agreement, and the person or persons entitled to receive these shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (b) Conversion Price and Conversion Formula. The initial conversion price per share for Class A Convertible Preferred Stock (the "Conversion Price") shall be $2.00, subject to adjustment from time to time as provided herein. Each share of Class A Convertible Preferred Stock shall be convertible into that number of shares of Common Stock that results from dividing $2.00 by the Conversion Price in effect at the time of conversion (the "Conversion Formula"). (c) Adjustments of Conversion Price for Stock Splits and Combinations. If the Corporation shall at any time, or from time to time, after the date of the issuance of the Class A Convertible Preferred Stock, effect a subdivision of the outstanding Common Stock, the Conversion Price in effect immediately before that: subdivision shall be proportionately decreased, and conversely, if the Corporation shall at any time or from to time after the original issue date of the Class A Convertible Preferred Stock combine the outstanding shares of Common Stock, the Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Subsection (c) shall become effective at the close of business on the date the subdivision or combination becomes effective. (d) Adjustment of Conversion Price for Certain Dividends and Distributions. If the Corporation at any time, or from time to time, after the date of the issuance of the Class A Convertible Preferred Stock, 34 shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then, and in each such event, the Conversion Price then in effect shall be decreased as of the date of such issuance or, at the time or upon the event such a record date shall have been fixed, as of the close of business on such record date (the "Record Date"), by multiplying the Conversion Price then in effect by a fraction, determined as follows: (i) The numerator of which shall be the total number of shares of Common stack issued and outstanding immediately prior to the Record Date; and (ii) The denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the Record Date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such Record Date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the closing of the business on such Record Date and thereafter the Conversion Price for such Class A Convertible Preferred Stock shall be adjusted pursuant to this Section (d) at the time of such action, or payment of such dividends or distributions. (e) Adjustment for Reclassification, Exchange or Substitution. If the Common Stock issuable upon the conversion of the Class A Convertible Preferred Stock shall be changed into the same or different number of shares of a different class or classes of stock, or other securities or property, whether by reclassification, exchange, substitution or other transaction having similar effect (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provided for elsewhere in this Section E) then and in each such event the holder of each share of Class A Convertible Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such reclassification, exchange, substitution or other transaction having similar effect, as did or shall the holders of shares of Common Stock have, as if such shares of Class A Convertible Preferred Stock had been converted into Common Stock immediately prior to the Record Date with respect to such reclassification, exchange or substitution, all subject to further adjustment as provided herein. (f) Reorganization, Mergers, Consolidations, or Sales of Assets. If at any time, or from time to time, there shall be (other than at subdivision, combination, reclassification, exchange or substitution or shares 35 provided for elsewhere in this Section E) a capital reorganization involving a merger or consolidation of the Corporation with or into another corporation, or the sale or transfer of all or substantially all of the Corporation's properties and assets to any other person (a "sale"), then, as a part of such reorganization, merger, consolidation or sale, there shall be due and adequate provision shall be made so that the holders of the Class A Convertible Preferred Stock shall thereafter be entitled to receive upon conversion of the Class A Convertible Preferred Stock, the number of shares or other securities or property of the Corporation, or of the successor corporation resulting from such merger, reorganization, consolidation or sale, as to which a holder of Common Stock deliverable upon conversion would have been entitled to receive as a result of such reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in respect to the rights of the holders of the Class A Convertible Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section E (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Class A Convertible Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (g) Sale of Shares Below Conversion Price. If at any time, or from time to time, after the date of issuance of the Class A Convertible Preferred Stock and while any shares of the Class A Convertible Preferred Stock are outstanding, the Corporation shall issue or sell Additional Shares of Common Stock (as hereinafter defined) or options, warrants, convertible securities or other rights to acquire Common Stock other than an (i) a dividend or other distribution of any class of stock permitted by subsection (d) above, (ii) a subdivision or combination of shares of Common Stock as provided for in subsection (c) above, or (iii) a reclassification, exchange, resubstitution or other transaction having similar effect as provided for in subsection (e) above, for a consideration per share less than the Conversion Price in effect immediately prior to the event, or without consideration, then, and thereafter successively upon each such issuance, the Conversion 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 conversion Price in effect immediately prior to such issuance, plus (ii) the consideration, if any, received by the Corporation upon such issuance by (b) the total number of shares of Common Stock outstanding immediately after such issuance provided, however, that no adjustment otherwise required hereunder, shall be made unless the reduction in Conversion Price required by this subsection (h), together with all prior reductions 36 which have not resulted in an adjustment to the Conversion Price, shall result in a reduction of the Conversion Price by at lease $0.05 per share. For purposes of this subsection (h), the price received by the Corporation for such Additional Shares of Common Stock shall be computed as follows: (x) Cash and Property. If such consideration consists of: (a) cash, the consideration shall be the aggregate amount of cash received by the Corporation; (b) property (including intellectual property) other than cash, the consideration shall be the fair market value thereof at the time of such issue, as determined in good faith by the Board; and (c) part cash or part property and/or stock or other securities of the Corporation or both, the consideration shall be the amount equal to the sum of the cash and fair market value of the property actually received by the Corporation computed consistently with the prior paragraphs herein and determined in good faith by the Board. (y) Options. Shares of the Corporation called for pursuant to options and warrants which are held as of the date of a conversion of Class A Convertible Preferred Stock by option or warrant holders, and which are not exercised, and have not terminated or lapsed, at the time of such conversion, will be deemed to have been issued, for purposes of the definitions and calculations hereof, at a price per share determined by dividing: (a) the total amount, if any, received and receivable by the Corporation as consideration for the issuance of such options or warrants, plus the minimum aggregate amount of additional consideration (as set forth in the instrument relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such options or warrants, by (b) the maximum number of such shares (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such options or warrants. (h) Definitions. The terms "Additional Shares of Common Stock" as used herein shall mean all shares of Common Stock issued or deemed issued by the Corporation after the issuance date of the Class A Convertible Preferred Stock, whether or not subsequently reacquired or retired by the Corporation, other than shares of Common Stock issued (i) upon conversion of the Class A 37 Convertible Preferred Stock, (ii) upon conversion of $693,000 principal amount of the Corporation's 12-1/2% Class A Convertible Subordinated Debentures due in 1996, or any options or warrants or (iii) upon exercise of options or warrants or (iv) upon exercise of options granted to purchase shares of Common Stock of the Corporation under its stock option plans. (i) Accountant's Certificate of Adjustment. In each case of an adjustment of readjustment of the Conversion Price for the number of shares of Common Stock or the securities issuable upon conversion of the Class A Convertible Preferred Stock, the Corporation, at its expense, shall cause independent certified public accountants of recognized standing selected by the Corporation (who may be the independent certified public accountants then auditing the books of the Corporation) to compute such adjustment or readjustment in accordance herewith and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate by first class mail, postage prepaid, to each registered holder of Class A Convertible Preferred Stock at the holder's address as shown in the Corporation's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or to be received by the Corporation for any Additional Shares of Common Stock issued or sold, (ii) the Conversion Price both before and after such adjustment (or readjustment, and (iii) the number of Additional Shares of Common Stock and the type and amount, if any, of other property which at the time would be received upon conversion of the Class A Convertible Preferred Stock. (j) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Class A Convertible Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay, in cash. an amount equal to the product of (i) such fraction of a share, multiplied by (ii) the fair market value of one share of the Corporations' Common Stock on the date of conversion, as determined in good faith by the Board. (k) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Class A Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Class A Convertible Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all the outstanding shares of Class A Convertible Preferred Stock, the Corporation 38 will, subject to the requirements of applicable state law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares of Common Stock as shall be sufficient for such purposes. F. Nonassessable Status of Stock. All the shares of Class A Convertible Preferred Stock for which the full consideration determined by the Board of Directors (which shall be not less than the par value of such shares) has been paid or delivered, in cash or property in accordance with the resolutions of the Board of Directors authorizing the issuance of such shares, shall be deemed fully paid stock and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon. G. Redemption of Class A Convertible Preferred Stock. Subject to the limitations of the laws of the State of Delaware, the Corporation may, any time after the closing price of the Common Stock has been $3.00 or more for ninety (90) consecutive trading days, redeem all or a portion of such shares of Class A Convertible Preferred Stock at a redemption price equal to $2.00 per share, plus an amount equal to any accumulated and accrued but unpaid dividends upon thirty (30) days written notice to the holders of the Class A Convertible Preferred Stock. If less than all of the outstanding shares of the Class A Convertible Preferred Stock are to be redeemed, the Corporation shall redeem from each holder of Class A Convertible Preferred Stock on a pro rata basis. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 27th day of November, 1990 and affirm that the statements made herein are true and correct under the penalties of perjury. BARRINGER RESOURCES INC. By: /s/ Stanley S. Binder ____________________________ Stanley S. Binder, President Attest: /s/ Denis R. Pinkernell ________________________________________ Denis R. Pinkernell, Assistant Secretary 39 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION 40 OF BARRINGER RESOURCES INC. (Pursuant to Section 242 of the General Corporation Law) THE UNDERSIGNED, Stanley S. Binder and Denis R. Pinkernell, being the duly elected and acting President and Secretary, respectively, of BARRINGER RESOURCES INC., a Delaware corporation (the "Corporation"), for the purpose of amending the Certificate of Incorporation of the Corporation pursuant to Section 242 of the General Corporation Law, DO HEREBY CERTIFY THAT: FIRST: The name of the Corporation is BARRINGER RESOURCES INC. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on September 7, 1967 under the name of Barringer Research, Inc. SECOND: The Board of Directors of the Corporation, at a meeting thereof duly called and held on September 14, 1990, duly adopted and approved and declared advisable the following resolution with respect to the amendment to Article FIRST of the Certificate of Incorporation of the Corporation to change the name of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law: RESOLVED, that, subject to approval of stockholders of the Corporation, Article FIRST of the Certificate of Incorporation of the Corporation be amended to read and provide in its entirety to read as follows: "FIRST: The name of the Corporation is BARRINGER TECHNOLOGIES INC.hereinafter called the "Corporation")." THIRD: The holders of a majority of the outstanding shares of Common Stock ($.01 par value) and the outstanding shares of $1.25 Convertible Preferred Stock of the Corporation, the only outstanding classes of stock of the Corporation entitled to notice of and to vote at the deferred Annual Meeting of Stockholders of the Corporation held on February 12, 1991 approved the amendment of 41 the Certificate of Incorporation as herein set forth in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 13th day of February, 1991. /s/ Stanley S. Binder ------------------------------- Stanley S. Binder, President /s/ Denis R. Pinkernell ------------------------------- Denis R. Pinkernell, Secretary 42 CERTIFICATE OF DECREASE IN THE NUMBER OF SHARES OF CLASS A CONVERTIBLE PREFERRED STOCK AND CERTIFICATE OF DESIGNATION OF CLASS B CONVERTIBLE PREFERRED STOCK (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) BARRINGER TECHNOLOGIES INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, HEREBY CERTIFIES: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, as amended, the Board of Directors on November 18, 1991 adopted the following resolutions decreasing the number of shares of Class A Convertible Preferred Stock previously designated by Certificate of Designation filed with the Secretary of State of Delaware on November 27, 1991 from 500,000 shares to 270,000 shares, and designating a series of 730,000 shares of Class B Convertible Preferred Stock: 43 RESOLVED, that the resolutions designating an additional 500,000 shares of Class A Convertible Preferred Stock be rescinded, and pursuant to Section 151(g) of the General Corporation Law of the State of Delaware, the number of shares of Class A Convertible Preferred Stock previously designated by Certificate of Designation filed with the Secretary of State of Delaware on November 27, 1991 be decreased to 270,000 shares of such Class A Convertible Stock; and RESOLVED, that pursuant to the authority conferred upon the Board of Directors of the Corporation by Article FOURTH of the Amended Certificate of Incorporation of the Corporation, there is hereby designated a Class B Convertible Preferred Stock, par value $2.00 per share (hereinafter called the "Class B Convertible Preferred Stock") , and that, subject to the limitations provided by law and by Article FOURTH of the Amended Certificate of Incorporation, the designations, voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the Class B Convertible Preferred Stock are as follows: A. Dividends. The holders of shares of Class A Convertible Preferred Stock shall be entitled to receive or have set apart for payment dividends thereon at the rate of $.16 per share per annum, payable semiannually from the last preceding dividend on the last days of June and December in each year in, at the option of the Corporation, cash or shares of Common Stock valued for such purpose at the average daily bid and offer price of the Common Stock in the over-the-counter market over the twenty (20) trading days immediately prior to the record date for each semiannual payment as quoted on the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or, if the Common Stock is not quoted on NASDAQ during such period, the average of the bid and offer prices quoted for such period in the pink sheets published by the National Quotation Bureau. The amount of dividends payable per share for each dividend period will be computed by dividing by two the $.16 annual rate. B. Liquidating Preferences. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation under any circumstances or any voluntary liquidation or winding-up of the Corporation, which shall be deemed to have occurred upon the sale of all or substantially all of its assets, the holders of Class B Convertible Preferred Stock will be entitled to receive, prior to and in preference to any distribution of the assets of surplus funds of the Corporation to the holder of any other shares of capital stock of the Corporation by reason of the ownership thereof, but on a parity with the holders 44 of the Class A Convertible Preferred Stock and the Convertible Preferred Stock, par value $1.25 per share of the Corporation (the "Convertible Preferred Stock"), an amount equal to $2.00 per share plus accrued and unpaid dividends up to and inclusive of the date of liquidation (the "Class B Preferential Amount"). If, upon the occurrence of such an event, the assets and funds thus distributed among the holders of Class B Convertible Preferred Stock shall be insufficient to permit the payment to such holder of the full Class B Preferential Amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of Class B Convertible Preferred Stock, Class A Convertible Preferred Stock and the Convertible Preferred Stock. After payment or setting apart of the full Class B Preferential Amount required to be paid to the holders of the Class B Convertible Preferred Stock, the holders of the Class B Convertible Preferred Stock shall be entitled to receive all remaining assets or surplus funds of the Corporation on a parity with the holders of the Class A Convertible Preferred Stock and Convertible Preferred Stock. C. Consents of Class A Convertible Preferred Stock. Without the affirmative vote or consent of the holders of the majority of the shares of Class B Convertible Stock at the time outstanding, the Corporation shall not: (a) Alter, change or amend the preferenced, rights or privileges of holders of the Class B Convertible Preferred Stock contained herein or in the By-laws of the Corporation elsewhere as in effect on the date that this Certificate of Designation is filed with the Secretary of the State of Delaware; or (b) Alter, change or amend the Certificate of Incorporation or the By-laws of the Corporation or otherwise provide for the authorization and issuance of any additional class or series of capital stock, including additional shares of Preferred Stock having any rights, preferences or priorities equivalent to or any greater than (either in any particular aspect or in the aggregate) the Class B Convertible Preferred Stock; or (c) Agree to a voluntary liquidation, dissolution, or winding-up of the Corporation. D. Voting Rights. In addition to the voting rights granted to the holders of the Class B Convertible Preferred Stock by the laws of the State of Delaware and by Section C hereof, each holder of Class B Convertible Preferred Stock shall be entitled at each meeting of the stockholders of the Corporation 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 is convertible on the record date with respect to such meeting for each share of Class B Convertible Preferred Stock is convertible on the record date with respect to such meeting for each share 45 of such stock outstanding in his name on the books of the Corporation. E. Conversion. (a) Conversion by Holder. Each share of Class B Convertible Preferred Stock shall be convertible at the option of the holder thereof, at any time after the date of issuance into one share of Common Stock, at the conversion price and subject to adjustment as described below. Before any holder of Class B Convertible Preferred Stock shall be entitled to convert the same into shares of Common Stock, the holders shall (i) surrender the Certificate(s) therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Common Stock, or (ii) notify the Corporation or any transfer agent that such certificate has been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation against any loss incurred by it in connection therewith, and shall give written notice to the Corporation at such office that the holder elects to convert the same and shall state therein the number of shares of Class B Convertible Preferred Stock being converted. Thereupon, the Corporation shall promptly issue and deliver at such office to such holder(s) of Class B Convertible Preferred Stock a certificate(s) for the number of shares of Common Stock to which the holder shall be entitled. Such conversion shall be deemed to have been made immediately prior to the closing of business on the date of such surrender of the shares of Class B Convertible Preferred Stock to be converted or delivery of the aforementioned Indemnification Agreement, and the person or persons entitled to receive these shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (b) Conversion Price and Conversion Formula. The conversion price per share for Class B Convertible Preferred Stock (the "Conversion Price") shall be $2.00, subject to adjustment from time to time as provided herein. Each share of Class B Convertible Preferred Stock shall be convertible into that number of shares of Common Stock that results from dividing $2.00 by the Conversion Price in effect at the time of conversion (the "Conversion Formula"). (c) Adjustments of Conversion Price for Stock Splits and Combinations. If the Corporation shall at any time, or from time to time, after the date of the issuance of the Class B Convertible Preferred Stock, effect a subdivision of the outstanding Common Stock, the Conversion Price in effect immediately before the subdivision shall be proportionately decreased, and conversely, if the Corporation shall at any time or 46 from time to time after the original date of the Class B Convertible Preferred Stock combine the outstanding shares of Common Stock, the Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment at the close of business on the date the subdivision or combination becomes effective. (d) Adjustment of Conversion Price for Certain Dividends and Distributions. If the Corporation at any time, or from time to time, after the date of the issuance of the Class B Convertible Preferred Stock, shall make or issue, or fix a record date for the determination of holders of Common Stock, entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then, and in each such event, the Conversion Price then in effect shall be decreased as of the date of such issuance or, at the time or upon the event such a record date shall have been fixed, as of the close of business on such record date (the "Record Date"), by multiplying the Conversion Price then in effect by a fraction, determined as follows: (i) The numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the Record Date; and (ii) The denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the Record Date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such Record Date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion shall be recomputed accordingly as of the closing of the business on such Record Date and thereafter the Conversion Price for such Class B Convertible Preferred Stock shall be adjusted pursuant to this Section (d) at the time of such action, or payment of such dividends or distributions. (e) Adjustments for Reclassification, Exchange or Substitution. If the Common Stock issuable upon the conversion of the Class B Convertible Preferred Stock shall be changed into the same or different number of shares of a different class or classes of stock, or other securities or property, whether by reclassification, exchange, substitution or other transaction having similar effect (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provide for elsewhere in this Section E) then and in each such event the holder of each shares of Class B Convertible Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such reclassification, exchange, substitution or other transaction having 47 similar effect, as did or shall the holders of shares of Class B Convertible Preferred Stock had been converted into Common Stock immediately prior to the Record Date with respect to such reclassification, exchange or substitution, all subject to further adjustments as provided herein. (f) Reorganization, Mergers, Consolidations, or Sales of Assets. If at any time, or from time to time, there shall be (other than a subdivision, combination, reclassification, exchange or substitution or shares provided for elsewhere in this Section E) a capital reorganization involving a merger or consolidation of the Corporation with or into another corporation, or the sale or transfer of all or substantially all of the Corporation's properties and assets to any other person (a "sale"), then, as a part of such reorganization, merger, consolidation or sale, there shall be due and adequate provision shall be made so that the holders of the Class B Convertible Preferred Stock shall thereafter be entitled to receipt upon conversion of the Class B Convertible Preferred Stock, the number of shares or other securities or property of the Corporation, or of the successor corporation resulting from such merger, reorganization, consolidation or sale, as to which a holder of Common Stock deliverable upon conversion would have been entitled to receive as a result of such reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in respect to the rights of the holders of the Class B Convertible Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section E (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Class B Convertible Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (g) Sale of Shares Below Conversion Price. If at any time, or from time to time, after the date of issuance of the Class B Convertible Preferred Stock and while any shares of the Class B Convertible Preferred Stock are outstanding, the Corporation shall issue or sell Additional Shares of Common Stock (as hereinafter defined) or options, warrants, convertible securities or other rights to acquire Common Stock other than as (i) a dividend or other distribution of any class of stock permitted by subsection (d) above, (ii) a subdivision or combination of shares of Common Stock as provided for in subsection (c) above, or (iii) a reclassification, exchange, substitution or other transaction having similar effect as provided for in subsection (e) above, for a consideration per share less than the Conversion Price in effect immediately prior to the event, or without consideration, then, and thereafter successively upon each such issuance, the Conversion 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 48 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 Conversion Price in effect immediately prior to such issuance, plus (ii) the consideration, if any, received by the Corporation upon such issuance by (b) the total number of shares of Common stock outstanding immediately after such issuance provided, however, that no adjustment otherwise required hereunder, shall be made unless the reduction in Conversion Price required by this subsection (g), together with all prior reductions which have not resulted in an adjustment to the Conversion Price, shall result in a reduction of the Conversion Price by at least $0.05 per share. For purposes of this subsection (g), the price received by the Corporation for such Additional Shares of Common Stock shall be computed as follows: (x) Cash and Property. If such consideration consists of: (a) cash, the consideration shall be the aggregate amount of cash received by the Corporation; (b) property (including intellectual property) other than cash, the consideration shall be the fair market value thereof at the time of such issue, as determined in good faith by the Board; and (c) part cash or part property and/or stock or other securities of the Corporation or both, the consideration shall be the amount equal to the sum of the cash and fair market value of the property actually received by the Corporation computed consistently with the prior paragraphs herein and determined in good faith by the Board. (y) Options. Shares of the Corporation called for pursuant to options and warrants which are held as of the date of a conversion of Class B Convertible Preferred Stock by option or warrant holders, and which are not exercised, and have not terminated or lapsed, at the time of such conversion, will be deemed to have been issued, for purposes of the definitions and calculations hereof, at a price per share determined by dividing; (a) the total amount, if any, received and receivable by the Corporation as consideration for the issuance of such options or warrants, plus the minimum aggregate amount of additional consideration (as set forth in the instrument relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such options or warrants, by (b) the maximum number of such shares (as set forth in the instrument relating thereto, without 49 regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such options or warrants. (h) Definitions. The terms "Additional Shares of Common Stock" as used therein shall mean all shares of Common Stock issued or deemed issued by the Corporation after the issuance date of the Class B Convertible Preferred Stock, whether or not subsequently reacquired or retired by the Corporation, other than shares of Common Stock issued (i) upon conversion of the Class A or Class B Convertible Preferred Stock, (ii) upon conversion of the Corporation's 12 1/2% Class A Convertible Subordinated Debentures due in 1996, or any options or warrants or (iii) upon exercise of options or warrants or (iv) upon exercise of options granted to purchase shares of Common Stock of the Corporation under its stock option plans. (i) Accountants' Certificate of Adjustment. In each case of an adjustment of readjustment of the Conversion Price for the number of shares of Common Stock or the securities issuable upon conversion of the Class B convertible Preferred Stock, the Corporation, at its expense, shall cause independent certified public accountants of recognized standing selected by the Corporation (who may be the independent certified public accountants then auditing the books of the Corporation) to compute such adjustment or readjustment in accordance herewith and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate by first class mail, postage prepaid, to each registered holder of Class B Convertible Preferred Stock at the holder's address as shown in the Corporation's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or to be received by the Corporation for any Additional Shares of Common Stock issued or sold, (ii) the Conversion Price both before and after such adjustment or readjustment, and (iii) the number of Additional Shares of Common Stock and the type and amount, if any, of other property which at the time would be received upon conversion of the Class B Convertible Preferred Stock. (j) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Class B Convertible Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay, in cash, an amount, equal to the product of (i) such fraction of a share, multiplied by (ii) the fair market value of one share of the Corporation's Common Stock on the date of conversion, as determined in good faith by the Board. (k) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued 50 shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Class B Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Convertible Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all the outstanding shares of Class B Convertible Preferred Stock, the Corporation will, subject to the requirements of applicable state law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares of Common Stock as shall be sufficient for such purposes. F. Nonassessable Status of Stock. All the shares of Class B Convertible Preferred Stock for which the full consideration determined by the Board of Directors (which shall be not less than the par value of such shares) has been paid or delivered, in cash or property in accordance with the resolutions of the Board of Directors authorizing the issuance of such shares, shall be deemed fully paid stock and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon. G. Redemption of Class B Convertible Preferred Stock. Subject to the limitations of the laws of the State of Delaware, the Corporation may, at any time after the average bid and offer price of the Common Stock has been $3.00 or more for ninety (90) consecutive trading days, as quoted on NASDAQ, or, if the Common Stock is not quoted on NASDAQ during such period, the average of the bid and offer prices quoted for such period in the pink sheets published by the National Quotation Bureau, redeem all or a portion of such shares of Class B Convertible Preferred Stock at redemption price equal to $2.00 per share, plus an amount equal to any accumulated and accrued but unpaid dividends upon thirty (30) days written notice to the holders of the Class B Convertible Preferred Stock. If less than all of the outstanding shares of Class B Convertible Preferred Stock are to be redeemed, the Corporation shall redeem from each holder of Class B Convertible Preferred Stock on a pro rata basis. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this day of November, 1991 and affirm that the statements made herein are true and correct under the penalties of perjury. BARRINGER TECHNOLOGIES, INC. By: /s/ Stanley S. Binder ------------------------------- Stanley S. Binder, President Attest: /s/ Denis R. Pinkernell - ------------------------------- Denis R. Pinkernell, Secretary 51 CERTIFICATE OF CORRECTION OF CERTIFICATE OF DECREASE IN THE NUMBER OF SHARES OF CLASS A CONVERTIBLE PREFERRED STOCK AND CERTIFICATE OF DESIGNATION OF CLASS B CONVERTIBLE PREFERRED STOCK (Pursuant to Section 103(f) of the General Corporation Law of the State of Delaware) BARRINGER TECHNOLOGIES INC., a Delaware corporation (the "Corporation") , pursuant to Section 103 (f ) of the General Corporation Law of the State of Delaware, HEREBY CERTIFIES: That the Certificate Of Decrease In The Number Of Shares Of Class A Convertible Preferred Stock And Certificate of Designation Of Class B Convertible Preferred Stock filed in the Office of the Secretary of the State of Delaware on December 2, 1991, contained certain inaccuracies therein, namely, the words "consisting of 730,000 shares and designated Class B Convertible Preferred Stock" were erroneously dropped at the end of the seventh line of the second "Resolved" paragraph, and references to "Class A" on the first line of paragraph "A. Dividends" and the heading "C. Consent of Class A Convertible Preferred Stock" should in each instance refer to Class B Convertible Preferred Stock; and That the Resolution adopted by the Board of Directors of the Corporation on November 18, 1991 decreasing the designation of Class A Convertible Preferred Stock and designating 730,000 shares of Class B Convertible Preferred Stock reads and provides in its entirety is as follows: 52 RESOLVED, that the resolutions designating an additional 500,000 shares of Class A Convertible Preferred Stock be rescinded, and pursuant to Section 151(g) of the General Corporation Law of the State of Delaware, the number of shares of Class A Convertible Preferred Stock previously designated by Certificate of Designation filed with the Secretary of State of Delaware on November 11, 1990 be decreased to 270,000 shares of such Class A Convertible Stock; and RESOLVED, that pursuant to the authority conferred upon the Board of Directors of the Corporation by Article FOURTH of the Amended Certificate of Incorporation of the Corporation, there is hereby designated a Class B Convertible Preferred Stock, par value $2.00 per share (hereinafter called the "Class B Convertible Preferred Stock"), consisting of 730,000 shares and designated Class B Convertible Preferred Stock and that, subject to the limitations provided by law and by Article FOURTH of the Amended Certificate of Incorporation, the designations, voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the Class B Convertible Preferred Stock are as follows: A. Dividends. The holders of shares of Class B Convertible Preferred Stock shall be entitled to receive or have set apart for payment dividends thereon at the rate of $.16 per share per annum, payable semiannually from the last preceding dividend on the last days of June and December in each year in, at the option of the Corporation, cash or shares of Common Stock valued for such purpose at the average daily bid and offer price of the Common Stock in the over-the-counter market over the twenty (20) trading days immediately prior to the record date for each semiannual payment as quoted on the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or, if the Common Stock is not quoted on NASDAQ during such period, the average of the bid and offer prices quoted for such period in the pink sheets published by the National Quotation Bureau. The amount of dividends payable per share for each dividend period will be computed by dividing by two the $.16 annual rate. B. Liquidating Preferences. In the event of any voluntary or involuntary 53 liquidation, dissolution or winding-up of the Corporation under any circumstances or any voluntary liquidation or winding-up of the Corporation, which shall be deemed to have occurred upon the sale of all or substantially all of its assets, the holders of Class B Convertible Preferred Stock will be entitled to receive, prior to and in preference to any distribution of the assets of surplus funds of the Corporation to the holder of any other shares of capital stock of the Corporation by reason of the ownership thereof, but on a parity with the holders of the Class A Convertible Preferred Stock and the Convertible Preferred Stock, par value $1.25 per share of the Corporation (the "Convertible Preferred Stock"), an amount equal to $2.00 per share plus accrued and unpaid dividends up to and inclusive of the date of liquidation (the "Class B Preferential Amount"). If, upon the occurrence of such an event, the assets and funds thus distributed among the holders of Class B Convertible Preferred Stock shall be insufficient to permit the payment to such holder of the full Class B Preferential Amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of Class B Convertible Preferred Stock, Class A Convertible Preferred Stock and the Convertible Preferred Stock. After payment or setting apart of the full Class B Preferential Amount required to be paid to the holders of the Class B Convertible Preferred stock, the holders of the Class B Convertible Preferred Stock shall be entitled to receive all remaining assets or surplus funds of the Corporation on a parity with the holders of the Class A Convertible Preferred Stock and Convertible Preferred Stock. C. Consents of Class B Convertible Preferred Stock. Without the affirmative vote or consent of the holders of the majority of the shares of Class B Convertible Stock at the time outstanding, the Corporation shall not: (a) Alter, change or amend the preferenced, rights or privileges of holders of the Class B Convertible Preferred Stock contained herein or in the By-laws of the Corporation elsewhere as in effect on the date that this Certificate of Designation is filed with the Secretary of the State of Delaware; or (b) Alter, change or amend the 54 Certificate of Incorporation or the By-laws of the Corporation or otherwise provide for the authorization and issuance of any additional class or series of capital stock, including additional shares of Preferred Stock having any rights, preferences or priorities equivalent to or any greater than (either in any particular aspect or in the aggregate) the Class B Convertible Preferred Stock; or (c) Agree to a voluntary liquidation, dissolution, or winding-up of the Corporation. D. Voting Rights. In addition to the voting rights granted to the holders of the Class B Convertible Preferred Stock by the laws of the State of Delaware and by Section C hereof, each holder of Class B Convertible Preferred Stock shall be entitled at each meeting of the stockholders of the Corporation 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 is convertible on the record date with respect to such meeting for each share of such stock outstanding in his name on the books of the Corporation. E. Conversion. (a) Conversion by Holder. Each share of Class B Convertible Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance into one share of Common Stock, at the conversion price and subject to adjustment as described below. Before any holder of Class B Convertible Preferred Stock shall be entitled to convert the same into shares of Common Stock, the holders shall (i) surrender the Certificate(s) therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Common Stock, or (ii) notify the Corporation or any transfer agent that such certificate has been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation against any loss incurred by it in connection therewith, and shall give written notice to the Corporation at such office that the holder elects to convert the same and shall state therein the number of shares of Class B Convertible Preferred Stock being converted. Thereupon, the Corporation shall promptly issue and deliver at such office to such holder(s) of Class B 55 Convertible Preferred Stock a certificate(s) for the number of shares of (Common Stock to which the holder shall be entitled. Such conversion shall be deemed to have been made immediately prior to the closing of business on the date of such surrender of the shares of Class B Convertible Preferred Stock to be converted or delivery of the aforementioned Indemnification Agreement, and the person or persons entitled to receive these shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (b) Conversion Price and Conversion Formula. The conversion price per share for Class B Convertible Preferred Stock (the "Conversion Price") shall be $2.00, subject to adjustment from time to time as provided herein. Each share of Class B Convertible Preferred stock shall be convertible into that number of shares of Common Stock that results from dividing $2.00 by the Conversion Price in effect at the time of conversion (the "Conversion Formula"). (c) Adjustments of Conversion Price for Stock Splits and Combinations. If the Corporation shall at any time, or from time to time, after the date of the issuance of the Class B Convertible Preferred Stock, effect a subdivision of the outstanding Common Stock, the Conversion Price in effect immediately before the subdivision shall be proportionately decreased, and conversely, if the Corporation shall at any time or from time to time after the original date of the Class B Convertible Preferred Stock combine the outstanding shares of Common Stock, the Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment at the close of business on the date the subdivision or combination becomes effective. (d) Adjustment of Conversion Price for Certain Dividends and Distributions. If the Corporation at any time, or from time to time, after the date of the issuance of the Class B Convertible Preferred Stock, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then, and in each such event, the Conversion Price then in effect shall be decreased as of the date of such issuance or, at the time or upon the event such a record 56 date shall have been fixed, as of the close of business on such record date (the "Record Date"), by multiplying the Conversion Price then in effect by a fraction, determined as follows: (i) The numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the Record Date; and (ii) The denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the Record Date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such Record Date shall have been fixed and such dividend is riot fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion shall be recomputed accordingly as of the closing of the business on such Record Date and thereafter the Conversion Price for such Class B Convertible Preferred Stock shall be adjusted pursuant to this Section (d) at the time of such action, or payment of such dividends or distributions. (e) Adjustments for Reclassification, Exchange or Substitution. If the Common Stock issuable upon the conversion of the Class B Convertible Preferred Stock shall be changed into the same or different number of shares of a different class or classes of stock, or other securities or property, whether by reclassification, exchange, substitution or other transaction having similar effect (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provide for elsewhere in this Section E) then and in each such event the holder of each shares of Class B Convertible Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such reclassification, exchange, substitution or other transaction having similar effect, as did or shall the holders of shares of Class B Convertible Preferred Stock had been converted into Common Stock immediately prior to the Record Date with respect to such reclassification, exchange or substitution, all subject to further adjustments as provided herein. (f) Reorganization, Mergers, 57 Consolidations, or Sales of Assets. If at any time, or from time to time, there shall be (other than a subdivision, combination, reclassification, exchange or substitution or shares provided for elsewhere in this Section E) a capital reorganization involving a merger or consolidation of the Corporation with or into another corporation, or the sale or transfer of all or substantially all of the Corporation's properties and assets to any other person (a "sale"), then, as a part of such reorganization, merger, consolidation or sale, there shall be due and adequate provision shall be made so that the holders of the Class B Convertible Preferred Stock shall thereafter be entitled to receipt upon conversion of the Class B Convertible Preferred Stock, the number of shares or other securities or property of the Corporation, or of the successor corporation resulting from such merger, reorganization, consolidation or sale, as to which a holder of Common Stock deliverable upon conversion would have been entitled to receive as a result of such reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in respect to the rights of the holders of the Class B Convertible Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section E (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Class B Convertible Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (g) Sale of Shares Below Conversion Price. If at any time, or from time to time, after the date of issuance of the Class B Convertible Preferred Stock and while any shares of the Class B Convertible Preferred Stock are outstanding, the Corporation shall issue or sell Additional Shares of Common Stock (as hereinafter defined) or options, warrants, convertible securities or other rights to acquire Common Stock other than as (i) a dividend or other distribution of any class of stock permitted by subsection (d) above, (ii) a subdivision or combination of shares of Common Stock as provided for in subsection (c) above, or (iii) a reclassification, exchange, substitution or other transaction having similar effect as provided for in subsection (e) above, for a consideration per share less than the Conversion Price in effect immediately prior to the event, or without consideration, then, and thereafter successively upon each such 58 issuance, the Conversion 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 Conversion Price in effect immediately prior to such issuance, plus (ii) the consideration, if any, received by the Corporation upon such issuance by (b) the total number of shares of Common stock outstanding immediately after such issuance provided, however, that no adjustment otherwise required hereunder, shall be made unless the reduction in Conversion Price required by this subsection (g), together with all prior reductions which have not resulted in an adjustment to the Conversion Price, shall result in a reduction of the Conversion Price by at least $0.05 per share. For purposes of this subsection (g), the price received by the Corporation for such Additional Shares of Common Stock shall be computed as follows: (x) Cash and Property. If such consideration consists of: (a) cash, the consideration shall be the aggregate amount of cash received by the Corporation; (b) property (including intellectual property) other than cash, the consideration shall be the fair market value thereof at the time of such issue, as determined in good faith by the Board; and (c) part cash or part property and/or stock or other securities of the Corporation or both, the consideration shall be the amount equal to the sum of the cash and fair market value of the property actually received by the Corporation computed consistently with the prior paragraphs herein and determined in good faith by the Board. (y) Options. Shares of the Corporation called for pursuant to options and warrants which are held as of the date of a conversion of Class B Convertible Preferred Stock by option or warrant holders, and which are not exercised, and have not terminated or lapsed, at the time of such conversion, will be deemed to have been issued, for purposes of the definitions and calculations hereof, at a price per share determined by dividing; 59 (a) the total amount, if any, received and receivable by the Corporation as consideration for the issuance of such options or warrants, plus the minimum aggregate amount of additional consideration (as set forth in the instrument relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such options or warrants, by (b) the maximum number of such shares (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such options or warrants. (h) Definitions. The terms "Additional Shares of Common Stock" as used therein shall mean all shares of Common Stock issued or deemed issued by the Corporation after the issuance date of the Class B Convertible Preferred Stock, whether or not subsequently reacquired or retired by the Corporation, other than shares of Common Stock issued (i) upon conversion of the Class A or Class B Convertible Preferred Stock, (ii) upon conversion of the Corporation's 12 1/2% Class A Convertible Subordinated Debentures due in 1996, or any options or warrants or (iii) upon exercise of options or warrants or (iv) upon exercise of options granted to purchase shares of Common Stock of the Corporation under its stock option plans. (i) Accountants' Certificate of Adjustment. In each case of an adjustment of readjustment of the Conversion Price for the number of shares of Common Stock or the securities issuable upon conversion of the Class B convertible Preferred Stock, the Corporation, at its expense, shall cause independent certified public accountants of recognized standing selected by the Corporation (who may be the independent certified public accountants then auditing the books of the Corporation) to compute each adjustment or readjustment in accordance herewith and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate by first class mail, postage prepaid, to each registered holder of Class B Convertible preferred stock at the holder's address as shown in the Corporation's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, 60 including a statement of (i) the consideration received or to be received by the Corporation for any Additional Shares of Common Stock issued or sold, (ii) the Conversion Price both before and after such adjustment or readjustment, and (iii) the number of Additional Shares of Common Stock and the type and amount, if any, of other property which at the time would be received upon conversion of the Class B Convertible Preferred Stock. (j) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Class B Convertible Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay, in cash, an amount equal to the product of (i) such fraction of a share, multiplied by (ii) the fair market value of one share of the Corporation's Common Stock on the date of conversion, as determined in good faith by the Board. (k) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Class B Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Convertible Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all the outstanding shares of Class B Convertible Preferred Stock, the Corporation will, subject to the requirements of applicable state law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares of Common Stock as shall be sufficient for such purposes. F. Nonassessable Status of Stock. All the shares of Class B Convertible Preferred Stock for which the full consideration determined by the Board of Directors (which shall be not less than the par value of such shares) has been paid or delivered, in cash or property in accordance with the resolutions of the Board of Directors authorizing the issuance of such shares, shall be deemed fully paid stock and the holder of such shares shall not be liable for any further call or assessment or any other 61 payment thereon. G. Redemption of Class B Convertible Preferred Stock. Subject to the limitations of the laws of the State of Delaware, the Corporation may, at any time after the average bid and offer price of the Common Stock has been $3.00 or more for ninety (90) consecutive trading days, as quoted on NASDAQ, or, if the Common Stock is not quoted on NASDAQ during such period, the average of the bid and offer prices quoted for such period in the pink sheets published by the National Quotation Bureau, redeem all or a portion of such shares of Class B (Convertible Preferred Stock at a redemption price equal to $2.00 per share, plus an amount equal to any accumulated and accrued but unpaid dividends upon thirty (30) days written notice to the holders of the Class B Convertible Preferred Stock. If less than all of the outstanding shares of Class B Convertible Preferred Stock are to be redeemed, the Corporation shall redeem from each holder of Class B Convertible Preferred Stock on a pro rata basis. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 4th day of December, 1991 and affirm that the statements made herein are true and correct under the penalties of perjury. BARRINGER TECHNOLOGIES, INC. /s/ Stanley S. Binder ----------------------------- Stanley S. Binder, President Attest: /s/ Denis R. Pinkernell ------------------------------ Denis R. Pinkernell, Secretary 62 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF BARRINGER TECHNOLOGIES, INC. Barringer Technologies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that: FIRST: At a meeting of the Board of Directors of the Corporation resolutions were adopted setting forth a proposed amendment to the Certificate of Incorporation of the Corporation, declaring the said amendment to be advisable and calling a meeting of the stockholders of the Corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of the Corporation be amended by changing Article TENTH to read and provide in its entirety as follows: "TENTH: (a) A director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. This Article shall not limit the liability of a director for any act or omission occurring prior to the date this Article TENTH becomes effective. (b) The Corporation shall indemnify any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the fullest extent permitted by applicable law. The determination as to whether such person has met the standard required for indemnification shall be made in accordance with applicable law. Expenses incurred by such director, officer, employee or agent in defending a civil or criminal action, suit or proceeding shall be paid by the 63 Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article TENTH. (c) The provisions of this Article TENTH shall be deemed to be a contract between the Corporation and each person who serves as such director, officer, employee or agent of the Corporation in any such capacity at any time while this Article TENTH is in effect. No repeal or modification of the foregoing provisions of this Article TENTH nor, to the fullest extent permitted by law, any modification of law shall adversely affect any right of protection of a director, officer, employee or agent of the Corporation existing at the time of such repeal or modification." SECOND: Thereafter, pursuant to resolution of its Board of Directors, the annual meeting of the stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the holders of the majority of the outstanding stock of the Corporation voted in favor of the amendment of the Certificate of Incorporation as set forth herein. THIRD: The amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its President and attested by its Secretary this 5th day of May, 1993. BARRINGER TECHNOLOGIES, INC. By: /s/ Stanley S. Binder -------------------------------- Stanley S. Binder, President ATTEST: /s/ Kenneth S. Wood - ------------------------------- Kenneth S. Wood, Secretary 64 CERTIFICATE OF AMENDMENT of CERTIFICATE OF INCORPORATION of BARRINGER TECHNOLOGIES INC. Barringer Technologies Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that: The following amendment to the Corporation's Certificate of Incorporation approved by the Corporation's Board of Directors and stockholders was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware: "Section 1 of Article FOURTH of the Certificate of Incorporation, as amended, of Barringer Technologies Inc. is hereby amended to read in its entirety as follows: FOURTH: Section 1. Authorized Shares. The total number of shares of stock which the Corporation shall have authority to issue is 12,000,000 shares, consisting of 7,000,000 shares of Common Stock, having a par value of $.01 per share ("Common Stock"), 1,000,000 shares of Convertible Preferred Stock, having a par value of $1.25 per share ("Convertible Preferred Stock"), and 4,000,000 shares of Preferred Stock, having a par value of $2.00 per share ("Preferred Stock"). Effective at 11:58 p.m. (the "Effective Time") on September 22, 1995 (the "Effective Date"), each four (4) shares of authorized Common Stock issued and outstanding or held in the treasury of the Corporation immediately prior to the Effective Time shall automatically be reclassified and changed into one (1) validly issued, fully paid and nonassessable share of Common Stock (a "New Share"). Each holder of record of shares of Common Stock so reclassified and changed shall at the Effective Time automatically become the record owner of the number of New Shares as shall result from such reclassification and change. Each such record holder shall be entitled to receive, upon the surrender of the certificate or certificates representing the shares of Common Stock so reclassified and changed at the office of the transfer agent of the Corporation in such form and accompanied by such documents, if any, as may be prescribed by the transfer agent of the Corporation, a new certificate or certificates representing the number of New Shares of which he or she is the record owner after giving effect to the provisions of this Article FOURTH. The Corporation shall not issue fractional New Shares. Stockholders entitled to receive fractional New Shares shall receive, in lieu thereof, cash in an amount equal to the product of (a) the number of shares of the Common Stock held by such holder immediately prior to the Effective Time which have not been 65 classified into a whole New Share, (b) multiplied by (i) the average of the closing bid and closing asked prices of the Common Stock as reported on the NASDAQ Small Capitalization Market on the Effective Date, or (ii) if the Common Stock is not listed on the NASDAQ Small Capitalization Market on the Effective Date, the average of the bid and offer prices on the last day prior to the Effective Date on which such prices were published by the National Quotation Bureau." In accordance with Section 103(e) of the General Corporation Law of the State of Delaware, the amendment set forth in this Certificate shall not become effective until 11:58 p.m. on September 22, 1995. IN WITNESS WHEREOF, Barringer Technologies Inc. has caused this Certificate to be signed and attested by its duly authorized officers, this day of September, 1995. BARRINGER TECHNOLOGIES INC. By: /s/ Richard S. Rosenfeld ---------------------------------- Richard S. Rosenfeld, Vice President ATTEST: /s/ Kenneth S. Wood ---------------------------------- Kenneth S. Wood, Secretary 66 CERTIFICATE OF AMENDMENT of CERTIFICATE OF INCORPORATION of BARRINGER TECHNOLOGIES INC. Barringer Technologies Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that: The following amendment to the Corporation's Certificate of Incorporation, approved by the Corporation's Board of Directors and stockholders, was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware: "Section 1 of Article FOURTH of the Certificate of Incorporation, as amended, of Barringer Technologies Inc. is hereby amended to read in its entirety as follows: FOURTH: Section 1. Authorized Shares. The total number of shares of stock which the Corporation shall have authority to issue is 25,000,000 shares, consisting of 20,000,000 shares of Common Stock, having a par value of $.01 per share ("Common Stock"), 1,000,000 shares of Convertible Preferred Stock, having a par value of $1.25 per share ("Convertible Preferred Stock"), and 4,000,000 shares of Preferred Stock, having a par value of $2.00 per share ("Preferred Stock")." IN WITNESS WHEREOF, Barringer Technologies Inc. has caused this Certificate to be signed and attested by its duly authorized officers, this 13th day of May, 1997. BARRINGER TECHNOLOGIES INC. By: /s/ Stanley S. Binder ---------------------------- Stanley S. Binder, Chairman of the Board, President and Chief Executive Officer ATTEST: /s/ Kenneth S. Wood - ----------------------------- Kenneth S. Wood, Secretary EX-10.9 3 1997 STOCK COMPENSATION PROGRAM 1 Exhibit 10.9 BARRINGER TECHNOLOGIES INC. 1997 STOCK COMPENSATION PROGRAM A. Purposes. This Barringer Technologies Inc. 1997 Stock Compensation Program (the "Program") is intended to promote the interests of Barringer Technologies Inc. (the "Company"), its direct and indirect present and future subsidiaries (the "Subsidiaries"), and its stockholders, by providing eligible persons with the opportunity to acquire a proprietary interest, or to increase their proprietary interest, in the Company as an incentive to remain in the service of the Company. B. Elements of the Program. In order to maintain flexibility in the award of benefits, the Program is comprised of six parts -- the Incentive Stock Option Plan ("Incentive Plan"), the Supplemental Stock Option Plan ("Supplemental Plan"), the Stock Appreciation Rights Plan ("SAR Plan"), the Performance Share Plan ("Performance Share Plan"), the Stock Bonus Plan ("Stock Bonus Plan") and the Independent Director Plan (the "Independent Director Plan"). Copies of the Incentive Plan, Supplemental Plan, SAR Plan, Performance Share Plan, Stock Bonus Plan and Independent Director Plan are attached hereto as Parts I, II, III, IV, V, and VI, respectively, and are collectively referred to herein as the "Plans." The grant of an option, stock appreciation right, performance share, or stock bonus under one of the Plans shall not be construed to prohibit the grant of an option, stock appreciation right, performance share, or stock bonus under any of the other Plans. C. Applicability of General Provisions. Unless any Plan specifically indicates to the contrary, all Plans shall be subject to the General Provisions of the Program set forth below under the heading "General Provisions of Stock Compensation Program." 2 GENERAL PROVISIONS OF STOCK COMPENSATION PROGRAM Article 1. Administration. The Program shall be administered by the Board of Directors of the Company (the "Board of Directors") or any duly created committee appointed by the Board of Directors and charged with administration of the Program. The Board of Directors, or any duly appointed committee, when acting to administer the Program, is referred to as the "Program Administrator." Any action of the Program Administrator shall be taken by majority vote at a meeting or by unanimous written consent of all members without a meeting. No Program Administrator or member of the Board of Directors shall be liable for any action or determination made in good faith with respect to the Program or with respect to any option, stock appreciation right, performance share, or stock bonus granted thereunder. Notwithstanding any other provision of the Program, administration of the Independent Director Plan, set forth as Part VI of this Program, shall be self-executing in accordance with the terms of the Independent Director Plan, and no Program Administrator shall exercise any discretionary functions with respect to option grants made under such Independent Director Plan. Article 2. Authority of Program Administrator. Subject to the other provisions of this Program, and with a view to effecting its purpose, the Program Administrator shall have the authority: (a) to construe and interpret the Program; (b) to define the terms used herein; (c) to prescribe, amend, and rescind rules and regulations relating to the Program; (d) to determine to whom options, stock appreciation rights, performance shares, and stock bonuses shall be granted under the Program; (e) to determine the time or times at which options, stock appreciation rights, performance shares, or stock bonuses shall be granted under the Program; (f) to determine the number of shares subject to any discretionary option or stock appreciation right under the Program and the number of shares to be awarded as performance shares or stock bonuses under the Program, as well as the option price and the duration of each option, stock appreciation right, performance share and stock bonus, and any other terms and conditions of options, stock appreciation rights, performance shares, and stock bonuses; and (g) to make any other determinations necessary or advisable for the administration of the Program and to do everything necessary or appropriate to administer the Program. All decisions, determinations and interpretations made by the Program Administrator shall be binding and conclusive on all participants in the Program and on their legal representatives, heirs, and beneficiaries. Article 3. Maximum Number of Shares Subject to the Program. The maximum aggregate number of shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), available pursuant to the Program, subject to adjustment as provided in Article 6 hereof, shall be 600,000 shares of Common Stock. Up to 500,000 of such shares may be issued under any Plan that is part of the Program other than the Independent Director Plan. Up to 100,000 shares may be issued under the Independent Director Plan. If any of the options or stock appreciation rights granted under the Program expire or terminate for any reason before they have been exercised in full, the unissued shares subject to those expired or terminated options and/or stock appreciation rights shall again be available for the purposes of the Program. If the performance objectives associated with the grant of any performance shares are not achieved within the specified performance objective period, or if the performance share grant terminates for any reason before the performance objective date arrives, the shares of Common Stock associated with such performance shares shall again be available for the purposes of the Program. If any stock provided to a recipient as a stock bonus is forfeited, the shares of Common Stock so forfeited shall again be available for purposes of the Program. Any shares of Common Stock delivered pursuant to the Program may consist, in whole or in part, of newly issued shares or treasury shares. Article 4. Eligibility and Participation. All employees of the Company and the Subsidiaries, whether or not officers or directors of the Company or the Subsidiaries, all consultants of the Company and the Subsidiaries, whether or not directors of the Company or the Subsidiaries, and all non-employee directors of the Company shall be eligible to participate in the Program; provided, however, that (i) only employees of the Company or the Subsidiaries may participate in the Incentive Plan, and (ii) only Independent Directors (as defined in the Independent Director Plan) may participate in the Independent Director Plan. The term "employee" shall include any person who has agreed to become an employee and the term "consultant" shall include any person who has agreed to become a consultant. 3 Article 5. Effective Date and Term of Program. The Program shall become effective upon its adoption by the Board of Directors and the stockholders of the Company; provided, however, that awards may be granted under the Program prior to obtaining stockholder approval of the Program so long as such awards are contingent upon such stockholder approval being obtained and may not be exercised prior to such approval. The Program shall continue in effect for a term of ten years from the date the Program is adopted by the Board of Directors unless sooner terminated by the Board of Directors. Article 6. Adjustments. Subject to the provisions of Articles 18 and 19, in the event that 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 stock split, an appropriate and proportionate adjustment shall be made by the Program Administrator in the maximum number and kind of shares as to which options, stock appreciation rights, and performance shares may be granted under the Program. A corresponding adjustment changing the number or kind of shares allocated to unexercised options, stock appreciation rights, performance shares and stock bonuses or portions thereof, which shall have been granted prior to any such change, shall likewise be made. Any such adjustment in outstanding options and stock appreciation rights shall be made without change in the aggregate purchase price applicable to the unexercised portion of the option or stock appreciation right but with a corresponding adjustment in the price for each share or other unit of any security covered by the option or stock appreciation right. In making any adjustment pursuant to this Article 6, any fractional shares shall be disregarded. Article 7. Termination and Amendment of Program. No options, stock appreciation rights, performance shares or stock bonuses shall be granted under the Program after the termination of the Program. The Program Administrator may at any time amend or revise the terms of the Program or of any outstanding option, stock appreciation right, performance share or stock bonus issued under the Program, provided, however, that any stockholder approval necessary or desirable in order to comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or with Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or other applicable law or regulation shall be obtained prior to the effectiveness of any such amendment or revision. No amendment, suspension or termination of the Program or of any outstanding option, stock appreciation right, performance share or stock bonus shall, without the consent of the person who has received an option, stock appreciation right, performance share or stock bonus, impair any of that person's rights or obligations under any option, stock appreciation right, performance share or stock bonus granted under the Program prior to such amendment, suspension or termination without that person's written consent. Article 8. Privileges of Stock Ownership Notwithstanding the exercise of any options granted pursuant to the terms of the Program or the achievement of any performance objective specified in any performance share granted pursuant to the terms of the Program, no person shall have any of the 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 or achievement of his or her performance objective until certificates representing the shares have been issued and delivered. No adjustment shall be made for dividends or any other distributions for which the record date is prior to the date on which any stock certificate is issued pursuant to the Program. Article 9. Reservation of Shares of Common Stock. The Company, during the term of the Program, 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 the Program. Article 10. Tax Withholding. The exercise of any option, stock appreciation right or performance share, and the grant of any stock bonus under the Program, are subject to the condition that, if at any time the Company shall determine, in its discretion, that the satisfaction of withholding tax or other withholding liabilities under any state or federal law 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, stock appreciation right or performance share or the grant of such stock bonus or the elimination of the risk of forfeiture 4 relating thereto shall not be effective unless such withholding tax or other withholding liabilities shall have been satisfied in a manner acceptable to the Company. Article 11. Employment; Service as Director or Consultant. Nothing in the Program gives to any person any right to continued employment by or service as a director of or consultant to the Company or the Subsidiaries or limits in any way the right of the Company, the Subsidiaries or the Company's stockholders at any time to terminate or alter the terms of that employment or service. Article 12. Investment Letter; Restrictions or Obligation of the Company to Issue Securities; Restrictive Legend. Any person acquiring Common Stock or other securities of the Company pursuant to the Program, as a condition precedent to receiving the shares of Common Stock or other securities, may be required by the Program Administrator to submit a letter to the Company stating that the shares of Common Stock or other securities are being acquired for investment and not with a view to the distribution thereof. The Company shall not be obligated to sell or issue any shares of Common Stock or other securities pursuant to the Program unless, on the date of sale and issuance thereof, the shares of Common Stock or other securities are either registered under the Securities Act of 1933, as amended, and all applicable state securities laws, or exempt from registration thereunder. All shares of Common Stock and other securities issued pursuant to the Program shall bear a restrictive legend summarizing the restrictions on transferability applicable thereto, including those imposed by federal and state securities laws. Article 13. Covenant Against Competition. The Program Administrator shall have the right to condition the award to an employee of any option, stock appreciation right, performance share, or stock bonus under the Program upon the recipient's execution and delivery to the Company of an agreement not to compete with the Company during the recipient's employment and for such period thereafter as shall be determined by the Program Administrator. Such covenant against competition shall be in a form satisfactory to the Program Administrator. Article 14. Rights Upon Termination. If a recipient of an award under the Program ceases to be a director of the Company or to be employed by or to provide consulting services to the Company or any Subsidiary (or a corporation or a parent or subsidiary of such corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies), as the case may be, for any reason other than death or disability, then, unless any other provision of the Program provides for earlier termination: (a) subject to Article 21, all options or stock appreciation rights (other than Naked Rights) shall terminate immediately in the event the recipient's service or employment is terminated for cause and in all other circumstances may be exercised, to the extent exercisable on the date of termination, until (i) three months after the date of termination in the case of grants under the Independent Director Plan, and (ii) 30 days after the date of termination in all other cases; provided, however, that the Program Administrator may, in its discretion, allow such options or stock appreciation rights (other than Naked Rights) to be exercised (to the extent exercisable on the date of termination) at any time within three months after the date of termination; (b) subject to Section 5(b) of the SAR Plan, all Naked Rights not payable on the date of termination of employment shall terminate immediately; (c) all performance share awards shall terminate immediately unless the performance objectives have been achieved and the performance objective period has expired; and (d) all stock bonuses which are subject to forfeiture shall be forfeited as of the date of termination. Article 15. Rights Upon Disability. If a recipient becomes disabled, within the meaning of Section 22(e)(3) of the Code, while serving as a director of the Company or while employed by or rendering consulting services to the Company or any Subsidiary (or a corporation or a parent or subsidiary of such 5 corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies), as the case may be, then, unless any other provision of the Program provides for earlier termination: (a) subject to Article 21, all options or stock appreciation rights (other than Naked Rights) may be exercised, to the extent exercisable on the date of termination, at any time within one year after the date of termination due to disability; (b) all Naked Rights shall be fully paid by the Company as of the date of disability; (c) all performance share awards for which all performance objectives have been achieved (other than continued employment or service on the Vesting Date) shall be paid in full by the Company; all other performance shares shall terminate immediately; and (d) all stock bonuses which are subject to forfeiture shall be forfeited as of the date of disability. Article 16. Rights Upon Death of Recipient. If a recipient dies while serving as a director of the Company or while employed by or rendering consulting services to the Company or any Subsidiary (or a corporation or a parent or subsidiary of such corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies), as the case may be, then, unless any other provision of the Program provides for earlier termination: (a) subject to Article 21, all options or stock appreciation rights (other than Naked Rights) may be exercised by the person or persons to whom the recipient's rights shall pass by will or by the laws of descent and distribution, to the extent exercisable on the date of death, at any time within one year after the date of death, unless any other provision of the Program provides for earlier termination; (b) all Naked Rights shall be fully paid by the Company as of the date of death; (c) all performance share awards for which all performance objectives have been achieved (other than continued employment or service on the Vesting Date) shall be paid in full by the Company; all other performance share awards shall terminate immediately; and (d) all stock bonuses which are subject to forfeiture shall be forfeited as of the date of death. Article 17. Transferability. Options and stock appreciation rights granted under the Program may not be sold, pledged, assigned or transferred in any manner by the recipient otherwise than by will or by the laws of descent and distribution and shall be exercisable (a) during the recipient's lifetime only by the recipient and (b) after the recipient's death only by the recipient's executor, administrator or personal representative, provided, however that (i) the Program Administrator may permit the recipient of a non-incentive stock option under the Supplemental Plan to transfer the option to a family member or a trust created for the benefit of family members and (ii) recipients of options under the Independent Director Plan may transfer such options to a family member or a trust created for the benefit of family members. In the case of such a transfer, the transferee's rights and obligations with respect to the option shall be determined by reference to the recipient and the recipient's rights and obligations with respect to the option had no transfer been made. The recipient shall remain obligated pursuant to Articles 10 and 12 hereunder if required by applicable law. Common Stock which represents either performance shares prior to the satisfaction of the stated performance objectives and the expiration of the stated performance objective periods or stock bonus shares prior to the time that they are no longer subject to risk of forfeiture may not be sold, pledged, assigned or transferred in any manner. Article 18 Change in Control. All options granted pursuant to the Independent Director Plan shall become immediately exercisable upon the occurrence of a Change in Control Event. With respect to other awards, the Program Administrator shall have the authority to provide, either at the time any option, stock appreciation right, performance share or stock bonus is granted or thereafter, that an option or stock appreciation 6 right shall become fully exercisable upon the occurrence of a Change in Control Event or that all restrictions, performance objectives, performance objective periods and risks of forfeiture pertaining to a performance share or stock bonus award shall lapse upon the occurrence of a Change in Control Event. As used in the Program, 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 who (i) as of the effective date of the Program constitute the Board of Directors (the "Original Directors"), (ii) thereafter are elected to the Board of Directors and whose election or nomination for election to the Board of Directors 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 (iii) are elected to the Board of Directors and whose election or nomination for election to the Board of Directors 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 a majority of the members of the Board of Directors; (c) the stockholders of the Company shall approve a merger, consolidation, recapitalization, or reorganization of the Company or the Company shall consummate any such transaction if stockholder approval is not sought or obtained, other than any such transaction which would result in holders of outstanding voting securities of the Company immediately prior to the transaction having Beneficial Ownership of at least 50% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction, with the voting power of each such continuing holder relative to such other continuing holders being not altered substantially in the transaction; or (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 (i.e., 50% or more in value of the total assets of the Company). Article 19. Mandatory Exercise. Upon the occurrence of or in anticipation of a contemplated Change in Control Event, the Company may give a holder of an option or stock appreciation right written notice requiring such person either (a) to exercise within a period of time established by the Company after receipt of the notice each option and stock appreciation right to the fullest extent exercisable at the end of that period, or (b) to surrender such option or stock appreciation right or any unexercised portion thereof. Any portion of such option or stock appreciation right which shall not have been exercised in accordance with the provisions of the Program by the end of such period shall automatically lapse irrevocably and the holder shall have no further rights thereunder. Article 20. Method of Exercise. Any holder of an option may exercise his or her option from time to time by giving written notice thereof to the Company at its principal office, together with payment in full for the shares of Common Stock to be purchased. The date of such exercise shall be the date on which the Company receives such notice. Such notice shall state the number of shares to be purchased. The purchase price of any shares purchased upon the exercise of any option granted pursuant to the Program shall be paid in full at the time of exercise of the option by certified or bank cashier's check payable to the order of the Company or, if permitted by the Program Administrator, by shares of Common Stock which have been held by the optionee for at least six months, or by a combination of checks and such shares of Common Stock. The Program Administrator may, in its sole discretion, permit an optionee to make "cashless exercise" arrangements, to the extent permitted by applicable law, and may require optionees to utilize the services of a single broker selected by the Program Administrator in connection with any cashless exercise. No option may be exercised for a fraction of a share of Common Stock. If any portion of the purchase price is paid in shares of Common Stock, those shares 7 shall be valued at their then Fair Market Value as determined by the Program Administrator in accordance with Section 4 of the Incentive Plan. Article 21. Limitation. Notwithstanding any other provision of the Program, (a) no option may be granted pursuant to the Program more than ten years after the date on which the Program was adopted by the Board of Directors, and (b) any option granted under the Program shall, by its terms, not be exercisable more than ten years after the date of grant; provided, however, that any option granted under the Independent Director Plan shall, by its terms, not be exercisable more than five years after the date of grant. Article 22. Sunday or Holiday. In the event that the time for the performance of any action or the giving of any notice is called for under the Program within a period of time which ends or falls on a Sunday or legal holiday, such period shall be deemed to end or fall on the next day following such Sunday or legal holiday which is not a Sunday or legal holiday. Article 23. Governing Law. The Program shall be governed by and construed in accordance with the laws of the State of New Jersey. 8 PLAN I BARRINGER TECHNOLOGIES INC. INCENTIVE STOCK OPTION PLAN SECTION 1. GENERAL. This Barringer Technologies Inc. Incentive Stock Option Plan ("Incentive Plan") is Part I of the Company's Program. The Company intends that options granted pursuant to the provisions of the Incentive Plan will qualify and will be identified as "incentive stock options" within the meaning of Section 422 of the Code. Unless any provision herein indicates to the contrary, the Incentive Plan shall be subject to the General Provisions of the Program. SECTION 2. TERMS AND CONDITIONS. The Program Administrator may grant incentive stock options to any person eligible under Article 4 of the General Provisions. The terms and conditions of options granted under the Incentive Plan may differ from one another as the Program Administrator shall, in its discretion, determine, as long as all options granted under the Incentive Plan satisfy the requirements of the Incentive Plan. SECTION 3. DURATION OF OPTIONS. Each option and all rights thereunder granted pursuant to the terms of the Incentive Plan shall expire on the date determined by the Program Administrator, but in no event shall any option granted under the Incentive Plan expire later than ten years from the date on which the option is granted. Notwithstanding the foregoing, any option granted under the Incentive Plan to any person who owns more than 10% of the combined voting power of all classes of stock of the Company or a Subsidiary shall expire no later than five years from the date on which the option is granted. SECTION 4. PURCHASE PRICE. The option price with respect to any option granted pursuant to the Incentive Plan shall not be less than the Fair Market Value of the shares on the date of the grant of the option; except that the option price with respect to any option granted pursuant to the Incentive Plan to any person who owns more than 10% of the combined voting power of all classes of stock of the Company shall not be less than 110% of the Fair Market Value of the shares on the date the option is granted. "Fair Market Value" shall mean the fair market value of the Common Stock on the date of grant or other relevant date. If on such date the Common Stock is listed on a stock exchange or is quoted on the automated quotation system of NASDAQ, the Fair Market Value shall be the closing sale price (or if such price is unavailable, the average of the high bid price and the low asked price) on such date. If no such closing sale price or bid and asked prices are available, the Fair Market Value shall be determined in good faith by the Program Administrator in accordance with generally accepted valuation principles and such other factors as the Program Administrator reasonably deems relevant. SECTION 5. MAXIMUM AMOUNT OF OPTIONS IN ANY CALENDAR YEAR. The aggregate Fair Market Value of the Common Stock with respect to which incentive stock options are exercisable for the first time by any employee during any calendar year (under the terms of the Incentive Plan and all incentive stock option plans of the Company and the Subsidiaries) shall not exceed $100,000. SECTION 6. EXERCISE OF OPTIONS. Unless otherwise provided by the Program Administrator at the time of grant or unless the installment provisions set forth herein are subsequently accelerated pursuant to Article 18 of the General Provisions of the Program or otherwise by the Program Administrator with respect to any one or more previously granted options, options may only be exercised to the following extent during the following periods of employment:
MAXIMUM PERCENTAGE OF SHARES COVERED BY PERIOD FOLLOWING OPTION WHICH MAY BE DATE OF GRANT PURCHASED ---------------- --------------------- Less than 12 months........................ 0% 12 months or more and less than 24 months.. 25% 24 months or more and less than 36 months.. 50% 36 months or more and less than 48 months.. 75% 48 months or more.......................... 100%
9 PLAN II BARRINGER TECHNOLOGIES INC. SUPPLEMENTAL STOCK OPTION PLAN SECTION 1. GENERAL. This Barringer Technologies Inc. Supplemental Stock Option Plan ("Supplemental Plan") is Part II of the Company's Program. Any option granted pursuant to the Supplemental Plan shall not be an incentive stock option as defined in Section 422 of the Code. Unless any provision herein indicates to the contrary, this Supplemental Plan shall be subject to the General Provisions of the Program. SECTION 2. TERMS AND CONDITIONS. The Program Administrator may grant supplemental stock options to any person eligible under Article 4 of the General Provisions. The terms and conditions of options granted under the Supplemental Plan may differ from one another as the Program Administrator shall, in its discretion, determine, as long as all options granted under the Supplemental Plan satisfy the requirements of the Supplemental Plan. SECTION 3. DURATION OF OPTIONS. Each option and all rights thereunder granted pursuant to the terms of the Supplemental Plan shall expire on the date determined by the Program Administrator, but in no event shall any option granted under the Supplemental Plan expire later than ten years from the date on which the option is granted. SECTION 4. PURCHASE PRICE. The option price with respect to any option granted pursuant to the Supplemental Plan shall be determined by the Program Administrator at the time of grant. SECTION 5. EXERCISE OF OPTIONS. Unless otherwise provided by the Program Administrator at the time of grant, or unless the installment provisions set forth herein are subsequently accelerated pursuant to Article 18 of the General Provisions of the Program or otherwise by the Program Administrator, with respect to any one or more previously granted options, options may only be exercised to the following extent during the following periods of employment or service:
Maximum Percentage of Shares Covered by Period Following Option Which May be Date of Grant Purchased ---------------- --------------------- Less than 12 months......................... 0% 12 months or more and less than 24 months... 25% 24 months or more and less than 36 months... 50% 36 months or more and less than 48 months... 75% 48 months or more........................... 100%
10 PLAN III BARRINGER TECHNOLOGIES INC. STOCK APPRECIATION RIGHTS PLAN SECTION 1. GENERAL. This Barringer Technologies Inc. Stock Appreciation Rights Plan ("SAR Plan") is Part III of the Company's Program. SECTION 2. TERMS AND CONDITIONS. The Program Administrator may grant stock appreciation rights to any person eligible under Article 4 of the General Provisions. Stock appreciation rights may be granted either in tandem with incentive stock options or supplemental stock options as described in Section 4 of the SAR Plan, or as naked stock appreciation rights as described in Section 5 of the SAR Plan. SECTION 3. MODE OF PAYMENT. At the discretion of the Program Administrator, payments to recipients upon exercise of stock appreciation rights may be made in (a) cash by bank check, (b) shares of Common Stock having a Fair Market Value (determined in the manner provided in Section 4 of the Incentive Plan) equal to the amount of the payment, (c) a note in the amount of the payment containing such terms as are approved by the Program Administrator, or (d) any combination of the foregoing in an aggregate amount equal to the amount of the payment. SECTION 4. STOCK APPRECIATION RIGHTS IN TANDEM WITH INCENTIVE OR SUPPLEMENTAL STOCK OPTIONS. A SAR granted in tandem with an incentive stock option or a supplemental stock option (each, an "Option") shall be on the following terms and conditions: (a) Each SAR shall relate to a specific Option or portion of an Option granted under the Incentive Plan or the Supplemental Plan, as the case may be, and may be granted by the Program Administrator at the same time that the Option is granted or at any time thereafter prior to the last day on which the Option may be exercised. (b) A SAR shall entitle a recipient, upon surrender of the unexpired related Option, or a portion thereof, to receive from the Company an amount equal to the excess of (i) the Fair Market Value (determined in accordance with Section 4 of the Incentive Plan) of the shares of Common Stock which the recipient would have been entitled to purchase on that date pursuant to the portion of the Option surrendered, over (ii) the amount which the recipient would have been required to pay to purchase such shares upon exercise of such Option. (c) A SAR shall be exercisable only for the same number of shares of Common Stock, and only at the same times, as the Option to which it relates. SARs shall be subject to such other terms and conditions as the Program Administrator may specify. (d) A SAR shall lapse at such time as the related Option is exercised or lapses pursuant to the terms of the Program. On exercise of the SAR, the related Option shall lapse as to the number of shares exercised. SECTION 5. NAKED STOCK APPRECIATION RIGHTS. SARs granted by the Program Administrator as naked stock appreciation rights ("Naked Rights") shall be subject to the following terms and conditions: (a) The Program Administrator may award Naked Rights to recipients for periods not exceeding ten years. Each Naked Right shall represent the right to receive the excess of (i) the Fair Market Value of one share of Common Stock (determined in accordance with Section 4 of the Incentive Plan) on the date of exercise of the Naked Right, over (ii) the Fair Market Value of one share of Common Stock (determined in accordance with Section 4 of the Incentive Plan) on the date the Naked Right was awarded to the recipient. (b) Unless otherwise provided by the Program Administrator at the time of award or unless the installment provisions set forth herein are subsequently accelerated pursuant to Article 18 of the General Provisions of the Program or otherwise by the Program Administrator with respect to any one or more 11 previously granted Naked Rights, Naked Rights may only be exercised to the following extent during the following periods of employment or service: MAXIMUM PERCENTAGE OF PERIOD FOLLOWING NAKED RIGHTS WHICH DATE OF GRANT MAY BE PURCHASED ---------------- --------------------- Less than 12 months .......................... 0% 12 months or more and less than 24 months .... 25% 24 months or more and less than 36 months .... 50% 36 months or more and less than 48 months .... 75% 48 months or more ............................ 100% (c) The Naked Rights solely measure and determine the amounts to be paid to recipients upon exercise as provided in Section 5(a). Naked Rights do not represent Common Stock or any right to receive Common Stock. The Company shall not hold in trust or otherwise segregate amounts which may become payable to recipients of Naked Rights; such funds shall be part of the general funds of the Company. Naked Rights shall constitute an unfunded contingent promise to make future payments to the recipient. 12 PLAN IV BARRINGER TECHNOLOGIES INC. PERFORMANCE SHARE PLAN SECTION 1. GENERAL. This Barringer Technologies Inc. Performance Share Plan ("Performance Share Plan") is Part IV of the Company's Program. Unless any provision herein indicates to the contrary, the Performance Share Plan shall be subject to the General Provisions of the Program. SECTION 2. TERMS AND CONDITIONS. The Program Administrator may grant performance shares to any person eligible under Article 4 of the General Provisions. Each performance share grant shall confer upon the recipient thereof the right to receive a specified number of shares of Common Stock of the Company contingent upon the achievement of specified performance objectives within a specified performance objective period including, but not limited to, the recipient's continued employment or service as a consultant through the period set forth in Section 5 of this Performance Share Plan. At the time of an award of a performance share, the Program Administrator shall specify the performance objectives, the performance objective period or periods and the period of duration of the performance share grant. Any performance shares granted under this Plan shall constitute an unfunded promise to make future payments to the affected person upon the completion of specified conditions. SECTION 3. MODE OF PAYMENT. At the discretion of the Program Administrator, payments of performance shares may be made in (a) shares of Common Stock, (b) a check in an amount equal to the Fair Market Value (determined in the manner provided in Section 4 of the Incentive Plan) of the shares of Common Stock to which the performance share award relates, (c) a note in the amount specified above in Section 3(b) containing such terms as are approved by the Program Administrator, or (d) any combination of the foregoing in the aggregate amount equal to the amount specified above in Section 3(b). SECTION 4. PERFORMANCE OBJECTIVE PERIOD. The duration of the period within which to achieve the performance objectives shall be determined by the Program Administrator. The period may not be less than one year nor more than ten years from the date that the performance share is granted. The Program Administrator shall determine whether performance objectives have been met with respect to each applicable performance objective period. Such determination shall be made promptly after the end of each applicable performance objective period, but in no event later than 90 days after the end of each applicable performance objective period. All determinations by the Program Administrator with respect to the achievement of performance objectives shall be final, binding on and conclusive with respect to each recipient. SECTION 5. VESTING OF PERFORMANCE SHARES. Unless otherwise provided by the Program Administrator at the time of grant, or unless the installment provisions set forth herein are subsequently accelerated pursuant to Article 18 of the General Provisions of the Program or otherwise by the Program Administrator, with respect to any one or more previously granted performance shares, the Company shall pay to the recipient on the date set forth in Column 1 below ("Vesting Date") the percentage of the recipient's performance share award set forth in Column 2 below.
COLUMN 1 COLUMN 2 VESTING DATE PERCENTAGE - ------------ ---------- 1 year from Date of Grant...................................... 25% 2 years from Date of Grant..................................... 25% 3 years from Date of Grant..................................... 25% 4 years from Date of Grant..................................... 25%
13 PLAN V BARRINGER TECHNOLOGIES INC. STOCK BONUS PLAN SECTION 1. GENERAL. This Barringer Technologies Inc. Stock Bonus Plan ("Stock Bonus Plan") is Part V of the Company's Program. Unless any provision herein indicates to the contrary, the Stock Bonus Plan shall be subject to the General Provisions of the Program. SECTION 2. TERMS AND CONDITIONS. The Program Administrator may grant bonuses in the form of shares of Common Stock to any person eligible under Article 4 of the General Provisions. Each such stock bonus shall be forfeited by the recipient in the event that the recipient's employment by or service as a director or consultant to the Company or any Subsidiary terminates within the time periods specified in Section 3 of the Stock Bonus Plan or within such other time period as the Program Administrator also may provide at the time of grant. The Program Administrator also may provide at the time of grant that the Common Stock subject to the stock bonus shall be forfeited by the recipient upon the occurrence of other events. SECTION 3. FORFEITURE OF BONUS SHARES. Unless otherwise provided by the Program Administrator at the time of grant, or unless the installment provisions set forth herein are subsequently accelerated pursuant to Article 18 of the General Provisions of the Program or otherwise by the Program Administrator with respect to any one or more previously granted bonus shares, the percentage set forth in Column 2 below of shares of Common Stock issued as a stock bonus shall be forfeited and transferred back to the Company by the recipient without payment of any consideration from the Company if the recipient's employment by or service as a director or consultant to the Company or any Subsidiary is terminated for any reason during the time periods specified in Column 1 below: COLUMN 1 COLUMN 2 EMPLOYMENT OR SERVICE PERCENTAGE OF BONUS TERMINATED WITHIN SHARES WHICH ARE FORFEITABLE --------------------- ---------------------------- First 12 months after grant ........... 100% First 24 months after grant ........... 75% First 36 months after grant ........... 50% First 48 months after grant ........... 25% Beyond 48 months after grant .......... 0% SECTION 4. RIGHTS AS A STOCKHOLDER; STOCK CERTIFICATES. A recipient shall have rights as a stockholder with respect to any shares of Common Stock received as a stock bonus represented by a stock certificate issued in his name even though all or a portion of such shares remains subject to a risk of forfeiture hereunder, except that shares subject to forfeiture shall not be transferable. Stock certificates representing such shares which remain subject to forfeiture together with a related stock power shall be held by the Company, and shall be canceled and returned to the Company's treasury if thereafter forfeited. Stock certificates representing such shares which are vested and no longer subject to forfeiture shall be delivered to the recipient. 14 PLAN VI BARRINGER TECHNOLOGIES INC. INDEPENDENT DIRECTOR PLAN SECTION 1. GENERAL. This Barringer Technologies Inc. Independent Director Plan ("Independent Director Plan") is Part VI of the Company's Program. Any option granted pursuant to this Independent Director Plan shall not be an incentive stock option as defined in Section 422 of the Code. Unless any provision herein indicates to the contrary, this Independent Director Plan shall be subject to the General Provisions of the Program. SECTION 2. TERMS AND CONDITIONS. Every year on the earlier of (i) the date of the Company's annual meeting of stockholders, and (ii) June 1, the Company shall grant to each Independent Director (as defined below) elected as a director at such annual meeting (or nominated for election as a director by the Board of Directors or any nominating committee thereof in the event that such annual meeting does not occur prior to June 1), or, in the event that the Board of Directors is divided into two or more classes, continuing or expected to continue to serve as a director of the Company following such annual meeting, an option to purchase 3,000 shares of Common Stock. As used in the Independent Director Plan, the term "Independent Director" means any member of the Board of Directors who, as of the relevant date of determination, has not been a full-time employee of the Company or any Subsidiary for at least twelve months preceding such date. SECTION 3. DURATION OF OPTIONS. Each option and all rights thereunder granted pursuant to the terms of the Independent Director Plan shall expire five years from the date on which the option is granted. In addition, each option shall be subject to early termination as provided in the Independent Director Plan. SECTION 4. PURCHASE PRICE. The option price with respect to any option granted pursuant to the Independent Director Plan shall be the Fair Market Value (determined in accordance with Section 4 of the Incentive Plan) of the shares of Common Stock to which the option relates. SECTION 5. EXERCISE OF OPTIONS. (a) Options granted under the Independent Director Plan shall become fully exercisable as to 100% of the shares of Common Stock covered thereby one year after the date of grant, subject to acceleration as set forth in Article 18 of the General Provisions of Stock Compensation Program. (b) Except as provided in the General Provisions of Stock Compensation Program, no option may be exercised unless the holder thereof is then a director of the Company. (c) Other than as provided in the General Provisions of Stock Compensation Program, options granted under the Independent Director Plan shall not be affected by any change of duties or position so long as the holder continues to be a director of the Company. EX-10.11 4 LETTER AGREEMENT 1 1730 AIMCO BOULEVARD MISSISSAUGA, ONTARIO CANADA L4W 1V1 TEL: (905)238-8837 FAX:(905)238-3018 EXHIBIT 10.11 [BARRINGER LOGO] 25 July 1997 Mr. Keith Forgues Director General Laboratory and Scientific Service Revenue Canada Customs and Excise 79 Bentley Ave. Ottawa, Ontario K1A OL5 Dear Keith: Reference is hereby made to the Agreement, dated as of February 27, 1989, as amended by Supplement Number 1, dated March 4, 1991, 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 (the "Agreement"), by and between Barringer Instruments Limited ("BIL") and Canadian Patents and Development Limited -- Societe Canadienne des Brevets et D'Exploitation Limitee ("CPDL"). As you are aware, pursuant to an Assignment of Agreement, dated January 2, 1992 (the "Assignment"), CPDL has assigned its rights under the Agreement to Her Majesty the Queen in Right of Canada as represented by the Minister of National Revenue (the "Department"). Capitalized terms used herein have the meanings ascribed thereto in the Agreement unless otherwise defined herein. Pursuant to the Agreement, the Department has granted to Barringer Research Ltd., as the successor to BIL ("BRL"), the 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 to use the Licensed Process, including the right to grant sublicenses thereof to purchasers of Licensed Products (collectively, the "License"), subject to the reservation of certain rights by the Canadian government. Under Section 10.6 of the Agreement and because no patents were ever issued, this exclusive License expires on March 31, 1999 (the "Expiration Date"). As previously discussed by us, the Department hereby grants to BRL the option, exercisable at BRL's discretion, to extend the term of the exclusive License (by extending the Expiration Date thereof) for additional one-year periods; provided, that in no event shall BRL have the right, without the further consent of the Department, to extend the Expiration Date beyond March 31, 2009. BRL shall be deemed to have elected to extend the term of the exclusive License for an additional one-year period unless BRL provides written notice to the Department not less than 30 days prior to the then-current Expiration Date that it elects not to exercise its option to extend the License. Such notice shall be given 2 Page 2 25 July 1997 Mr. Keith Forgues as provided in Section 12 of the Agreement, as modified by the Assignment. During any extension of the License, the terms of the Agreement and BRL's exclusive License shall continue in full force and effect as if the original Expiration Date (and any previous extension thereof) had not occurred. In exchange for the grant of the option referred to above, BRL hereby agrees to the following indemnification of the Crown, which indemnification shall be deemed to be incorporated by reference into the Agreement and the License: BRL 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 BRL or by any of its clients or customers including any infringement or alleged infringement of a patent or invention of any other kind of intellectual property. If the foregoing accurately summarizes our agreement, please so indicate by executing a copy of this letter in the space provided below, at which time this letter agreement will become a binding agreement between BRL and the Department and shall inure to each of BRL and the Department their respective successors and assigns. This letter agreement shall supersede the terms of the letter agreement dated October 7, 1996, between BRL and the Department. This letter agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which shall together constitute one and the same instrument. Yours sincerely, BARRINGER RESEARCH LTD. /s/ John H. Davies - ------------------------- John H. Davies President cc: Dr. A. Lawrence, Revenue Canada Customs and Excise, Ottawa ACCEPTED AND AGREED: Dr. A. Lawrence Aug. 1, 1997 - ------------------------ ------------- Authorized Signatory Date EX-11.1 5 COMPUTAIONS OF EARNINGS PER SHARE 1 Exhibit 11.1 BARRINGER TECHNOLOGIES INC. EARNINGS PER SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PRIMARY PER SHARE ------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------ --------------------------- 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- Income (loss) from continuing operations $ (2,633) $ (1,178) $ 2,059 $ 564 $ 2,220 Income (loss) from operation held for sale 68 351 - - - Preferred dividend requirements (108) (82) (39) (24) (6) Interest adjustment (1) - - - - - ------------ ------------ ------------ ------------ ------------ $ (2,673) $ (909) $ 2,020 $ 540 $ 2,254 ============ ============ ============ ============ ============ Weighted average shares outstanding 2,827 3,283 3,695 3,483 5,423 Assumed exercise of outstanding options and warrants n/a n/a 841 n/a n/a Assumed conversion of preferred stock and convertible subordinated debentures n/a n/a n/a n/a n/a Assumed repurchase (treasury stock method) n/a n/a (315) n/a 753 ------------ ------------ ------------ ------------ ------------ Revised share basis 2,827 3,283 4,221 3,483 6,176 ============ ============ ============ ============ ============ Earnings per share: Continuing operations $ (0.97) $ (0.38) $ 0.48 $ 0.16 $ 0.36 Income from operations held for sale 0.02 0.11 - - - ------------ ------------ ------------ ------------ ------------ Net income (loss) per share $ (0.95) $ (0.28) $ 0.48 $ 0.16 $ 0.36 ============ ============ ============ ============ ============
FULLY-DILUTED PER SHARE ------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------ --------------------------- 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- Income (loss) from continuing operations $ (2,633) $ (1,178) $ 2,059 $ 564 $ 2,260 Income (loss) from operation held for sale 68 351 - - Preferred dividend requirements (108) (82) (39) (6) Interest adjustment (1) - - 27 17 - ------------ ------------ ------------ ------------ ------------ $ (2,673) $ (909) $ 2,047 $ 581 $ 2,254 ============ ============ ============ ============ ============ Weighted average shares outstanding 2,827 3,283 3,694 3,485 5,423 Assumed exercise of outstanding options and warrants n/a n/a 884 958 1,474 Assumed conversion of preferred stock and convertible subordinated debentures n/a n/a 228 105 29 Assumed repurchase (treasury stock method) n/a n/a (199) (694) (538) ------------ ------------ ------------ ------------ ------------ Revised share basis 2,827 3,283 4,607 3,854 6,388 ============ ============ ============ ============ ============ Earnings per share: Continuing operations $ (0.97) $ (0.38) $ 0.44 $ 0.15 $ 0.35 Income from operations held for sale 0.02 0.11 - - - ------------ ------------ ------------ ------------ ------------ Net income (loss) per share $ (0.95) $ (0.28) $ 0.44 $ 0.15 $ 0.35 ============ ============ ============ ============ ============
1) Add back of interest on the 6% Convertible Subordinated Debentures assumed to be converted as of July 10, 1996, the date of issuance of such debentures. EX-23.1 6 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Barringer Technologies Inc. New Providence, New Jersey We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated February 12, 1997, relating to the consolidated financial statements and schedule of Barringer Technologies Inc. which is contained in that Prospectus. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO Seidman, LLP BDO SEIDMAN, LLP Woodbridge, New Jersey August 7, 1997 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1997 JUN-30-1997 3,896 4,055 6,509 157 3,424 19,253 2,408 1,342 20,385 2,839 0 0 116 55 17,254 20,385 9,438 9,438 3,955 3,538 (189) 0 5 2,129 (131) 2,260 0 0 0 2,260 0.36 0.36
-----END PRIVACY-ENHANCED MESSAGE-----