As filed with the Securities and Exchange Commission on November 30, 2005
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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IONATRON, INC.
(Exact name of registrant as specified in its charter)
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Delaware 3590 East Columbia Street 77-0262908
(State or other Tucson, Arizona 85714 (IRS employer
jurisdiction of (520) 628-7415 identification
incorporation or (Address, including zip code, number)
organization) and telephone number, including
area code, of registrant's
principal executive offices)
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Thomas C. Dearmin
Chief Executive Officer
Ionatron, Inc.
3590 East Columbia Street
Tucson, Arizona 85714
(520) 628-7415
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
Robert J. Mittman, Esq.
Brad L. Shiffman, Esq.
Blank Rome LLP
405 Lexington Avenue
New York, New York 10174
Telephone: (212) 885-5000
Facsimile: (212) 885-5001
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
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, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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Proposed
Maximum
Title of each Amount Offering Proposed Amount of
Class of Securities To be Price Per Maximum Aggregate Registration
to be Registered Registered Security(2) Offering Price(2) Fee
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Common stock, par value $0.001 per 2,351,670(3) $10.325 $24,280,992.75 $2,598.07
share (1)
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6.5% Series A Redeemable Convertible 720,000 $25.00 $18,000,000 $1,926.00
Preferred Stock
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Total Fee......................................................................................... $4,524.07
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(1) Includes (i) 2,250,003 shares of common stock issuable upon a conversion
of 6.5% Series A Redeemable Convertible Preferred Stock (the "Series A
Preferred Stock") and which may otherwise be issuable under the
Certificate of Designation of Series A Preferred Stock in connection with
a change of control of the registrant and (ii) 101,667 shares of common
stock issuable upon exercise of outstanding warrants. All of the shares of
Series A Preferred Stock and shares of common stock being registered
hereby are being offered for the accounts of selling stockholders who
acquired the Series A Preferred Stock and warrants in a private placement.
Except as set forth in the footnotes below, no other shares of the
registrant's common stock are being registered pursuant to this offering.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, based upon the
average of the high and low sales prices of the common stock as reported
on the Nasdaq National Market on November 29, 2005.
(3) Pursuant to Rule 416 of the Securities Act of 1933, there are also being
registered hereunder additional shares of common stock as may be issued to
the selling stockholders because of any future stock dividends, stock
distributions, stock splits or similar capital readjustments or other
similar transactions.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
The information in this prospectus is not complete and may be changed.
Securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
DATED NOVEMBER 30, 2005
IONATRON, INC.
2,351,670 Shares of Common Stock
720,000 Shares of 6.5% Series A Redeemable Convertible Preferred Stock
This prospectus relates to up to 2,351,670 shares of the common stock of
Ionatron, Inc. and 720,000 shares of 6.5% Series A Preferred Stock (the "Series
A Preferred Stock") issued in a private placement completed in October 2005,
which have been registered for resale by some of our securityholders pursuant to
this prospectus. The shares of common stock and Series A Preferred Stock may be
offered and sold to the public from time to time.
The common stock and the Series A Preferred Stock may be offered from time
to time by the selling securityholders through ordinary brokerage transactions
in the over-the-counter markets, in negotiated transactions or otherwise, at
market prices prevailing at the time of sale or at negotiated prices and in
other ways as described in the "Plan of Distribution." The shares of common
stock being offered include: (i) an aggregate of up to 2,250,003 shares of
common stock issuable upon conversion of Series A Preferred Stock or otherwise
issuable under the Certificate of Designation of Series A Preferred Stock as
more fully described in this prospectus under the caption "Selling
Securityholders" and (ii) up to 101,667 shares of common stock issuable upon
exercise of outstanding warrants. Ionatron will not receive any of the proceeds
from any sale of common stock by the selling securityholders.
The common stock is listed for trading on the Nasdaq National Market under
the symbol "IOTN". On November 29, 2005, the closing sale price of the common
stock as reported by the Nasdaq National Market was $10.43.
An investment in the common stock is speculative and involves a high
degree of risk. See "Risk Factors" beginning on Page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is _________, 200__.
TABLE OF CONTENTS
Page
Forward-looking Statements........................... 3
The Company.......................................... 4
Risk Factors......................................... 8
Use of Proceeds...................................... 16
Selling Securityholders.............................. 16
Plan of Distribution................................. 19
Indemnification...................................... 20
Legal Matters........................................ 20
Experts.............................................. 20
Where You Can Find More Information.................. 21
Incorporation of Certain Documents
by Reference....................................... 21
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FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus and in the documents incorporated by
reference herein constitute forward-looking statements within the meaning of the
securities laws. Forward-looking statements include all statements that do not
relate solely to the historical or current facts, and can be identified by the
use of forward looking words such as "may", "believe", "will", "expect",
"expected", "project", "anticipate", "anticipated estimates", "plans",
"strategy", "target", "prospects" or "continue". These forward looking
statements are based on the current plans and expectations of our management and
are subject to a number of uncertainties and risks that could significantly
affect our current plans and expectations, as well as future results of
operations and financial condition and may cause our actual results,
performances or achievements to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking
statements. Important factors that could cause our actual results to differ
materially from our expectations include, among others, those set forth under
the caption "Risk Factors." In making these forward-looking statements, we claim
the protection of the safe-harbor for forward-looking statements contained in
the Private Securities Reform Act of 1995. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, there
can be no assurance that such expectations will prove to have been correct. We
do not assume any obligation to update these forward-looking statements to
reflect actual results, changes in assumptions, or changes in other factors
affecting such forward-looking statements.
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The registration statement containing this prospectus, including exhibits
to the registration statement, provides additional information about us and the
common stock and preferred stock offered under this prospectus. The registration
statement can be read at the SEC web site or at the SEC offices mentioned under
the heading "Where You Can Find More Information."
THE COMPANY
Ionatron, was formed on June 3, 2002 to develop and market Directed Energy
Weapon technology products initially for sale to the U.S. Government. The goal
of the Company is to produce products that incorporate our technology initially
for specific U.S. Government customer applications and platforms. Ionatron and
the U.S. Government have entered into several contracts for products and
services as well as Cooperative Research and Development Agreements for joint
research on Laser Induced Plasma Channel ("LIPC") based directed energy weapons.
We expect to offer U.S. Government approved versions of our products for
commercial security applications in the future. During 2003 and 2002, the
Company engaged in research and development and business development activities
culminating in our first U.S. Government contract in September of 2003. During
2004 we demonstrated the laser guided man-made lightning directed energy
technology in the laboratory; demonstrated the technology effects on a variety
of targets both under U.S. Government contract and using internal research and
development funding; delivered a compact laser source specifically designed to
enable the technology under a U.S. Government contract; and commenced a U.S.
Government contract for the development of a system on a mobile platform for
field demonstration and testing. In 2005, we developed a counter IED
("Improvised Explosive Device") vehicle for use in Iraq called the Joint IED
Neutralizer ("JIN"). Our JIN units have been tested by the government and have
been determined to have military utility - which the government requires before
it will consider ordering production units.
Through North Star Power Engineering Inc., a wholly-owned subsidiary
acquired in September 2004, we are involved in the design and manufacture of a
broad range of high voltage equipment for the defense, aerospace,
semi-conductor, and medical industries.
Ionatron incorporated under the laws of the State of Delaware in 2002. On
March 18, 2004, a subsidiary of U.S. House & Garden Inc, a non-operating,
publicly traded company merged into Ionatron, Inc. Ionatron's principal offices
are located at 3590 East Columbia Street, Tucson, Arizona 85714, and its
telephone number is (520) 628-7415.
Unless the context requires otherwise, reference in this prospectus to
"we", "us", "our", "Ionatron" or "Company" refers to Ionatron, Inc.
Recent Developments
Financing
Description of Securities Issued in the Financing
General. On October 27, 2005 we sold an aggregate of 720,000 shares (the
"Shares") of its 6.5% Series A Redeemable Convertible Preferred Stock (the
"Series A Preferred Stock") with a stated value of $25 per share to 16
institutional accredited investors and one accredited investor for aggregate
gross proceeds of $18,000,000 (the "Financing"). The Series A Preferred has a
liquidation preference of $25.00 per Share. The Series A Preferred Stock will
bear dividends at the rate of 6.5% of the liquidation preference per share per
annum, which shall accrue from the date of issuance, and shall be payable
quarterly on February 1, May 1, August 1 and November 1 of each year, commencing
May 1, 2006, to the holders of record at the close of business on the preceding
January 15, April 15, July 15 and October 15, respectively.
The Series A Preferred Stock will rank, with respect to dividend rights
and rights upon liquidation, winding-up or dissolution:
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o junior to all of the existing and future liabilities, whether or not
for borrowed money;
o junior to each class or series of our capital stock the terms of
which expressly provide that it will rank senior to the Series A
Preferred Stock;
o on a parity with any other class or series of our capital stock that
has terms which expressly provide that it will rank on a parity with
the Series A Preferred Stock;
o senior to the Common Stock and each other class or series of capital
stock that has terms which do not expressly provide that it will
rank senior to or on a parity with the Series A Preferred Stock; and
o effectively junior to all of the existing and future liabilities of
existing and future subsidiaries.
Holders of the Series A Preferred Stock will have no voting rights with
respect to such shares except as required by law and except that we may not
create or increase the amount of any class or series of capital stock that ranks
senior to the Series A Preferred Stock or amend its certificate of incorporation
or alter or change any power, preference or special right of the outstanding
Series A Preferred Stock in any manner materially adverse to the interest of the
holders thereof without the consent of the holders of at least two-thirds of the
shares of Series A Preferred Stock then outstanding.
Conversion. Each share of Series A Preferred Stock is convertible at any
time at the option of the holder into a number of shares (the "Conversion
Shares") of common stock equal to the liquidation preference (plus any accrued
and unpaid dividends for periods prior to the dividend payment date immediately
preceding the date of conversion by the holder) divided by the conversion price
(initially $12.00 per share, subject to adjustment in the event of a stock
dividend or split, reorganization, recapitalization or similar event.)
Redemption. We may redeem the Series A Preferred Stock in whole or in part
at any time commencing November 1, 2008 and continuing through October 31, 2010,
upon at least 30 days' notice, at a redemption price, payable in cash, equal to
100% of the liquidation preference of the shares to be redeemed, plus accrued
and unpaid dividends thereon to, but excluding, the redemption date if: (1) the
closing price of the Common Stock has equaled or exceeded 140% of the then
effective conversion price on each of at least 20 trading days within a period
of 30 consecutive trading days ending within five trading days prior to the date
the Company mails the notice of redemption; (2) the Common Stock is listed on a
U.S. national securities exchange or The Nasdaq Stock Market; and (3) a shelf
registration statement covering resales of the Series A Preferred Stock and the
Common Stock issuable upon conversion of the Series A Preferred Stock is
effective on the redemption date, unless registration is no longer required.
In addition, beginning November 1, 2010, we may redeem the Series A
Preferred Stock in whole or in part, upon at least 30 days' notice, at a
redemption price, payable in cash, equal to 100% of the liquidation preference
of the Series A Preferred Stock to be redeemed, plus accrued and unpaid
dividends thereon to, but excluding, the redemption date, if: (1) the Common
Stock is listed on a U.S. national securities exchange or The Nasdaq Stock
Market; and (2) a shelf registration statement covering resales of the Preferred
Stock and the Common Stock issuable upon conversion of the Series A preferred
stock is effective on the redemption date, unless registration is no longer
required.
Repurchase Upon a Change of Control. If a Change of Control (as defined in
the Certificate of Designation of the Series A Preferred Stock (the
"Designation") occurs, the holders of Preferred Stock may require us to purchase
all or part of their outstanding shares of Preferred Stock at a repurchase price
equal to 101% of their liquidation preference, plus accrued and unpaid dividends
thereon to, but excluding, the repurchase date. We will have the option to pay
for these shares either in cash, shares of Common Stock valued at 95% of the
weighted average closing sale price of the Common Stock for the ten-trading day
period ending on the third trading day prior to the date of purchase, or a
combination of cash and shares of Common Stock.
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If a Make Whole Change of Control (defined below) becomes effective prior
to December 11, 2007, holders of Series A Preferred Stock shall be entitled to
receive a make whole premium, payable in shares of Common Stock or in the same
form of consideration into which all or substantially all of the Common Stock
has been converted or exchanged in connection with the Make Whole Change of
Control. The make whole premium is a dollar amount as specified in the
Designation and will be based on the effect date of the Make Whole Change of
Control. Holders of Preferred Stock will not be entitled to the make whole
premium if the per share cash consideration paid to our Common Stock holders for
the related Make Whole Change of Control as determined in accordance with the
Designation is less than $10.34 or greater than $20.68 (which amounts are
subject to adjustment as of any date on which the conversion rate is adjusted).
A "Make Whole Change of Control" means a change of control transaction
involving a merger or consolidation in which we are not the surviving entity,
unless (x) at least 90% of the consideration (excluding cash payments for
fractional shares and cash and cash payments for dissenters' appraisal rights)
in the make whole change of control consists of common stock of a United States
company traded on a U.S. national securities exchange or quoted on the Nasdaq
Stock Market (or will be so quoted or traded when issued or exchanged in
connection with such transaction) and (y) as a result of such transaction or
transactions, the outstanding shares of Series A Preferred Stock become
convertible into such common stock.
Registration Rights
In connection with the Financing, we entered into a registration rights
agreement with each purchaser of Series A Preferred Stock in which the Company
agreed to file a shelf registration statement with the SEC covering the resale
of Shares and the shares of Common Stock issuable upon conversion of the Shares
within 45 days after the closing. We also agreed in the registration rights
agreement to use its best efforts to have the registration statement declared
effective within 150 days, subject to extension in certain circumstances to date
no later than March 31, 2006 and to keep the shelf registration statement
effective for a specified period.
If the shelf registration statement is not timely filed or made effective
or if the prospectus in the registration statement is unavailable for periods in
excess of specified periods (referred to as a "registration default") or we fail
to make a dividend payment within five business days following a dividend
payment date, the dividend rate shall immediately and automatically increase by
1% from 6.5% of the liquidation preference per share of Series A Preferred Stock
to 7.5% of such liquidation preference for as long as such failure continues and
immediately return to 6.5% of the liquidation preference per shares of Series A
Preferred Stock per annum at such time as such failure no longer continues), but
only up to 90 days in the case of a registration default and thereafter in the
case of a registration default if, at such time, the failure is continuing, the
dividend rate shall immediately and automatically further increase to 10% of the
liquidation preference per offered share per annum for as long as such failure
continues and shall immediately and automatically return to 6.5% at such time as
the failure is no longer continuing; and, if a dividend payment default occurs
for two consecutive dividend payment dates, the dividend rate shall immediately
and automatically increase to 10% of the liquidation preference per share of
Series A Preferred Stock per annum until such dividend payment default is no
longer continuing.
Fees
We entered into an agency agreement with J Giordano Securities Group ("J
Giordano"), pursuant to which J Giordano served as placement agent in connection
with the Financing. For serving as placement agent, J Giordano received a
placement agent fee of $1,220,000 and issued to J Giordano five-year warrants to
purchase an aggregate of 101,666 shares of Common Stock (the "Agent Warrants").
The Agent Warrants are exercisable at a price of $12.00 per share and certain a
cashless exercise provision. We granted J Giordano certain registration rights
with respect to the Shares of Common Stock issuable upon exercise of the Agent
Warrants. In addition, if within twelve months following the closing of the
Financing, we sell, directly or indirectly, securities to any purchasers (other
than securities in connection with a working capital loan or facility or project
debt financing), J Giordano will be entitled to receive the same compensation
with respect to such sale of securities as it will receive in connection with
the Financing.
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Use of Proceeds
The net proceeds to us from the Financing, after deducting placement agent
fees and expenses and other expenses were approximately $16.6 million. We used a
portion of the net proceeds from the Financing to repay the $2.8 million
principal amount note payable to our Chairman of the Board under its revolving
credit facility.
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RISK FACTORS
Prospective investors should consider carefully the following risk factors
before purchasing any shares of the common stock offered hereby by the selling
securityholders.
Risk Related to Our Business
We have a history of losses and may not be able to achieve and maintain
profitable operations.
We have incurred net losses since our formation in June 2002, including
net losses of $747,675, $3,242,109, $3,261,005 and $3,719,629 for the period of
inception through December 31, 2002, the years ended December 31, 2003 and 2004,
and the nine months ended September 30, 2005, respectively. Additionally, losses
are continuing to date. Our ability to achieve profitable operations is
dependent upon, among other things, our ability to obtain sufficient government
contracts and to complete the development of products based on our technologies.
We cannot assure you that we will be able to significantly increase our revenues
or achieve and maintain profitability.
Our future success will depend on our ability to develop new technologies
and applications that address the needs of our markets.
Both our defense and commercial markets are characterized by rapidly
changing technologies and evolving industry standards. Accordingly, our future
performance depends on a number of factors, including our ability to:
o identify emerging technological trends in our target markets;
o develop and maintain competitive products;
o enhance our products by improving performance and adding innovative
features that differentiate our products from those of our
competitors;
o develop and manufacture and bring products to market quickly at
cost-effective prices; and
o meet scheduled timetables for the development, certification and
delivery of new products.
We believe that, in order to remain competitive in the future, we will
need to continue to develop new products, which will require the investment of
significant financial and engineering resources. The need to make these
expenditures could divert our attention and resources from other projects, and
we cannot be sure that these expenditures will ultimately lead to the timely
development of new technology. Due to the design complexity of our products, we
may in the future experience delays in completing development and introduction
of new products. Any delays could result in increased costs of development,
deflect resources from other projects or loss of contracts. In addition, there
can be no assurance that the market for our products will develop or continue to
expand as we currently anticipate. The failure of our technology to gain market
acceptance could significantly reduce our revenues and harm our business.
Furthermore, we cannot be sure that our competitors will not develop competing
technologies which gain market acceptance in advance of our products. The
possibility that our competitors might develop new technology or products might
cause our existing technology and products to become obsolete or create
significant price competition. If we fail in our new product development efforts
or our products fail to achieve market acceptance more rapidly than our
competitors, our revenues will decline and our business, financial condition and
results of operations will be negatively affected.
We depend on the U.S. Government for substantially all of our sales, and
the loss of this relationship or a shift in government funding could have severe
consequences on our prospects and financial condition.
Approximately 100%, 99% and 98% of our net sales for the years ended
December 31, 2003 and 2004 and the nine months ended September 30, 2005,
respectively, and were to the U.S. Government and U.S. Government contractors.
Therefore, any significant disruption or deterioration of our relationship with
the U.S. Government would significantly reduce our revenues. Our U.S. Government
programs must compete with programs managed by other defense contractors for a
limited number of programs and for uncertain levels of funding. The development
of our business will depend upon the continued willingness of the U.S.
government agencies to fund existing and new defense programs and, in
particular, to continue to purchase our products and services. Although defense
spending in the United States has recently increased, further increases may not
continue and any proposed budget or supplemental budget request may not be
approved. In addition, the U.S. Department of Defense may not continue to focus
its spending on technologies that we incorporate in our products.
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Our competitors continuously engage in efforts to expand their business
relationships with the U.S. Government which may be at our expense and are
likely to continue these efforts in the future. The U.S. Government may choose
to use other defense contractors for its limited number of defense programs. In
addition, the funding of defense programs also competes with non-defense
spending of the U.S. Government. Budget decisions made by the U.S. Government
are outside of our control and have long-term consequences for the size and
structure of Ionatron. A shift in Government defense spending to other programs
in which we are not involved or a reduction in U.S. Government defense spending
generally could have severe consequences for our results of operations.
The U.S. Government may terminate or modify our existing contracts, which
would adversely affect our revenue.
There are inherent risks in contracting with the U.S. Government,
including risks peculiar to the defense industry, which could have a material
adverse effect on our business, financial condition or results of operations.
Laws and regulations permit the U.S. Government to:
o terminate contracts for its convenience;
o reduce or modify contracts if its requirements or budgetary
constraints change;
o cancel multi-year contracts and related orders if funds for contract
performance for any subsequent year become unavailable;
o shift its spending practices; and
o adjust contract costs and fees on the basis of audits done by its
agencies.
If the U.S. Government terminates our contracts for convenience, we may
only recover our costs incurred or committed for settlement expenses and profit
on work completed before the termination. Additionally, most of our backlog
could be adversely affected by any modification or termination of contracts with
the U.S. Government or contracts the prime contractors have with the U.S.
Government. The U.S. Government regularly reviews our costs and performance on
its contracts, as well as our accounting and general business practices. The
U.S. Government may reduce the reimbursement for our fees and contract-related
costs as a result of an audit. We can give no assurance that one or more of our
Government contracts will not be terminated under these circumstances. Also, we
can give no assurance that we would be able to procure new Government contracts
to offset the revenues lost as a result of any termination of our contracts. As
our revenues are dependent on our procurement, performance and payment under our
contracts, the loss of one or more critical contracts could have a negative
impact on our financial condition.
Our business is subject to various restrictive laws and regulations
because we are a contractor and subcontractor to the U.S. Government.
As a contractor and subcontractor to the U.S. Government, we are subject
to various laws and regulations that are more restrictive than those applicable
to non-government contractors. We are required to obtain and maintain material
governmental authorizations and approvals to run our business as it is currently
conducted. New or more stringent laws or government regulations concerning
government contracts, if adopted and enacted, could have a material adverse
effect on our business.
Generally, government contracts are subject to oversight audits by
government representatives. Responding to governmental audits, inquiries or
investigations may involve significant expense and divert management attention
from regular operations. Our government business is also subject to specific
procurement regulations and a variety of socio-economic and other requirements.
These requirements, although customary in government contracts, increase our
performance and compliance costs. These costs might increase in the future,
reducing our margins, which could have a negative effect on our financial
condition. Failure to comply with these regulations and requirements could lead
to suspension or debarment, for cause, from government contracting or
subcontracting for a period of time. Among the causes for debarment are
violations of various statutes, including those related to:
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o procurement integrity;
o export control;
o government security regulations;
o employment practices;
o protection of the environment;
o accuracy of records and the recording of costs; and
o foreign corruption.
Any of these factors, which are largely beyond our control, could also
negatively impact our financial condition. We also may experience problems
associated with advanced designs required by the government, which may result in
unforeseen technological difficulties and cost overruns. Failure to overcome
these technological difficulties and the occurrence of cost overruns would have
a negative impact on our results.
If we fail to win competitively awarded contracts in the future, we may
experience a reduction in our sales, which could negatively affect our
profitability.
Our North Star subsidiary obtains many of its U.S. Government, U.S.
Government subcontractor and commercial contracts through a competitive bidding
process. We cannot assure you that we will continue to win competitively awarded
contracts or that awarded contracts will generate sales sufficient to result in
our profitability. We are also subject to risks associated with the following:
o the frequent need to bid on programs in advance of the completion of
their design (which may result in unforeseen technological
difficulties and cost overruns);
o the substantial time and effort, including the relatively
unproductive design and development required to prepare bids and
proposals, spent for competitively awarded contracts that may not be
awarded to us;
o design complexity and rapid technological obsolescence; and
o the constant need for design improvement.
Our government contracts may be subject to protest or challenge by
unsuccessful bidders or to termination, reduction or modification in the event
of changes in government requirements, reductions in federal spending or other
factors.
Competition within our markets may reduce our procurement of future
contracts and our sales.
The defense and commercial industries in which we operate are highly
competitive. Our future competitors may range from highly resourceful small
concerns, which engineer and produce specialized items, to large, diversified
firms and defense contractors.. Many of our potential competitors have more
extensive or more specialized engineering, manufacturing and marketing
capabilities and greater financial resources than we do. Consequently, these
competitors may be better suited to take advantage of economics of scale and
devote greater resources to develop new technologies. There can be no assurance
that we can continue to compete effectively with these firms. In addition, some
of our suppliers [and customers] could develop the capability to manufacture
products similar to products that we are developing. This would result in them
competing directly which could significantly reduce our revenues and seriously
harm our business.
There can be no assurance that we will be able to compete successfully
against our current or future competitors or that the competitive pressures we
face will not result in reduced revenues and market share or seriously harm our
business.
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We derive a substantial portion of our revenues from a limited number of
contracts. Therefore, our revenues will be adversely affected if we fail to
receive renewal or follow-on contracts.
Renewal and follow-on contracts are important because our contracts are
typically for fixed terms. These terms vary from shorter than one year to
multi-year, particularly for contracts with options. The typical term of our
contracts with the U.S. government is between one and two years. The loss of
revenues from our possible failure to obtain renewal or follow-on contracts may
be significant because our U.S. government contracts account for a substantial
portion of our revenues.
Our products may fail to perform satisfactorily in field tests at various
stages of development.
Our government customers typically field test our products at various
stages of development. Although we believe our technologies will perform their
ultimately intended applications, many of our products have not been completed
to date. Our success will ultimately depend upon our products meeting
performance criteria established by our customers. Failure of a product to
perform satisfactorily in a field test could result in delay of product
development, cost overruns or even termination of the contract, any of which
could materially effect the development of such product and our prospects,
revenues and final condition.
We depend on component availability, subcontractor performance and our key
suppliers to manufacture and deliver our products and services.
Our manufacturing operations are highly dependent upon the delivery of
materials by outside suppliers in a timely manner. In addition, we depend in
part upon subcontractors to assemble major components and subsystems used in our
products in a timely and satisfactory manner. If these contract manufacturers
are not willing to contract with us on competitive terms or devote adequate
resources to fulfill their obligations to us, or we do not properly manage these
relationships, our existing customer relationships may suffer. In addition, by
undertaking these activities, we run the risks that
o the reputation and competitiveness of our products and services may
deteriorate as a result of the reduction of our control and quality
and delivery schedules and the consequent risk that we will
experience supply interruptions and be subject to escalating costs;
and
o our competitiveness may be harmed by the failure of our contract
manufacturers to develop, implement or maintain manufacturing
methods appropriate for our products and customers.
Moreover, because most of our contracts are with Governmental agencies, we
may be limited in the third parties, we can engage as component manufacturers.
We are dependent for some purposes on sole-source suppliers. If any of
these sole-source suppliers fails to meet our needs, we may not have readily
available alternatives. Our inability to fill our supply needs would jeopardize
our ability to satisfactorily and timely complete our obligations under
government and other contracts. This might result in reduced sales, termination
of one or more of these contracts and damage to our reputation and relationships
with our customers. We cannot be sure that materials, components, and subsystems
will be available in the quantities we require, if at all.
Because the manufacturing process of our products is highly complex,
errors, changes or uncertainties could disrupt production.
The manufacture of our products involve highly complex and precise
processes, requiring production in a highly controlled and clean environment.
Inadvertent or slight changes or uncertainties in our manufacturing processes,
errors or use of defective or contaminated materials, our ability to achieve,
disrupt and delay production and affect product reliability.
Our business could be adversely affected by a negative audit by the U.S.
Government.
U.S. Government agencies such as the Defense Contract Audit Agency, or the
DCAA, routinely audit and investigate government contractors. These agencies
review a contractor's performance under its contracts, cost structure and
compliance with applicable laws, regulations and standards. The DCAA also
reviews the adequacy of, and a contractor's compliance with, its internal
control systems and policies, including the contractor's purchasing, property,
estimating, compensation and management information systems. Any costs found to
be improperly allocated to a specific contract will not be reimbursed, while
such costs already reimbursed must be refunded. If an audit uncovers improper or
illegal activities, we may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts, forfeiture of
profits, suspension of payments, fines and suspension or prohibition from doing
business with the U.S. Government. In addition, we could suffer serious
reputational harm if allegations of impropriety were made against us.
11
Our backlog is subject to reduction and cancellation.
Backlog represents products or services that our customers have committed
by contract to purchase from us, our total funded backlog as of September 30,
2005 was approximately $10,080,000. Backlog is subject to fluctuations and is
not necessarily indicative of future sales. Moreover, cancellations of purchase
orders or reductions of product quantities in existing contracts could
substantially and materially reduce backlog and, consequently, future revenues.
Our failure to replace canceled or reduced backlog could result in lower
revenues.
We depend on the recruitment and retention of qualified personnel, and our
failure to attract and retain such personnel could seriously harm our business.
Due to the specialized nature of our businesses, our future performance is
highly dependent upon the continued services of our key engineering personnel
and executive officers. Our prospects depend upon our ability to attract and
retain qualified engineering, manufacturing, marketing, sales and management
personnel for our operations. Competition for personnel is intense, and we may
not be successful in attracting or retaining qualified personnel. Our failure to
compete for these personnel could seriously harm our business, results of
operations and financial condition.
Because many of our contracts and projects are classified for national
security reasons, we may not be able to provide important information to the
public.
To date, substantially all of our revenues have been derived from
contracts which are classified by the U.S. Government for national security
reasons. Therefore, we are prohibited from filing these contracts as exhibits to
our SEC reports, registration statements and filings or provide more than the
summary information that we provide in our reports, registration statements and
other filings the SEC and in our press releases. Accordingly, investors may not
have important information concerning our businesses and operations with which
to make an informed investment decision.
The U.S. government's right to use technology developed by us limits our
intellectual property rights.
We seek to protect the competitive benefits we derive from our patents,
proprietary information and other intellectual property. However, we do not have
the right to prohibit the U.S. government from using certain technologies
developed or acquired by us or to prohibit third party companies, including our
competitors, from using those technologies in providing products and services to
the U.S. government. The U.S. government has the right to royalty-free use of
technologies that we have developed under U.S. Government contracts. We are free
to commercially exploit those government-funded technologies and may assert our
intellectual property rights to seek to block other non-government users
thereof, but we cannot assure you we could successfully do so,
We are subject to government regulation which may require us to obtain
additional licenses and could limit our ability to sell our products outside the
United States.
We may be unable to adequately protect our intellectual property rights,
which could affect our ability to compete.
Protecting our intellectual property rights is critical to our ability to
compete and succeed as a company. We hold a number of United States and patent
applications, as well as trademark, and registrations which are necessary and
contribute significantly to the preservation of our competitive position in the
market. There can be no assurance that any of these patents or future patent
applications and other intellectual property will not be challenged, invalidated
or circumvented by third parties. In some instances, we have augmented our
technology base by licensing the proprietary intellectual property of others. In
the future, we may not be able to obtain necessary licenses on commercially
reasonable terms. We enter into confidentiality and invention assignment
agreements with our employees, and enter into nondisclosure agreements with our
suppliers and appropriate customers so as to limit access to and disclosure of
our proprietary information. These measures may not suffice to deter
misappropriation or independent third party development of similar technologies.
Moreover, the protection provided to our intellectual property by the laws and
courts of foreign nations may not be as advantageous to us as the remedies
available under United States law.
12
We may face claims of infringement of proprietary rights.
There is a risk that a third party may claim our products infringe on
their proprietary rights. Whether or not our products infringe on proprietary
rights of third parties, infringement or invalidity claims may be asserted or
prosecuted against us and we could incur significant expense in defending them.
If any claims or actions are asserted against us, we may be required to modify
our products or obtain licenses on commercially reasonable terms, in a timely
manner or at all. Our failure to do so could adversely affect our business.
Our operations expose us to the risk of material environmental
liabilities.
We are also subject to increasingly stringent laws and regulations that
impose strict requirements for the proper management, treatment, storage and
disposal of hazardous substances and wastes, restrict air and water emissions
from our testing and manufacturing operations, and require maintenance of a safe
workplace, These laws and regulations can impose substantial fines and criminal
sanctions for violations, and require the installation of costly pollution
control equipment or operational changes to limit pollution emissions and/or
decrease the likelihood of accidental hazardous substance releases. We incur,
and expect to continue to incur, substantial capital and operating costs to
comply with these laws and regulations. In addition, new laws and regulations,
stricter enforcement of existing laws and regulations, the discovery of
previously unknown contamination or the imposition of new clean-up requirements
could require us to incur costs in the future that would have a negative effect
on our financial condition or results of operations.
The unpredictability of our results may harm the trading price of our
securities, or contribute to volatility.
Our operating results may vary significantly over time for a variety of
reasons, many of which are outside of our control, and any of which may harm our
business. The value of our securities may fluctuate as a result of
considerations that are difficult to forecast, such as:
o the size and timing of contract receipt and funding;
o changes in U.S. Government policies and government budgetary
policies;
o termination or expiration of a key government contract;
o our ability and the ability of our key suppliers to respond to
changes in customer orders;
o timing of our new product introductions and the new product
introductions of our competitors;
o adoption of new technologies and industry standards;
o competitive factors, including pricing, availability and demand for
competing products fluctuations in foreign currency exchange rates;
o conditions in the capital markets and the availability of project
financing;
o regulatory developments;
o general economic conditions;
o changes in the mix of our products;
o cost and availability of components and subsystems; and
o price erosion.
13
Our management holds a majority of our outstanding voting stock and has
control over stockholder matters.
As of November 29, 2005, our management owned approximately 65% of our
outstanding common stock. Accordingly, they can exert significant influence over
matters, which require stockholder vote, including the election of directors,
amendments to our Certificate of Incorporation or approval of the dissolution,
merger, or sale of Ionatron, our subsidiaries or substantially all of our
assets. This concentration of ownership and control by management could delay or
prevent a change in our control or other action, even when a change in control
or other action might be in the best interests of other stockholders.
A large number of shares of our common stock could be sold in the market
in the near future, which could depress our stock price.
As of November 29, 2005, we had outstanding approximately 72 million
shares of common stock. A substantial portion of our shares are currently freely
trading without restriction under the Securities Act of 1933, having been held
by their holders for over two years and are eligible for sale under Rule 144(k).
There are currently outstanding options to purchase approximately 34 million
shares of our common stock, most of which have an average exercise price of
substantially below our current market price. To the extent any of our options
are exercised, your percentage ownership will be diluted and our stock price
could be further adversely affected. Moreover, as the underlying shares are
sold, the market price could drop significantly if the holders of these
restricted shares sell them or if the market perceives that the holders intend
to sell these shares..
Provisions of our corporate charter documents could delay our prevent
change of control.
Our Certificate of Incorporation authorizes our board of directors to
issue up to 1,000,000 shares of "blank check" preferred stock without
stockholder approval, in one or more series and to fix the dividend rights,
terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges, and
restrictions applicable to each new series of preferred stock. In addition, our
Certificate of Incorporation divides our board of directors into three classes,
serving staggered three-year terms. At least two annual meetings, instead of
one, will be required to effect a change in a majority of our board of directors
We also have a rights agreement, commonly known as a "poison pill" in place
which provides that in the event an individual or entity becomes a beneficial
holder of 12% or more of the shares of our capital stock, without the approval
of the board of directors, our other stockholders shall have the right to
purchase shares of our (or in some cases the acquiror's) common stock from us at
50% of its then market value. The designation of preferred stock in the future,
the classification of our board of directors, its three classes and the rights
agreement could make it difficult for third parties to gain control of our
company, prevent or substantially delay a change in control, discourage bids for
our common stock at a premium, or otherwise adversely affect the market price of
our common stock.
Risks Related to the Transaction
There is currently no public market for the preferred shares, and an
active trading market may not develop for them. The failure of a market to
develop for the preferred shares could adversely affect the liquidity and value
of your preferred shares.
The Series A Preferred Stock is a new issue of securities, and there is no
existing market for the preferred shares. A market may not develop for the
Series A Preferred Stock, and if a market does develop, it may not be
sufficiently liquid for your purposes. If an active, liquid market does not
develop for the Series A Preferred Stock, the market price and liquidity of the
Series A Preferred Stock may be adversely affected. If any shares of the Series
A Preferred Stock are traded after their initial issuance, they may trade at a
discount from the initial offering price.
The liquidity of the trading market, if any, and future trading prices of
the preferred stock will depend on many factors, including, among other things,
the market price of our common stock, our ability to register the resale of the
preferred stock, our operating results, financial performance and prospects, the
market for similar securities and the overall securities market, and may be
adversely affected by unfavorable changes in these factors. The market for the
preferred shares may be subject to disruptions, which could have a negative
effect on the holders of the preferred shares, regardless of our operating
results, financial performance or prospects.
14
The price of our common stock, and therefore of the Series A Preferred
Stock, may fluctuate significantly; and this may make it difficult for you to
resell the preferred shares when you want or at prices you find attractive.
The price of our common stock on the Nasdaq Stock Market constantly
changes. We expect that the market price of our common stock will continue to
fluctuate. In addition, because the preferred shares are convertible into our
common stock, volatility or depressed prices for our common stock could have a
similar effect on the trading price of the Series A Preferred Stock.
Our ability to pay dividends on the Series A Preferred Stock and our
common stock is limited.
Under the Delaware General Corporation Law, we may pay dividends, in cash
or otherwise, only if we have surplus in an amount at least equal to the amount
of the relevant dividend payment. Any payment of cash dividends will depend upon
our financial condition, capital requirements, earnings and other factors deemed
relevant by our board of directors. Further, future agreements could restrict
our ability to pay cash dividends.
The Series A Preferred Stock ranks junior to all of our liabilities as
well as the liabilities of our subsidiaries.
The ranking of the Series A Preferred Stock with respect to the payment of
dividends and upon liquidation, dissolution or winding up may prevent us from
paying cash dividends. The Series A Preferred Stock ranks junior in right of
payment to all of our existing and further liabilities. In the event that we do
not have sufficient funds to pay both our debt service and accrued dividends on
the Series A Preferred Stock, we will first limit or stop payment such dividends
to holders of Series A Preferred Stock until all amounts due on our liabilities
are paid. In the event of our bankruptcy, liquidation or winding-up, our assets
will be available to pay the liquidation preference of, and accrued dividends
on, the Series A Preferred Stock only after all our indebtedness and other
liabilities have been paid. In addition, the Series A Preferred Stock
effectively ranks junior to all existing and future liabilities of our
subsidiaries and the capital stock (other than common stock) of our subsidiaries
held by third parties. The rights of holders of the Series A Preferred Stock to
participate in the assets of our subsidiaries upon any liquidation or
reorganization of any subsidiary will rank junior to the prior claims of that
subsidiary's creditors and equity holders. In the event of our bankruptcy,
liquidation or winding-up, there may not be sufficient assets remaining to pay
amounts due on any or all of the Series A Preferred Stock then outstanding.
We may not be able to pay the purchase price of the Series A Preferred
Stock upon a change of control if the holders exercise their right to require us
to purchase such securities.
If we undergo a change of control, subject to limited exceptions, we will
be required to offer to purchase the Series A Preferred Stock at a purchase
price equal to 101% of the then liquidation preference, plus accrued and unpaid
dividends, plus the make whole premium, if applicable. Any of our future debt
agreements may contain a similar provision. We may not have sufficient funds to
make the required repurchase in cash at such time or the ability to arrange
necessary financing on acceptable terms. In addition, our ability to repurchase
the Series A Preferred Stock in cash may be limited by law or the terms of other
agreements relating to our debt outstanding at the time. Important corporate
events, such as takeovers, recapitalizations or similar transactions, may not
constitute a designated event under the Certificate of Designation governing the
Series A Preferred Stock and thus not permit the holders of the Series A
Preferred Stock to require us to repurchase or redeem their Series A Preferred
Stock shares.
Holders of the Series A Preferred Stock will have no rights as a common
stockholder until they acquire our common stock.
Until holders of Series A Preferred Stock acquire shares of our common
stock upon conversion of the Series A Preferred Stock they will have no rights
with respect to our common stock, including voting rights (except as required by
applicable state law or our certificate of incorporation), rights to respond to
tender offers and rights to receive any dividends or other distributions on our
common stock.
15
USE OF PROCEEDS
We will not receive any proceeds from any sales of shares of common stock
made from time to time hereunder by the selling securityholders. Any proceeds we
receive from the exercise of warrants for cash will be added to our working
capital. We have agreed to bear the expenses in connection with the registration
of the common stock being offered hereby by the selling securityholders.
SELLING SECURITYHOLDERS
The following table sets forth information as of November 30, 2005, with
respect to the securityholders for which shares are being registered for sale.
The table below assumes for calculating each selling securityholder's
beneficial percentage ownership that options, warrants and/or convertible
securities that are held by such selling securityholder (but not held by any
other selling securityholder or person) and are exercisable or convertible
within 60 days from the date of this prospectus have been exercised or
converted. The table also assumes the sale of all of the shares registered for
sale by the selling securityholder pursuant to this prospectus.
Number of Number of Shares
Shares of Number of Shares of Preferred
Common Stock of Common Stock Stock
Beneficially Shares of Beneficially Shares of Beneficially % of Voting Stock
Owned Prior to Common Stock Owned After the Preferred Stock Owned After the Beneficially Owned
Selling Securityholders the Offering Being Offered Offering Being Offered Offering After the Offering
----------------------- -------------- ------------- ---------------- --------------- --------------- ------------------
Clarion Capital 41,667 62,500 (2) 0 20,000 0 *
Corporation (1)
Alki Fund Ltd. (3) 316,667 25,000 (2) 300,000 8,000 0 *
Alki Partners L.P. (3) 325,000 37,500 (2) 300,000 12,000 0 *
Artis Technology 35,107 3,032 (2) 33,086 970 0 *
Partners, L.P. (4)
Artis Technology 2X, L.P. 51,191 4,875 (2) 47,921 1,560 0 *
(4)
Artis Technology Partners 791,474 67,782 (2) 746,286 21,560 0 *
Ltd. (5)
Artis Technology 2X Ltd. 1,020,043 105,219 (2) 949,897 33,670 0 1.3%
(5)
Artis Technology 442,536 43,157 (2) 413,765 13,810 0 *
Qualified 2X, L.P. (4)
Artis Technology 280,125 25,938 (2) 262,833 8,300 0 *
Qualified Partners, L.P.
(4)
Omicron Master Trust (6) 83,333 125,000 (2) 0 40,000 0 *
Ellsworth Convertible 125,000 187,500 (2) 0 60,000 0 *
Growth & Income Fund,
Inc.
Bancroft Convertible 125,000 187,500 (2) 0 60,000 0 *
Fund, Inc.
16
Number of Number of Shares
Shares of Number of Shares of Preferred
Common Stock of Common Stock Stock
Beneficially Shares of Beneficially Shares of Beneficially % of Voting Stock
Owned Prior to Common Stock Owned After the Preferred Stock Owned After the Beneficially Owned
Selling Securityholders the Offering Being Offered Offering Being Offered Offering After the Offering
----------------------- -------------- ------------- ---------------- --------------- --------------- ------------------
SDS Capital Group SPC, 25,000 37,500 (2) 0 12,000 0 *
Ltd. (7)
Vicis Capital Master Fund 500,000 750,000 (2) 0 240,000 0 *
(8)
Heller Capital 41,667 62,500 (2) 0 20,000 0 *
Investments, LLC (9)
Alexandra Global Master 333,333 500,000 (2) 0 160,000 0 *
Fund, Ltd.
Trinity Pass L.P. (10) 16,667 25,000 (2) 0 8,000 0 *
J Giordano Securities 54,709 54,709 (13) 0 0 0 *
Group (12)
Richard T. Cunniffe 7,000 7,000 0 0 0 *
Justin Figari 1,175 1,175 0 0 0 *
Alan Kleinman 3,800 3,800 0 0 0 *
Mark Behrman 20,733 20,733 0 0 0 *
James R. Brenits 8,000 8,000 0 0 0 *
John Drummond 3,750 3,750 0 0 0 *
David Adams Stichter 2,500 2,500 0 0 0 *
----------
* Less than 1%
1. The selling securityholder has advised us that the natural person that has
voting and dispositive power over the securities is Morton A. Cohen,
Chairman of the selling securityholder.
2. Reflects (i) the number of shares of common stock issuable upon conversion
of Series A Preferred Stock, and/or as payment of the purchase price upon
redemption of the Series A Preferred Stock in conjunction with certain
changes of control and (ii) an additional number of shares of common stock
equal to 50% of the number of shares of common stock issuable upon
conversion of the Series A Preferred Stock held by the selling
securityholder which may be issued as payment of dividends upon the Series
A Preferred Stock and/or as payment of the purchase price upon any such
redemption of the Series A Preferred Stock.
3. The selling securityholder has advised us that Scott Willfong is the
general partner of the selling securityholder.
4. The selling securityholder has advised us that the natural person that has
voting and dispositive power over the securities is Stuart L. Peterson,
the sole owner of Artis Capital Management, Inc., which is the sole member
of Artis Capital Management, LLC, which is the general partner of the
selling securityholder.
5. The selling securityholder has advised us that the natural person that has
voting and dispositive power over the securities is Stuart L. Peterson,
the sole owner of Artis Capital Management, LLC, which is the investment
advisor and attorney-in-fact of the selling securityholder.
17
6. Omicron Capital, L.P., a Delaware limited partnership ("Omicron Capital"),
serves as investment manager to Omicron Master Trust, a trust funned under
the laws of Bermuda (`Omicron"), Omicron Capital, Inc., a Delaware
corporation ("OCI"), serves as general partner of Omicron Capital, and
Winchester Global Trust Company Limited ("Winchester') serves as the
trustee of Omicron. By reason of such relationships, Omicron Capital and
OCI may be deemed to share dispositive power over the shares of our common
stock owned by Omicron, and Winchester may be deemed to share voting and
dispositive power over the shares of our common stock owned by Omicron.
Omicron Capital, OCI and Winchester disclaim beneficial ownership of such
shares of our common stock. Omicron Capital has delegated authority from
the board of directors of Winchester regarding the portfolio management
decisions with respect to the shares of common stock owned by Omicron and,
as of such date. Mr. Olivier H. Morali and Mr. Bruce T. Bernstein,
officers of OCI, have delegated authority from the board of directors of
OCI regarding the portfolio management decisions of Omicron Capital with
respect to the shares of common stock owned by Omicron. By reason of such
delegated authority, Messrs. Morali and Bernstein may be deemed to share
dispositive power over the shares of our common stock owned by Omicron,
Messrs. Morali and Bernstein disclaim beneficial ownership of such shares
of our common stock and neither of such persons has any legal right to
maintain such delegated authority. No other person has sole or shared
voting or dispositive power with respect to the shares of our common stock
being offered by Omicron, as those terms an used for purposes under
Regulation 13D-G of the Securities Exchange Act of 1934, as amended.
Omicron and Winchester are not "affiliates" of one another, as that term
is used for purposes of the Securities Exchange Act of 1934, as amended,
or of any other person named in this prospectus as a selling
securityholder. No person or "group" (as that term is used in Section
13(d) of the Securities Exchange Act of 1934, at amended, or the SEC's
Regulation 13D-G) controls Omicron and Winchester.
7. The selling securityholder has advised us that the natural person that has
voting and dispositive power over the securities is Steve Derby, the
managing member of SDS Management, LLC, which is the investment manager of
the selling securityholder.
8. The selling securityholder has advised us that the natural persons that
have voting and dispositive power over the securities are John Succo, Sky
Lucas and Shad Stastney, each a member of Vicis Capital, LLC, which is the
investment manager of the selling securityholder.
9. The selling securityholder has advised us that Ronald Heller is the
general partner of the selling securityholder.
10. The selling securityholder has advised us that an affiliate of the selling
securityholder is the placement agent for our Financing. The selling
securityholder has also advised us that the natural person that has voting
and dispositive power over the securities is James Giordano who is a
member of Giordano & Company LLC, which is the general partner of the
selling securityholder.
11. The selling securityholder has advised us that the natural person that has
voting and dispositive power over the securities is James Giordano.
12. The selling securityholder acted as placement agent for our Financing.
13. Represents shares of common stock available upon exercise of warrants.
18
PLAN OF DISTRIBUTION
The selling securityholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of our common stock and the Series A Preferred Stock on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. The selling
securityholders may use any one or more of the following methods when selling
shares:
o ordinary brokerage transactions and transactions in which the
broker/dealer solicits purchasers;
o block trades in which the broker/dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker/dealer as principal and resale by the
broker/dealer for its account;
o an exchange distribution in accordance with the Rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales;
o broker/dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling securityholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker/dealers engaged by the selling securityholders may arrange for
other brokers/dealers to participate in sales. Broker/dealers may receive
commissions from the selling securityholders (or, if any broker/dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling securityholders do not expect these commissions to
exceed what is customary in the types of transactions involved.
The selling securityholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock and Series A
Preferred Stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the
shares of common stock and Series A Preferred Stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
selling securityholders to include the pledgee, transferee or other successors
in interest as selling securityholders under this prospectus.
The selling stockholders and any broker/dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker/dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions under the Securities Act. The selling securityholders have informed
Ionatron that they do not have any agreement or understanding, directly or
indirectly, with any person to distribute Ionatron common stock.
Ionatron is required to pay all fees and expenses incident to the
registration of the shares. Ionatron has agreed to indemnify the selling
securityholders who purchased securities in the Financing against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
19
INDEMNIFICATION
Sections 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director.
Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit director's liability to the corporation and its stockholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may affect
a director's liability with respect to any of the following: (i) breaches of the
director's duty of loyalty to the corporation or its stockholders; (ii) acts or
omissions not made in good faith or which involve intentional misconduct of
knowing violations of law; (iii) liability for dividends paid or stock
repurchased or redeemed in violation of the Delaware General Corporation Law; or
(iv) any transaction from which the director derived an improper personal
benefit. Section 102(b)(7) does not authorize any limitation on the ability of
the corporation or its stockholders to obtain injunctive relief, specific
performance or other equitable relief against directors.
Article Ninth of Ionatron's Certificate of Incorporation and Article XVIII
of Ionatron's By-laws provide that all persons who the registrant is empowered
to indemnify pursuant to the provisions of Section 145 of the General
Corporation Law of the State of Delaware (or any similar provision or provisions
of applicable law at the time in effect), shall be indemnified by Ionatron to
the full extent permitted thereby. The foregoing right of indemnification shall
not be deemed to be exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise.
Article Tenth of Ionatron's Certificate of Incorporation provides that no
director of Ionatron shall be personally liable to Ionatron or its stockholders
for any monetary damages for breaches of fiduciary duty as a director, provided
that this provision shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the registrant or its
stockholders; (ii) for acts or omissions in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the General Corporation Law of the State of Delaware; or (iv) for any
transaction from which the director derived an improper personal benefit.
LEGAL MATTERS
The legality of the shares of common stock offered hereby was passed upon
for Ionatron, Inc. by Blank Rome LLP, New York, New York.
EXPERTS
The financial statements incorporated by reference to Ionatron, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 2004 in this
Prospectus have been audited by BDO Seidman, LLP, an independent registered
public accounting firm, to the extent and for the periods set forth in their
reports incorporated herein by reference, and are incorporated herein in
reliance upon such reports given upon the authority of said firm as experts in
auditing and accounting.
20
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and we file reports and other information with the SEC.
You may read and copy any of the reports, statements, or other information
we file with the SEC at the SEC's Public Reference Section at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The SEC maintains a Web site at http://www.sec.gov that contains
reports, proxy statements and other information regarding issuers that file
electronically with the SEC. The Nasdaq Stock Market maintains a Web site at
http://www.nasdaq.com that contains reports, proxy statements and other
information filed by us.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed with the SEC, Washington, D.C., a registration statement on
Form S-3 under the Securities Act of 1933, covering the securities offered by
this prospectus. This prospectus does not contain all of the information that
you can find in our registration statement and the exhibits to the registration
statement. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance such statement is qualified by reference to each such contract or
document filed or incorporated by reference as an exhibit to the registration
statement.
The SEC allows us to "incorporate by reference" the information we file
with them. This means that we can disclose important information to you by
referring you to other documents that are legally considered to be part of this
prospectus, and later information that we file with the SEC will automatically
update and supersede the information in this prospectus and the documents listed
below. We incorporate by reference the documents listed below, and any future
filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until the selling stockholders sell all the
shares.
The following documents previously filed by Ionatron with the Securities
and Exchange Commission are incorporated herein by reference and shall be deemed
a part of this prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
2004;
(b) Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 2005, June 30, 2005 and September 30, 2005;
(c) Current Report on Form 8-K filed with the SEC on July 5, 2005;
(d) Current Report on Form 8-K filed with the SEC on October 28, 2005.
(e) The description of our common stock contained in our Registration
Statement on Form 8-A dated March 4, 1992, together with any
amendment or report filed with the SEC for the purpose of updating
the description; and
(f) All documents filed by Ionatron pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of the initial
registration statement and prior to the effectiveness of the
registration statement.
All documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, after the date of this prospectus and
before the termination of the offering of the securities hereby shall be deemed
to be incorporated by reference in this prospectus and to be a part of this
prospectus on the date of filing of the documents. Any statement incorporated in
this prospectus shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus or
in any other subsequently filed document which also is, or is deemed to be,
incorporated by reference in this prospectus modifies or supersedes the
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus or the
registration statement of which it is a part.
21
This prospectus incorporates documents by reference with respect to
Ionatron that are not presented herein or delivered herewith. These documents
are available without charge to any person, including any beneficial owner of
our securities, to whom this prospectus is delivered, upon written or oral
request to Corporate Secretary, Ionatron, Inc., 3590 East Columbia Street,
Tucson, Arizona 85714, telephone: (520) 628-7415.
We have not authorized anyone else to provide you with information
different from that contained or incorporated by reference in this prospectus.
This prospectus is not an offer to sell nor is it a solicitation of an offer to
buy any security in any jurisdiction where the offer or sale is not permitted.
Neither the delivery of this prospectus nor any sale made under this prospectus
shall, under any circumstances, imply that there has been no change in our
affairs since the date of this prospectus or that the information contained in
this prospectus or incorporated by reference herein is correct as of any time
subsequent to its date.
We have not authorized any dealer, sales person or any other person to
give any information or to represent anything not contained in this prospectus.
You must not rely on any unauthorized information. This prospectus does not
offer to sell or buy any securities in any jurisdiction where it is unlawful.
22
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*.
The following are the estimated expenses of the issuance and distribution
of the securities being registered, all of which will be paid by the Registrant:
SEC registration fee.............................................. $4,524.07
Legal fees and expenses........................................... 20,000
Accounting fees and expenses...................................... 10,000
Miscellaneous..................................................... 15,475.93
---------
Total............................................................. $50,000.00
==========
--------------
* All amounts are estimated except the first item.
Item 15. Indemnification of Directors and Officers.
Sections 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director.
Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit director's liability to the corporation and its stockholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may affect
a director's liability with respect to any of the following: (i) breaches of the
director's duty of loyalty to the corporation or its stockholders; (ii) acts or
omissions not made in good faith or which involve intentional misconduct of
knowing violations of law; (iii) liability for dividends paid or stock
repurchased or redeemed in violation of the Delaware General Corporation Law; or
(iv) any transaction from which the director derived an improper personal
benefit. Section 102(b)(7) does not authorize any limitation on the ability of
the corporation or its stockholders to obtain injunctive relief, specific
performance or other equitable relief against directors.
Article Ninth of the Registrant's Certificate of Incorporation and Article
XVIII of the Registrant's By-laws provide that all persons who the registrant is
empowered to indemnify pursuant to the provisions of Section 145 of the General
Corporation Law of the State of Delaware (or any similar provision or provisions
of applicable law at the time in effect), shall be indemnified by the Registrant
to the full extent permitted thereby. The foregoing right of indemnification
shall not be deemed to be exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise.
Article Tenth of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be personally liable to the Registrant
or its stockholders for any monetary damages for breaches of fiduciary duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the registrant or its stockholders; (ii) for acts or omissions in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the General Corporation Law of the State of Delaware; or (iv) for
any transaction from which the director derived an improper personal benefit.
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Item 16. Exhibits
(a) Exhibits
Exhibit Number Description
-------------- -----------
5.1 Opinion of Blank Rome LLP as to the legality of the securities
being registered
23.1 Consent of BDO Seidman LLP
23.3 Consent of Blank Rome LLP, included in opinion filed as
Exhibit 5.1
24 Power of Attorney, included in the signature page of this
Registration Statement
--------------
* Previously filed
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act.
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and offering therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the offering.
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(b) 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. 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.
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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 of filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, in the City of Tucson,
State of Arizona, on the 29th day of November 2005.
IONATRON, INC.
By: /s/Thomas C. Dearmin
--------------------
Thomas C. Dearmin
Chief Executive Officer and President
Each person whose signature appears below hereby authorizes each of Thomas
C. Dearmin and Stephen A. McCommon or either of them as his true and lawful
attorney-in-fact with full power of substitution to execute in the name and on
behalf of each person, individually and in each capacity stated below, and to
file, any and all amendments to this Registration Statement, including any and
all post-effective amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 was signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Robert Howard Chairman and Director November 29, 2005
-----------------
Robert Howard
/s/ Thomas C. Dearmin Chief Executive Officer, President, Chief Financial November 29, 2005
---------------------
Thomas C. Dearmin Officer and Director (principal executive and financial
officer)
/s/ Stephen McCommon Vice President of Finance and Chief Accounting Officer November 29, 2005
--------------------
Stephen McCommon (principal accounting officer)
/s/ George P. Farley Director November 27, 2005
--------------------
George P. Farley
/s/ James K. Harlan Director November 29, 2005
-------------------
James K. Harlan
/s/ David C. Hurley Director November 29, 2005
-------------------
David C. Hurley
/s/ Thomas W. Steffens Director November 28, 2005
----------------------
Rear Admiral Thomas W. Steffens
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