EXHIBIT 99
LUNA TECHNOLOGIES INTERNATIONAL, INC.
Shares Common Stock
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS".
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.
This Prospectus relates to shares of this common stock of Luna
Technologies International, Inc. (the "Company") which may be issued pursuant to
certain employee incentive plans adopted by the Company. The employee incentive
plans provide for the grant, to selected employees of the Company and other
persons, of either stock bonuses or options to purchase shares of the Company's
common stock. Persons who receive shares pursuant to the Plans and who are
offering such shares to the public by means of this Prospectus are referred to
as the "Selling Shareholders".
The Company has an Incentive Stock Option Plan, a Non-Qualified Stock
Option Plan and a Stock Bonus Plan. In some cases the plans described above are
collectively referred to as the "Plans". The terms and conditions of any stock
bonus and the terms and conditions of any options, including the price of the
shares of common stock issuable on the exercise of options, are governed by the
provisions of the respective Plans and the stock bonus or stock option
agreements between the Company and the Plan participants.
The Selling Shareholders may offer the shares from time to time in
negotiated transactions in the over-the-counter market, at fixed prices which
may be changed from time to time, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Shareholders may effect such transactions by selling the
Shares to or through securities broker/dealers, and such broker/dealers may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Shareholders and/or the purchasers of the Shares for whom such
broker/dealers may act as agent or to whom they sell as principal, or both
(which compensation as to a particular broker/dealer might be in excess of
customary commissions). See "Selling Shareholders" and "Plan of Distribution".
The Company's common stock is quoted on the OTC Bulletin Board under the
symbol "LTII." On October 17, 2005 the closing bid price for one share of the
Company's common stock was $0.22.
The date of this Prospectus is October __, 2005.
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. The Company has agreed to bear all
expenses (other than underwriting discounts, selling commissions and fees and
expenses of counsel and other advisers to the Selling Shareholders). The Company
has agreed to indemnify the Selling Shareholders against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith, files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Proxy statements, reports and other information concerning the
Company can be inspected and copied, at prescribed rates, at Room 1024 of the
Commission's office at 100 F Street, NE, Washington, D.C. 20549. Certain
information concerning the Company is also available at the Internet Web Site
maintained by the Securities and Exchange Commission at www.sec.gov. The Company
has filed with the Commission a Registration Statement on Form S-8 (together
with all amendments and exhibits thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Act"), with respect to the
securities offered hereby. This Prospectus does not contain all information set
forth in the Registration Statement of which this Prospectus forms a part and
exhibits thereto which the Company has filed with the Commission under the
Securities Act and to which reference is hereby made.
DOCUMENTS INCORPORATED BY REFERENCE
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner, upon the written
or oral request of such person, a copy of any or all of the documents
incorporated by reference herein (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into this Prospectus).
Requests should be directed to:
Luna Technologies International, Inc.
61A Fawcett Road
Coquitlam, British Columbia
Canada V3K 6V2
(888) 955-8883
Attention: Secretary
The following documents filed with the Commission by the Company
(Commission File No. 0-26947) are hereby incorporated by reference into this
Prospectus:
(1) Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004.
2
(2) Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005.
(3) Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005.
All documents filed with the Commission by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering registered hereby
shall be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for the purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
3
TABLE OF CONTENTS
PAGE
THE COMPANY...................................................
RISK FACTORS .................................................
COMPARATIVE SHARE DATA .......................................
USE OF PROCEEDS ..............................................
SELLING SHAREHOLDERS .........................................
PLAN OF DISTRIBUTION .........................................
DESCRIPTION OF COMMON STOCK ..................................
EXPERTS.......................................................
GENERAL ......................................................
4
THE COMPANY
The Company was incorporated on March 25, 1999 in Delaware to develop,
manufacture and sell photoluminescent products (High Performance
Photoluminescent Lighting) used for emergency lighting, signs and markings,
wayfinding systems and novelty products with applications in marine, commuter,
rail, subway, building and toy markets. The Company conducts business in Canada
through its wholly-owned Canadian subsidiary, Luna Technologies (Canada) Ltd.
Although many people associate the word "photoluminescence" with
"glow-in-the-dark" toys and novelties, in the lighting industry,
photoluminescent products such as marker tapes and signs are commonly used to
delineate emergency escape routes and danger areas, and to mark equipment,
pipes, tools and working and accident prevention clothing.
Most photoluminescent products are composed of inorganic pigments that can
be incorporated into paint, plastic films, enamels, and flexible and rigid
molded plastics. Typical products include adhesive vinyl tapes, rigid polyvinyl
chloride (PVC) marker strips, and silk-screened plastic signage.
Photoluminescent enamel-coated sheet metal and ceramic products are also
available.
The main pigment commonly used in photoluminescent glow-type products is a
zinc sulphide compound emitting a yellowish-green light. This material performs
well when subjected to high ambient lighting levels but the decay rate is rather
rapid. Strontium Aluminate is more expensive than zinc sulphide and takes
slightly longer to charge, but can "store" more light, making it much more
suitable for use in locations where ambient light levels are low. Strontium
Aluminate also offers much brighter and longer-lasting photoluminescence. The
decay curve for strontium-based products is measured in hours as opposed to
minutes for zinc-based items.
The Company's product, Lunaplast, uses Strontium Aluminate as a pigment,
which is up to 20 x times brighter than commercial zinc sulphide products, and
is clearly visible after many hours of total darkness.
During the year ended December 31, 2004 the Company had sales of $537,165.
During the six months ended June 30, 2005 the Company had sales of $338,474.
During the year ended December 31, 2004 one customer accounted for 43% of
the Company's gross revenues. During the six months ended June 30, 2005 two
customers accounted for 76% of the Company's gross revenues. The loss of either
of these customers would have a material adverse effect on the Company.
The Company's executive offices are located at 61-A Fawcett Road,
Coquitlam, British Columbia, Canada V3K 6V2. The Company's telephone number is
(888) 955-8883, its facsimile number is (604) 526-8995, its email address is
info@lunaplast.com, and its web page address is www.lunaplast.com.
5
RISK FACTORS
The securities being offered hereby are highly speculative and prospective
investors should consider, among others, the following factors related to the
business, operations and financial position of the Company.
History of Losses: The Company has never earned a profit. From the date of its
incorporation and through June 30, 2005 the Company had cumulative losses of
$(2,658,204). The Company expects to incur additional losses for an indefinite
period thereafter. No assurance can be given that the Company's products will be
manufactured and marketed successfully, or that the Company will ever earn a
profit.
Offering Proceeds - Need for Additional Capital. This offering is being made on
behalf of certain selling shareholders. The Company will not receive any
proceeds from the sale of the shares offered by the selling shareholders. The
Company will need additional capital in order to fund its operations. There can
be no assurance that the Company will be able to obtain any additional funding
which it may require.
Technological Change: The field in which the Company is involved may undergo
rapid and significant technological change. The successful marketing of the
Company's products will depend on its ability to be in the technological
forefront of this field. There can be no assurance that the Company will achieve
or maintain such a competitive position or that other technological developments
will not cause the Company's proprietary technologies to become uneconomical or
obsolete.
No Patent Protection: The Company's technology is not protected by any patent.
Accordingly, there is no assurance that others may not acquire or independently
develop the same or similar technology.
Dependence on Management: The Company is dependent upon the services and
experience of its officers. The loss of the services of any officer could
adversely affect the conduct of the Company's business.
Limited Market for Common Stock: There is, at present, only a limited market for
the Company's common stock and there is no assurance that this market will
continue. Trades of the Company's common stock are subject to Rule 15g-9 of the
Securities and Exchange Commission, which rule imposes certain requirements on
broker/dealers who sell securities subject to the rule to persons other than
established customers and accredited investors. For transactions covered by the
rule, brokers/dealers must make a special suitability determination for
purchasers of the securities and receive the purchaser's written agreement to
the transaction prior to sale. The Securities and Exchange Commission also has
rules that regulate broker/dealer practices in connection with transactions in
"penny stocks". Penny stocks generally are equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in that security is provided by the
exchange or system). The penny stock rules require a broker/dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
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standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker/dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker/dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker/dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation. These disclosure requirements have the effect
of reducing the level of trading activity in the secondary market for the
Company's common stock. As a result of the foregoing, investors may find it
difficult to sell their shares.
Dividends: The payment of dividends on the common stock rests with the
discretion of the Board of Directors. Payment of dividends is contingent upon,
among other things, future earnings, if any, and the financial condition of the
Company, capital requirements, general business conditions, and other factors
which cannot now be predicted. There can be no assurance that the future
operations of the Company will be profitable or that dividends will ever be paid
by the Company
Preferred Stock: The Company's Articles of Incorporation permit the Company's
Board of Directors to issue up to 5,000,000 shares of Preferred Stock. The
provisions of the Company's Articles of Incorporation relating to the Preferred
Stock allow the Company's directors to issue Preferred Stock with multiple votes
per share and dividend rights which would have priority over any dividends paid
with respect to the Company's common stock. The issuance of Preferred Stock with
such rights may make the removal of management difficult even if such removal
would be considered beneficial to shareholders generally, and will have the
effect of limiting shareholder participation in certain transactions such as
mergers or tender offers if such transactions are not favored by incumbent
management.
USE OF PROCEEDS
All of the shares offered by this Prospectus are being offered by certain
owners of the Company's common stock (the Selling Shareholders) and were issued
by the Company in connection with the Company's Incentive Stock Option,
Non-Qualified Stock Option or Stock Bonus Plans. None of the proceeds from the
sale of the shares offered by this Prospectus will be received by the Company.
Expenses expected to be incurred by the Company in connection with this offering
are estimated to be approximately $10,000. The Selling Shareholders have agreed
to pay all commissions and other compensation to any securities broker/dealers
through whom they sell any of the Shares.
7
SELLING SHAREHOLDERS
The Company has issued (or may in the future issue) shares of its common
stock to various persons pursuant to certain employee incentive plans adopted by
the Company. The Company has an Incentive Stock Option Plan, a Non-Qualified
Stock Option Plan and a Stock Bonus Plan. In some cases these Plans are
collectively referred to as the "Plans". A summary description of these Plans
follows. The Plans provide for the grant, to selected employees of the Company
and other persons, of either stock bonuses or options to purchase shares of the
Company's common stock.
Incentive Stock Option Plan. The Company's Incentive Stock Option Plan
authorizes the issuance of shares of the Company's Common Stock to persons that
exercise options granted pursuant to the Plan. Only Company employees may be
granted options pursuant to the Incentive Stock Option Plan.
Non-Qualified Stock Option Plan. The Company's Non-Qualified Stock Option
Plan authorizes the issuance of shares of the Company's Common Stock to persons
that exercise options granted pursuant to the Plans. The Company's employees,
directors, officers, consultants and advisors are eligible to be granted options
pursuant to the Plans, provided however that bona fide services must be rendered
by such consultants or advisors and such services must not be in connection with
the offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by the Company's Board of Directors.
Stock Bonus Plan. The Company's Stock Bonus Plan allows for the issuance
of shares of Common Stock to the Company's employees, directors, officers,
consultants and advisors, provided however that bona fide services must be
rendered by consultants or advisors and such services must not be in connection
with the offer or sale of securities in a capital-raising transaction.
Summary
The following sets forth certain information as of October 18, 2005
concerning the stock options and stock bonuses granted by the Company pursuant
to the Plans. Each option represents the right to purchase one share of the
Company's common stock.
Total Shares Remaining
Shares Reserved for Shares Options/
Reserved Outstanding Issued As Shares
Name of Plan Under Plans Options Stock Bonus Under Plans
- ------------ ----------- ------------ ----------- -----------
Incentive Stock Option Plan 750,000 340,000 N/A 105,000
Non-Qualified Stock Option
Plan 10,850,000 776,825 N/A 9,016,505
Stock Bonus Plan 1,650,000 N/A 877,812 772,188
The Company's officers, directors and other persons listed below have
received options or shares of the Company's common stock as a stock bonus:
8
Incentive Stock Options
Shares Expiration Options Expired/
Subject Exercise Date of Date of Exercised as of
Option Holder To Option Price Grant Option October 18, 2005
- ------------- --------- -------- ------- ---------- ----------------
Robert Kaul 340,000 (1) 8/08/05 8/08/10 --
Employee 5,000 $0.50 3/04/03 3/04/04 5,000
Consultant 300,000 $0.23 10/07/04 10/07/06 300,000
-------
305,000
(1) The greater of $0.30 or the average of the immediately preceding ten day
closing prices of the Company's common stock.
Non-Qualified Stock Options
Shares Expiration Options Expired/
Subject Exercise Date of Date of Exercised as of
Option Holder To Option Price Grant Option October 18, 2005
- ------------- --------- -------- ------- ---------- ----------------
Scott Bullis 52,800 $0.35 07/26/04 08/26/07 --
Scott Bullis 6,400 $0.75 07/26/04 08/26/07 --
Scott Bullis 400,000 $0.35 07/26/04 08/26/07 --
Scott Bullis 200,000 $0.50 07/26/04 08/26/07 --
Kimberly Landry 359,000 $0.04 10/06/04 11/04/04 359,000
KimberlyLandry 130,000 $0.04 10/06/04 11/18/04 130,000
Kimberly Landry 11,000 $0.04 10/06/04 10/06/14 --
Other employees and
consultants 674,295 $0.05/$0.50 * * 567,670
--------- ---------
1,833,495 1,056,670
========= =========
* Various dates
Stock Bonuses
Shares Issued
Name as Stock Bonus Date Issued
- ---- -------------- -----------
Kimberly Landry 205,000 10/04/04
Robert Humber 100,000 10/04/04
Douglas Sinclair 175,000 10/04/04
Kimberly Landry 20,000 12/31/04
Kimberly Landry 10,000 01/25/05
Other employees and consultants 367,812 Various dates
--------
877,812
========
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Selling Shareholders
- --------------------
Officers, directors and affiliates of the Company who may acquire shares
of common stock pursuant to the Plans, and who are offering these shares of
common stock to the public by means of this Prospectus, are referred to as the
"Selling Shareholders".
The following table provides certain information concerning the share
ownership of the Selling Shareholders and the shares offered by the Selling
Shareholders by means of this Prospectus.
Number of
Shares to
Number of Number of Shares be Beneficially
Shares Being Offered owned on Com- Percent
Name of Selling Beneficially Option Bonus pletion of the of
Shareholder Owned Shares(1) Shares(2) Offering Class
- --------------- ------------ --------- --------- -------------- -------
Kimberly Landry 2,130,000 11,000 235,000 1,895,000 20%
Scott Bullis -- 659,200 -- -- --
Robert Kaul -- 340,000 -- -- --
(1) Represents shares issuable upon exercise of stock options granted pursuant
to the Plans.
(2) Represents shares granted as a stock bonus.
To allow the Selling Shareholders to sell their shares when they deem
appropriate, the Company has filed a Form S-8 registration statement under the
Securities Act of 1933, of which this Prospectus forms a part, with respect to
the resale of the shares from time to time in the over-the-counter market or in
privately negotiated transactions.
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the Shares offered by this Prospectus
from time to time in negotiated transactions in the over-the-counter market at
fixed prices which may be changed from time to time, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Shareholders may effect such transactions by
selling the Shares to or through broker/ dealers, and such broker/dealers may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Shareholders and/or the purchasers of the Shares for which such
broker/dealers may act as agent or to whom they may sell, as principal, or both
(which compensation as to a particular broker/ dealer may be in excess of
customary compensation).
The Selling Shareholders and any broker/dealers who act in connection with
the sale of the Shares hereunder may be deemed to be "underwriters" within the
meaning of ss.2(11) of the Securities Acts of 1933, and any commissions received
by them and profit on any resale of the Shares as principal might be deemed to
be underwriting discounts and commissions under the Securities Act. The Company
has agreed to indemnify the Selling Shareholders and any securities
10
broker/dealers who may be deemed to be underwriters against certain liabilities,
including liabilities under the Securities Act as underwriters or otherwise.
The Company has advised the Selling Shareholders that they and any
securities broker/dealers or others who may be deemed to be statutory
underwriters will be subject to the Prospectus delivery requirements under the
Securities Act of 1933. The Company has also advised each Selling Shareholder
that in the event of a "distribution" of the shares owned by the Selling
Shareholder, such Selling Shareholder, any "affiliated purchasers", and any
broker/ dealer or other person who participates in such distribution may be
subject to Rule 102 under the Securities Exchange Act of 1934 ("1934 Act") until
their participation in that distribution is completed. A "distribution" is
defined in Rule 102 as an offering of securities "that is distinguished from
ordinary trading transactions by the magnitude of the offering and the presence
of special selling efforts and selling methods". The Company has also advised
the Selling Shareholders that Rule 101 under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of the Common Stock in connection with this offering.
Rule 102 makes it unlawful for any person who is participating in a
distribution to bid for or purchase stock of the same class as is the subject of
the distribution. If Rule 102 applies to the offer and sale of any of the
Shares, then participating broker/dealers will be obligated to cease
market-making activities nine business days prior to their participation in the
offer and sale of such Shares and may not recommence market-making activities
until their participation in the distribution has been completed. If Rule 102
applies to one or more of the principal market makers in the Company's Common
Stock, the market price of such stock could be adversely affected. See "RISK
FACTORS".
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 30,000,000 shares of common stock.
Holders of common stock are entitled to cast one vote for each share held of
record on all matters presented to shareholders. Cumulative voting is not
allowed, which allows the holders of a majority of the outstanding common stock
to elect all directors.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available for the
payment of dividends and, in the event of liquidation, to share pro rata in any
distribution of the Company's assets after payment of liabilities. The board is
not obligated to declare a dividend. It is not anticipated that dividends will
be paid in the foreseeable future.
Holders of common stock do not have preemptive rights to subscribe to
additional shares issued by the Company
The shares of common stock offered by this prospectus are fully paid and
non-assessable.
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Preferred Stock
- ---------------
The Company's Articles of Incorporation authorize the issuance of up to
5,000,000 shares of preferred stock. The Company's Board of Directors have the
authority to issue the preferred stock from time to time, with such
designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, qualifications, limitations, or
restrictions thereof as they determine, within the limitations provided by
statute.
The provisions in the Company's Certificate of Incorporation relating to
the preferred stock will allow the Company's directors to issue preferred stock
with multiple votes per share and dividend rights which would have priority over
any dividends paid with respect to the Company's common stock. The issuance of
preferred stock with such rights may make the removal of management difficult
even if such removal would be considered beneficial to shareholders generally,
and will have the effect of limiting shareholder participation in certain
transactions such as mergers or tender offers if such transactions are not
favored by incumbent management.
Transfer Agent
- --------------
Corporate Stock Transfer
3200 Cherry Creek Drive South
Suite 430
Denver, CO 80209
Telephone Number (303) 282-4800
Facsimile Number (303) 282-5800
LEGAL PROCEEDINGS
The Company is not involved in any pending or threatened legal proceeding.
EXPERTS
The financial statements as of December 31, 2004 and for each of the two
years in the period ended December 31, 2004 incorporated by reference in this
prospectus from the Company's annual report on Form 10-KSB have been audited by
Dale Matheson Carr-Hilton Labonte, independent registered public accountants, as
stated in their report dated March 31, 2005 which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of Dale
Matheson Carr-Hilton Labonte given upon their authority as experts in accounting
and auditing.
GENERAL
The Delaware General Corporation Law provides that the Company may
indemnify its directors and officers against expense and liabilities they incur
to defend, settle or satisfy any civil or criminal action brought against them
as a result of their being or having been Company directors or officers unless,
in any such action, they have acted with gross negligence or willful misconduct.
Officers and Directors are not entitled to be indemnified for claims or losses
resulting from a breach of their duty of loyalty to the Company, for acts or
12
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law or a transaction from which the director derived an improper
personal benefit. Insofar as indemnification for liabilities arising under the
Securities Act of l933 may be permitted to the Company's directors and officers,
the Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of l933, and is, therefore, unenforceable.
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus in connection with this offering and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the selling shareholders. This prospectus does not constitute
an offer to sell, or a solicitation of any offer to buy, the securities offered
in any jurisdiction to any person to whom it is unlawful to make an offer or
solicitation. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the affairs of L.A.M. since the date hereof or that any
information contained herein is correct as to any time subsequent to its date.
All dealers effecting transactions in the registered securities, whether
or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
13
PLAN PROSPECTUS
Luna Technologies International, Inc.
61A Fawcett Road
Coquitlam, British Columbia
Canada V3K 6V2
(888) 955-8883
COMMON STOCK
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus relates to shares of the common stock of the Company (the
"Company") issuable pursuant to certain employee incentive plans adopted by the
Company. The employee incentive plans provide for the grant, to selected
employees of the Company and other persons, of either stock bonuses or options
to purchase shares of the Company's Common Stock. The employee incentive plans
benefit the Company by giving selected employees and other persons having a
business relationship with the Company a greater personal interest in the
success of the Company.
Shares of Common Stock reserved under the Company's Incentive Stock Option
Plan are offered to those employees of the Company who hold options (or may in
the future hold options) to purchase such shares granted by the Company pursuant
to its Incentive Stock Option Plan.
Shares of Common Stock reserved under the Company's Non-Qualified Stock
Option Plan are offered to those persons who hold options (or may in the future
hold options) to purchase such shares granted by the Company pursuant to its
Non-Qualified Stock Option Plan.
Shares of Common Stock reserved under the Stock Bonus Plan are offered to
those persons granted shares of Common Stock pursuant to the Company's Stock
Bonus Plans.
This document constitutes part of a Prospectus covering securities that
have been registered under the Securities Act of 1933.
The date of this Prospectus is October __, 2005.
1
The Company's Incentive Stock Option Plan, Non-Qualified Stock Option Plan
and Stock Bonus Plan are sometimes collectively referred to in this Prospectus
as "the Plans". The terms and conditions of any stock bonus and the terms and
conditions of any options, including the price of the shares of Common Stock
issuable on the exercise of options, are governed by the provisions of the
respective Plans and the stock bonus or stock option agreements between the
Company and the Plan participants.
Offers or resales of shares of Common Stock acquired under the Plan by
"affiliates" of the Company are subject to certain restrictions under the
Securities Act of l933. See "RESALE OF SHARES BY AFFILIATES".
No person has been authorized to give any information, or to make any
representations, other than those contained in this Prospectus, in connection
with the shares offered by this Prospectus, and if given or made, such
information or representations must not be relied upon. This Prospectus does not
constitute an offering in any state or jurisdiction to any person to whom it is
unlawful to make such offer in such state or jurisdiction.
The Company's Common Stock is traded on the OTC Bulletin Board under the
symbol "LTII".
With respect to the Company's Plans, the shares to which this prospectus relates
will be sold from time to time by the Company when and if options granted
pursuant to the Plans are exercised. In the case of shares issued by the Company
pursuant to the Stock Bonus Plan, the shares will be deemed to be sold when the
shares have been granted by the Company
2
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION 4DOCUMENTS INCORPORATED BY REFERENCE..........4
GENERAL INFORMATION...................................................4
INCENTIVE STOCK OPTION PLAN...........................................7
NON-QUALIFIED STOCK OPTION PLANS......................................8
STOCK BONUS PLANS.....................................................10
OTHER INFORMATION REGARDING THE PLANS.................................10
ADMINISTRATION OF THE PLANS...........................................11
RESALE OF SHARES BY AFFILIATES........................................12
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLANS.....................12
DESCRIPTION OF COMMON STOCK...........................................12
EXPERTS...............................................................12
EXHIBITS:
Each Plan referred to in this Prospectus.
3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of l934 and in accordance therewith files reports, proxy
statements, and other information with the Securities and Exchange Commission.
Such reports, proxy statements, and other information concerning the Company can
be inspected at the Commission's office at 100 F Street, NE., Washington, D.C.
20549. Copies of such material can be obtained from the Public Reference Section
of the Commission, Washington, D.C. 20549 at prescribed rates. Certain
information concerning the Company is also available at the Internet Web Site
maintained by the Securities and Exchange Commission at www.sec.gov.
All documents incorporated by reference, as well as other information
concerning the Plans, other than exhibits to such reports and documents, are
available, free of charge to holders of shares or options granted pursuant to
the Plans, upon written or oral request directed to: the Company 61A Fawcett
Rd., Coquitlam, British Columbia, Canada, V3K 6V2, telephone: (888) 955-8883.
This Prospectus does not contain all information set forth in the
Registration Statement, of which this Prospectus is a part, which the Company
has filed with the Commission under the Securities Act of l933 and to which
reference is hereby made. Each statement contained in this Prospectus is
qualified in its entirety by such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission are incorporated by reference in this Registration
Statement:
(1) Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004.
(2) Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005.
(3) Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005.
All reports and documents subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, prior
to the filing of a post-effective amendment to this Registration Statement of
which this Prospectus is a part which indicates that all securities offered
hereby have been sold or which deregisters all securities then remaining unsold,
shall be deemed to be incorporated by reference in this Prospectus and to be a
part thereof from the date of filing of such reports or documents.
The Company does not intend to update this Prospectus in the future unless
and until there is a material change in the information contained herein.
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GENERAL INFORMATION
The Company has an Incentive Stock Option Plan, a Non-Qualified Stock
Option Plan and a Stock Bonus Plan. In some cases the plans described above are
collectively referred to as the "Plans". The terms and conditions of any stock
bonus and the terms and conditions of any options, including the price of the
shares of Common Stock issuable on the exercise of options, are governed by the
provisions of the respective Plans and the stock bonus or stock option
agreements between the Company and the Plan participants.
A summary of the Company's Plans follows.
Incentive Stock Option Plan. The Company's Incentive Stock Option Plan
authorizes the issuance of shares of the Company's Common Stock to persons that
exercise options granted pursuant to the Plan. Only Company employees may be
granted options pursuant to the Incentive Stock Option Plan.
Non-Qualified Stock Option Plan. The Company's Non-Qualified Stock Option
Plan authorizes the issuance of shares of the Company's Common Stock to persons
that exercise options granted pursuant to the Plan. The Company's employees,
directors, officers, consultants and advisors are eligible to be granted options
pursuant to the Plan, provided however that bona fide services must be rendered
by such consultants or advisors and such services must not be in connection with
the offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by the Board of Directors.
Stock Bonus Plan. The Company has a Stock Bonus Plan which allows for the
issuance of shares of Common Stock to the Company's employees, directors,
officers, consultants or advisors, provided however that bona fide services must
be rendered by consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction.
Summary.
The following sets forth certain information as of October 18, 2005
concerning the stock options and stock bonuses granted by the Company pursuant
to the Plans. Each option represents the right to purchase one share of the
Company's common stock.
Total Shares Remaining
Shares Reserved for Shares Options/
Reserved Outstanding Issued As Shares
Name of Plan Under Plans Options Stock Bonus Under Plans
- ------------ ----------- ------------ ----------- -----------
Incentive Stock Option Plan 750,000 340,000 N/A 105,000
Non-Qualified Stock Option
Plan 10,850,000 776,825 N/A 9,016,505
Stock Bonus Plan 1,650,000 N/A 877,812 772,188
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The Company's officers, directors and the persons listed below have
received options or shares of the Company's common stock as a stock bonus:
Incentive Stock Options
Shares Expiration Options Expired/
Subject Exercise Date of Date of Exercised as of
Option Holder To Option Price Grant Option October 18, 2005
- ------------- --------- -------- ------- ---------- ----------------
Robert Kaul 340,000 (1) 8/08/05 8/08/10 --
Employee 5,000 $0.50 3/04/03 3/04/04 5,000
Consultant 300,000 $0.23 10/07/04 10/07/06 300,000
-------
305,000
(1) The greater of $0.30 or the average of the immediately preceding ten day
closing prices of the Company's common stock.
Non-Qualified Stock Options
Shares Expiration Options Expired/
Subject Exercise Date of Date of Exercised as of
Option Holder To Option Price Grant Option October 18, 2005
- ------------- --------- -------- ------- ---------- ----------------
Scott Bullis 52,800 $0.35 07/26/04 08/26/07 --
Scott Bullis 6,400 $0.75 07/26/04 08/26/07 --
Scott Bullis 400,000 $0.35 07/26/04 08/26/07 --
Scott Bullis 200,000 $0.50 07/26/04 08/26/07 --
Kimberly Landry 359,000 $0.04 10/06/04 11/04/04 359,000
KimberlyLandry 130,000 $0.04 10/06/04 11/18/04 130,000
Kimberly Landry 11,000 $0.04 10/06/04 10/06/14 --
Other employees and
consultants 674,295 $0.05/$0.50 * * 567,670
---------- ----------
1,833,495 1,056,670
========= =========
* Various dates
Stock Bonuses
Shares Issued
Name as Stock Bonus Date Issued
- ---- -------------- -----------
Kimberly Landry 205,000 10/04/04
Robert Humber 100,000 10/04/04
Douglas Sinclair 175,000 10/04/04
Kimberly Landry 20,000 12/31/04
Kimberly Landry 10,000 01/25/05
Other employees and consultants 367,812 Various dates
--------
877,812
========
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INCENTIVE STOCK OPTION PLAN
Securities to be Offered and Persons Who May Participate in the Plan
- --------------------------------------------------------------------
All employees of the Company are eligible to be granted options pursuant
to the Incentive Stock Option Plan as may be determined by the Company's Board
of Directors that administers the Plan.
Options granted pursuant to the Plan will terminate at such time as may be
specified when the option is granted.
The total fair market value of the shares of Common Stock (determined at
the time of the grant of the option) for which any employee may be granted
options which are first exercisable in any calendar year may not exceed
$l00,000.
In the discretion of the Board of Directors options granted pursuant to
the Plan may include installment exercise terms for any option such that the
option becomes fully exercisable in a series of cumulating portions. The Board
of Directors may also accelerate the date upon which any option (or any part of
any option) is first exercisable. However, no option, or any portion thereof may
be exercisable until one year following the date of grant. In no event shall an
option granted to an employee then owning more than l0% of the Common Stock of
the Company be exercisable by its terms after the expiration of five years from
the date of grant, nor shall any other option granted pursuant to the Plan be
exercisable by its terms after the expiration of ten years from the date of
grant.
Purchase of Securities Pursuant to the Plan
- -------------------------------------------
The purchase price per share of common stock purchasable under an option
is determined by the Company's Board of Directors but cannot be less than the
fair market value of the Common Stock on the date of the grant of the option (or
110% of the fair market value in the case of a person owning more than 10% of
the Company's outstanding shares). An option may be exercised, in whole or in
part, at any time, or in part, from time to time, during the option period, by
giving written notice of exercise to the Board of Directors at the Company's
offices specifying the number of shares to be purchased, such notice to be
accompanied by payment in full of the purchase price either by a payment of
cash, bank draft or money order payable to the Company At the discretion of the
Board of Directors payment of the purchase price for shares of Common Stock
underlying options may be paid through the delivery of shares of the Company's
Common Stock having an aggregate fair market value equal to the option price,
provided such shares have been owned by the option holder for at least one year
prior to such exercise. A combination of cash and shares of Common Stock may
also be permitted at the discretion of the Board of Directors. No shares shall
be issued until full payment has been made. An optionee shall have the rights of
a stockholder only with respect to shares of stock for which certificates have
been issued. Under no circumstances may an option be exercised after the
expiration of the option.
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Tax Aspects of Incentive Stock Options Granted Under the Plan (U.S. Taxpayers
Only)
- --------------------------------------------------------------------------------
Options granted under the Plan will be incentive stock options within the
meaning of Section 422 of the Internal Revenue Code (the "Code") and will be
subject to the provisions of the Code. Generally, if Common Stock of the Company
is issued to an employee pursuant to an option granted as described below, and
if no disqualifying disposition of such shares is made by such employee within
one year after the transfer of such shares to him or within two years after the
date of grant: (a) no income will be realized by the employee at the time of the
grant of the option; (b) no income will be realized by the employee at the date
of exercise; (c) when the employee sells such shares, any amount realized in
excess of the option price will be taxed as a long-term capital gain and any
loss sustained will be a long-term capital loss; and (d) no deduction will be
allowed to the Company for federal income tax purposes. Generally, if any
disqualifying disposition of such shares is made by an employee within one year
after the transfer of such shares to him, or within two years after the date of
grant, the difference between the amount paid for the shares upon exercise of
the option and the fair market value of the shares on the date the option was
exercised will be taxed as ordinary income in the year the disqualifying
disposition occurs and the Company will be allowed a deduction for such amount.
However, if such disqualifying disposition is a sale or exchange for which a
loss would have been recognized (if sustained), the amount taxed to the employee
as ordinary income (and deductible by the Company) will be limited to the excess
of the amount realized upon such sale or exchange over the amount paid for the
shares where such excess is less than the amount referred to in the preceding
sentence. This limitation does not apply to a disposition of the type as to
which losses (if sustained) are not recognized as deductible losses for income
tax purposes, e.g., a gift, a sale to certain related persons or a so-called
"wash" sale (a sale within 30 days before or after the acquisition of the
Company's shares or the receipt of an option or the entering into a contract to
buy the Company's shares). If the shares are sold in a disqualifying disposition
during such one-year period and the amount realized is in excess of the fair
market value of the shares at the time of exercise, such excess will be taxed as
a long-term or short-term capital gain depending upon the holding period.
An employee who exercises an incentive stock option may be subject to the
alternative minimum tax since the difference between the option price and the
fair market value of the stock on the date of exercise is an item of tax
preference. However, no item of preference will result if a disqualifying
disposition is made of the optioned stock.
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NON-QUALIFIED STOCK OPTION PLAN
Securities to be Offered and Persons Who May Participate in the Plan
- --------------------------------------------------------------------
The Company's employees, directors and officers, and consultants or
advisors to the Company are eligible to be granted options pursuant to the
Non-Qualified Stock Option Plan as may be determined by the Company's Board of
Directors that administers the Plan, provided however that bona fide services
must be rendered by such consultants or advisors and such services must not be
in connection with the offer or sale of securities in a capital-raising
transaction.
Options granted pursuant to the Plan not previously exercised will
terminate at such other time as may be specified when the option is granted.
In the discretion of the Board of Directors options granted pursuant to
the Plan may include installment exercise terms for any option such that the
option becomes fully exercisable in a series of cumulating portions. The Board
of Directors may also accelerate the date upon which any option (or any part of
any option) is first exercisable. In no event shall an option be exercisable by
its terms after the expiration of ten years from the date of grant.
Purchase of Securities Pursuant to the Plan
- -------------------------------------------
The purchase price per share of common stock purchasable under an option
is determined by the Company's Board of Directors. An option may be exercised,
in whole or in part, at any time, or in part, from time to time, during the
option period, by giving written notice of exercise to the Board of Directors at
the Company specifying the number of shares to be purchased, such notice to be
accompanied by payment in full of the purchase price either by a payment of
cash, bank draft or money order payable to the Company At the discretion of the
Board of Directors payment of the purchase price for shares of Common Stock
underlying options may be paid through the delivery of shares of the Company's
Common Stock having an aggregate fair market value equal to the option price,
provided such shares have been owned by the option holder for at least one year
prior to such exercise. A combination of cash and shares of Common Stock may
also be used at the discretion of the Board of Directors. No shares shall be
issued until full payment has been made. An optionee shall have the rights of a
stockholder only with respect to shares of stock for which certificates have
been issued. Under no circumstances may an option be exercised after the
expiration of the option.
Tax Aspects of Options Granted Under the Plan (U.S. Taxpayers Only)
- -------------------------------------------------------------------
The difference between the option price and the market value of the shares
on the date the option is exercised is taxable as ordinary income to an Optionee
at the time of exercise and to the extent such difference does not constitute
unreasonable compensation is deductible by the Company at that time. Gain or
loss on any subsequent sale of shares received through the exercise of an option
will be treated as capital gain or loss.
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Since the amount of income realized by an Optionee on the exercise of an
option under the Plans represents compensation for services provided to the
Company, the Company may be required to withhold income taxes from the
Optionee's income even though the compensation is not paid in cash. To withhold
the appropriate tax on the transfer of the shares, the Company will (i) reduce
the number of shares issued or distributed to reflect the necessary withholding,
(ii) withhold the appropriate tax from other compensation due to the Optionee,
or (iii) condition the transfer of any shares to the Optionee on the payment to
the Company of an amount equal to the taxes required to be withheld.
STOCK BONUS PLAN
Securities to be Offered and Persons Who May Participate in the Plan
- --------------------------------------------------------------------
Under the Stock Bonus Plan, the Company's employees, directors and
officers, and consultants or advisors to the Company will be eligible to receive
a grant of the Company's shares, provided however that bona fide services must
be rendered by such consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction. The aggregate number of shares which may be granted may not exceed
the amount available in the Bonus Share Reserve. The grant of the Company's
shares rests entirely with the Company's Board of Directors administering the
Plan. It is also left to the Board of Directors to decide the type of vesting
and transfer restrictions which will be placed on the shares.
Tax Aspects of Shares Granted Pursuant to the Plan (U.S. Taxpayers Only)
- ------------------------------------------------------------------------
Any shares of stock transferred to any person pursuant to the Stock Bonus
Plan will be subject to the provisions of Section 83 of the Internal Revenue
Code. Consequently, if (and so long as) the shares received remain substantially
nonvested, the recipient of the shares will not have to include the value of
these shares in gross income. The shares will remain substantially nonvested so
long as they are subject to a substantial risk of forfeiture and are
nontransferable. A substantial risk of forfeiture exists if a person's rights in
the shares are conditioned upon the future performance of substantial services.
Nontransferability will exist if a person is restricted from selling, assigning
or pledging these shares, and, if transfer is permitted, a transferee is
required to take the shares subject to the substantial risk of forfeiture.
However, in the year such shares become either transferable or not subject to a
substantial risk of forfeiture, the recipient of the shares will be required to
include in gross income for that taxable year the excess of the share's fair
market value at the time they became vested over the amount (if any) paid for
such shares. This amount will be taxable as ordinary compensation income.
There is available an election through which a person can choose to
recognize as ordinary income in the year of transfer the excess of the share's
fair market value at the time of transfer over the amount (if any) the person
paid for such shares. By making this election any future appreciation
(depreciation) in value will be treated as appreciation (depreciation)
attributable to a capital asset rather than as compensation income. An election
to be valid must be made within thirty (30) days of the date on which the shares
are issued by the Company
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The Company does not recognize income when granting or transferring shares
to the recipient of the shares pursuant to the Plans. Furthermore, Section 83
permits the Company to take an ordinary business deduction equal to the amount
includable by the recipient of the shares in the year the recipient recognizes
the value of the shares as income.
OTHER INFORMATION REGARDING THE PLANS
All shares to be issued pursuant to the Plans will, prior to the time of
issuance, constitute authorized but unissued shares or treasury shares.
The terms and conditions upon which a person will be permitted to assign or
hypothecate options or shares received pursuant to any of the Plans will be
determined by the Company's Board of Directors that administers the Plans. In
general, however, options are non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.
Any shares issued pursuant to the Stock Bonus Plan and any options granted
pursuant to the stock option Plan will be forfeited if the "vesting" schedule
established by the Board of Directors at the time of the grant is not met. For
this purpose, vesting means the period during which the employee must remain an
employee of the Company or the period of time a non-employee must provide
services to the Company.
Each Option shall be exercisable from time to time during a period (or
periods) determined by the Company's Board of Directors and ending upon the
expiration or termination of the Option; provided, however, the Board of
Directors may, limit the number of shares purchaseable in any period or periods
of time during which the Option is exercisable.
Employment by the Company does not include a right to receive bonus shares
or options pursuant to the Plans. Only the Board of Directors has the authority
to determine which persons shall be issued bonus shares or granted options and,
subject to the limitations described elsewhere in this Prospectus and in the
Plans, the number of shares of Common Stock issuable as bonus shares or upon the
exercise of any options.
The Plans are not qualified under Section 401(a) of the Internal Revenue
Code, nor are they subject to any provisions of the Employee Retirement Income
Security Act of 1974.
The description of the U.S. federal income tax consequences as set forth
in this Prospectus is intended merely as an aid for such persons eligible to
participate in the Plans, and the Company assumes no responsibility in
connection with the income tax liability of any person receiving shares or
options pursuant to the Plans. Persons receiving shares or options pursuant to
the Plans are urged to obtain competent professional advice regarding the
applicability of federal, state and local tax laws.
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As of the date of this Prospectus, and except with respect to shares or
options which have not yet vested, no terms of any Plan or any contract in
connection therewith creates in any person a lien on any of the securities
issuable by the Company pursuant to the Plans.
ADMINISTRATION OF THE PLANS
The Plans are administered by a Company's Board of Directors. The
Company's Directors serve for a one-year tenure and until their successors are
elected. The Company's Directors are elected each year at the annual
shareholder's meeting. A Director may be removed at any time by the vote of a
majority of the Company's shareholders represented in person or by proxy at any
special meeting called for the purpose of removing one or more directors. Any
vacancies which may occur on the Board of Directors will be filled by the
majority vote of the remaining directors. The Board of Directors is vested with
the authority to interpret the provisions of the Plans and supervise the
administration of the Plans. In addition, the Board of Directors is empowered to
select eligible employees of the Company to whom shares or options are to be
granted, to determine the number of shares subject to each grant of a stock
bonus or an option and to determine when, and upon what conditions, shares or
options granted under the Plans will vest or otherwise be subject to forfeiture
and cancellation.
RESALE OF SHARES BY AFFILIATES
Shares of common stock acquired pursuant to the Plans may be resold
freely, except that any person deemed to be an "affiliate" of the Company,
within the meaning of the Securities Act of l933 (the "Act") and the rules and
regulations promulgated thereunder, may not sell shares acquired by virtue of
the Plans unless such shares are sold by means of a special Prospectus, are
otherwise registered by the Company under the Securities Act for resale by such
person or an exemption from registration under the Act is available. Rule l44,
promulgated under the Act, which contains limitations on the manner of sale and
the amount of shares that may be sold, provides an exemption from registration
under the Act. An employee who is not an officer or director of the Company
generally would not be deemed an "affiliate" of the Company.
In addition, the acquisition of shares or options by officers and
directors may be considered a "purchase" and the sale thereof will generally be
considered a "sale" for purposes of Section l6(b) of the Securities Exchange Act
of l934.
AMENDMENT, SUSPENSION OR TERMINATION OF PLANS
The Board of Directors of the Company may at any time, and from time to
time, amend, terminate, or suspend one or more of the Plans in any manner they
deem appropriate, provided that such amendment, termination or suspension shall
not adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; reduce the minimum option price per share; extend
the period for granting options; or materially increase in any other way the
benefits accruing to employees who are eligible to participate in the Plans.
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DESCRIPTION OF COMMON STOCK
The common stock issued as a stock bonus and the common stock issuable
upon the exercise of any options granted pursuant to the Plans entitles holders
to receive such dividends, if any, as the Board of Directors declares from time
to time; to cast one vote per share on all matters to be voted upon by
stockholders; and to share ratably in all assets remaining after the payment of
liabilities in the event of liquidation, dissolution or winding up of the
Company. The shares carry no preemptive rights. All shares offered under the
Plans will, upon issuance by the Company (and against receipt of the purchase
price in the case of options), be fully paid and non-assessable.
EXPERTS
The financial statements as of December 31, 2004 and for each of the two
years in the period ended December 31, 2004 incorporated by reference in this
prospectus from the Company's annual report on Form 10-KSB have been audited by
Dale Matheson Carr-Hilton Labonte, independent registered public accountants, as
stated in their report dated March 31, 2005 which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of Dale
Matheson Carr-Hilton Labonte given upon their authority as experts in accounting
and auditing.
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