Rule 424(b)(3)
Registration No. 333-4559
PROSPECTUS
SPARTA FOODS, INC.
6,185,400 Shares of Common Stock
This Prospectus relates to the offer and sale of up to 6,185,400 shares of
Common Stock par value of $.01 per share, (the "Shares"), of Sparta Foods, Inc.,
a Minnesota corporation ("Sparta" or the "Company") by certain Selling
Shareholders (the "Selling Shareholders"). Of such Shares, (i) an aggregate of
3,206,500 Shares may be offered and sold by certain Selling Shareholders of the
Company's Common Stock, and (ii) an aggregate of 2,978,900 Shares may be offered
and sold by certain Selling Shareholders who may exercise outstanding Warrants
and resell the Shares pursuant to this Prospectus. See "Principal and Selling
Shareholders." The Company will receive proceeds from any Warrants that may be
exercised in connection herewith, but will not receive any proceeds from the
sale of any Shares by the Selling Shareholders.
The Selling Shareholders have advised the Company that all or a portion of
the Shares offered by them may be sold from time to time by the Selling
Shareholders. Such sales may be made in the over-the-counter market or otherwise
at prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The Shares may be sold through one
or more of the following: (a) ordinary brokerage or market making transactions
and transactions in which the broker or dealer solicits purchasers; (b) a block
trade in which the broker or dealer so engaged will attempt to sell the Shares
as agent but may position and resell a portion of the block as principal to
facilitate the transaction; and (c) purchase by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus.
In effecting sales, brokers or dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the Selling Shareholders in amounts to be
negotiated immediately prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended, (the "Securities Act") in
connection with such sales. In addition, any Shares covered by this Prospectus
which qualify for sale pursuant to Rule 144 under this Securities Act may be
sold under Rule 144 rather than pursuant to this Prospectus. The Company has
agreed to maintain this registration until the earlier of the date the Selling
Shareholders sell all of their Shares, Rule 144 is available to such Selling
Shareholders or two years from the date of this Prospectus. See "Plan of
Distribution."
The Company will bear all expenses of the offering (estimated to be
$20,000), except that the Selling Shareholders will pay any applicable
underwriter's commissions and expenses, brokerage fees or transfer taxes, as
well as any fees and disbursements of counsel and experts for the Selling
Shareholders. The Company and the Selling Shareholders have agreed to indemnify
each other against certain liabilities, including liabilities arising under the
Securities Act.
<PAGE>
The Company's Common Stock is traded on the Nasdaq SmallCap Market under
the symbol "SPFO." The closing bid price of the Company's Common Stock on July
25, 1996, as reflected on the Nasdaq SmallCap Market was $1.75 per share.
-----------------------
FOR INFORMATION CONCERNING CERTAIN RISKS RELATING
TO AN INVESTMENT IN THE COMPANY'S COMMON STOCK
SEE "INVESTMENT CONSIDERATIONS."
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 29, 1996.
No person is authorized to give any information or to make any
representations, other than those contained or incorporated by reference in this
Prospectus, in connection with the offering contemplated hereby, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
registered securities to which it relates. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained or incorporated by reference herein is
correct as of any time subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C., 20549, and at the Commission's regional offices in New York (7
World Trade Center, Suite 1300, New York, New York 10048) and Chicago (Suite
1400, Northwestern Atrium Center, 500 West Madison, Chicago, Illinois 60661).
Copies of such material can be obtained from the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus:
1. The Company's annual report on Form 10-KSB (Commission File No.
0-19318) for its 1995 fiscal year ended September 30, 1995.
2. The Company's Form 10-KSB/A No. 1 (Commission File No. 0-19318)
for its 1995 fiscal year ended September 30, 1995.
3. The Company's report on Form 8-K (Commission File No. 0-19318)
dated February 2, 1996.
4. The Company's quarterly report on Form 10-QSB (Commission File
No. 0- 19318) for its fiscal quarter ended December 31, 1995.
5. The Company's quarterly report on Form 10-QSB (Commission File
No. 0-19318) for its fiscal quarter ended March 31, 1996.
6. The description of the Company's Common Stock, $.01 par value,
which is contained or incorporated by reference in the Company's
Registration Statement on Form 8-A (Commission File No. 0-019318)
filed under the Securities Exchange Act of 1934, as amended,
including any amendment or report filed for the purpose of
updating such description.
<PAGE>
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Shares shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated by reference
or deemed to be incorporated by reference in this Prospectus shall be deemed to
be modified or superseded for all purposes of this Prospectus to the extent that
a statement contained herein, therein or in any subsequently filed document
which also is incorporated or deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in such
documents). Requests for such copies should be directed to A. Merrill Ayers,
Chief Financial Officer, Sparta Foods, Inc., 2570 Kasota Avenue, St. Paul, MN
55108; Telephone (612) 646-1888.
THE COMPANY
Sparta manufactures a broad line of Mexican food products which include
corn and flour tortillas, stone ground and corn flour tortilla chips, picante
and marinade sauces and salsas. These products are distributed under the
Company's own brand names and under private labels. The Company's own retail
brands include La Canasta(R), La Campana Paradiso(R) and Mexitos(R) tortilla
chips, Cruz(R) and La Campana Paradiso(R) press and die-cut flour tortillas, La
Canasta(R), Mexitos(R) and Chapala(R) salsas and picante sauces. The Company
also manufactures barbecue sauces and salsas for others under private label.
The Company's branded retail products are sold in supermarkets located
primarily in the midwestern United States, with selected products sold in
Western Canada. The Company also produces its Mexican-style products for other
food distributors under private labels, including Crystados(R) for Crystal Farms
Refrigerated Distribution Company which distributes its products to retail
stores in 16 states. Other private label products include Ken Davis(R) and
Rudolph's(R) barbecue sauces utilizing the customer's proprietary recipes. In
addition, the Company supplies over six thousand restaurants and other food
service establishments through distributors that include Alliant Food Service,
Inc., Sysco Corporation and J.P. Food Service, Inc. The Company places
significant emphasis on the development of the food service market, and is
currently an approved supplier to McDonald's, Chili's, Sysco, Garcia's, Casa
Lupita's, Carlos O'Kelly's, Target Store's Food Avenues, Champps Americana,
Benchwarmer Bobs, Rudolph's, Marriott Contract Feeding Installations,
independent Perkins restaurants, the Minneapolis School System and the
Minneapolis Target Center complex, among others.
The Company is capitalizing on the significant growth in the sale of
Mexican food products which has occurred in the United States over the past
decade. Over the ten-year period ended in 1990, sales of soft tortillas in the
United States grew from approximately $300 million to approximately $1.5
billion. Sales of tortilla chips recently exceeded $2.0 billion in annual sales.
Retail sales of Mexican-style sauces, salsas and picante sauce equalled nearly
$500 million in 1992. Management believes that this growth is partially a result
of Mexican food products becoming less ethnic due to strong consumer acceptance.
This is evidenced by the large number of non-Mexican restaurants currently
offering such Mexican items as nachos, chips and salsa, fajitas, quesadillas,
burritos and taco salads.
Prior to 1994, the Company has spent significant time and resources through
acquisition and internal product development to expand its production
capabilities and its line of authentic Mexican food products and to establish a
strong distribution network. Although these activities have increased sales,
they have negatively impacted the Company's net income. The Company incurred net
losses of $1,193,177 and $943,778 for the years ended September 30, 1994 and
1995, respectively. With the Company's acquisition and expansion activities
completed, the Company has focused much of its efforts on implementing a
comprehensive restructuring plan of the Company's financial position and
operations in an effort to return the Company to profitability. Due in part to
the impact of the Company's restructuring efforts, the Company incurred losses
of $19,322 and $91,718 for the three month and six month periods ended March 31,
1996, respectively. The Company is now focusing its efforts on continuing to
implement restructuring changes, and expand its existing business and enter
carefully selected new geographic areas in the branded retail, private label and
food service markets.
INVESTMENT CONSIDERATIONS
The following factors should be carefully considered in evaluating an
investment in any shares of Common Stock offered hereby.
<PAGE>
Restructuring
The Company incurred losses of $1,193,177, and $943,788 for the years ended
September 30, 1994 and 1995 respectively. In the first quarter of fiscal year
1995, the Company hired Joel Bachul and A. Merrill Ayers as its new Chief
Executive Officer and Chief Financial Officer, respectively, as part of an
overall restructuring policy implemented by the Board of Directors. Pursuant to
the Company's restructuring policy, the Company completed a comprehensive
financial reorganization, consolidated its Lakeville operations into its St.
Paul production facility, raised $1,280,000 pursuant to a private offering, and
effectuated changes in connection with its products and production and
distribution systems. As a result of the Company's restructuring efforts, the
Company incurred a loss of $91,718 for the six month period ended March 31,
1996, compared to a loss of $512,379 for the same six month period ended March
31, 1995. Although the Company believes its restructuring efforts to date have
had a positive impact on the Company's operations, the Company believes that it
has not fully realized the impact of the restructuring changes that have been
implemented to date. There is no assurance that the restructuring efforts
completed to date will be adequate to enable the Company to reach profitability
and that additional restructuring efforts will not be required. In addition, the
success of the restructuring efforts to date have been due in part on the
abilities of Messrs. Bachul and Ayers. The loss of either Mr. Bachul or Mr.
Ayers would have a material adverse impact on the Company's ability to fully
realize the benefits of the restructuring, implement additional restructuring if
needed and ultimately attain profitability. The success of the restructuring
also depends on the Company's ability to generate acceptable profits on its
product sales, which will entail the necessity of making investments in product
development and sales and marketing activities.
Significant Losses and Ability to Survive as a Going Concern
The Company incurred losses of $1,193,177 and $943,778 in fiscal years 1994
and 1995, respectively, and the reports of the independent auditors on the
Company's consolidated financial statements for the years ended September 30,
1994 and 1995 include an explanatory paragraph relating to the Company's ability
to continue as a going concern. Such losses have occurred despite the fact that
sales increased from approximately $11 million in fiscal 1994 to approximately
$12 million in fiscal 1995. Sales increases in the past several years have been
in large part the result of the acquisition of Mexican-style food companies and
product lines. It is not yet clear, however, if the Company will be able to
generate satisfactory earnings from new product sales generated as a result of
these acquisitions. In addition, there is no assurance that the Company will be
able to generate sufficient sales to be profitable in fiscal 1996. The Company
has incurred a loss of $19,322 and $91,718 for the three month and six month
periods ended March 31, 1996. Given its current financial position, there is no
guarantee that the Company will be able to continue business operations if it
were to incur material losses in fiscal 1996.
Sufficiency of Working Capital
As of March 31, 1996, the Company had a cash balance of $27,114 and a
negative working capital of $532,128. Additionally, as of the date of this
Prospectus, the Company has substantially utilized amounts available under its
bank line of credit. The Company estimates that as of March 31, 1996, there is
an additional $205,000 which could be drawn under its bank line of credit. The
amount available under this bank line of credit fluctuates daily based on the
Company's eligible accounts receivable and inventory. The Company's line of
credit, term note and capital notes are subject to various financial covenants,
the violation of which could result in termination of the loan agreements which
would require the Company to repay the loans in full. The Company has been in
default of the financial covenants in the past. The bank waived such defaults,
and the bank and the Company have amended such covenants based on fiscal 1996
financial projections. Although the Company believes it will be able to meet the
requirement of the new covenants in the future, there is no assurance that the
Company will not violate the covenants in the future or that the bank will waive
any violations. In addition, the Company's ability to obtain additional equity
capital may be limited and, if obtainable at all, would result in substantial
dilution. Therefore, the Company's ability to fund its working capital
requirements in the future will be almost entirely dependent on generating sales
which equal or exceed the Company's fiscal 1995 sales and in achieving
profitable operations in fiscal 1996. In addition, any unforeseen expense of a
material nature would materially and adversely affect the Company's ability to
fund its ongoing operations.
<PAGE>
Competition
The Mexican-style food manufacturing and distribution industry is highly
competitive. Sparta is in competition with a number of manufacturers and
distributors of Mexican-style food products and, to a limited extent,
manufacturers of "snack foods," many of which are better capitalized than
Sparta. Sparta will also be subject to future competition from other
manufacturers, distributors and retailers who enter into the Mexican-style food
and distribution industry. In the retail market, many of these competitors
engage in extensive local and national advertising and marketing, and the brand
names for products distributed by those competitors are significantly more
recognizable to the consumer than Sparta's brand names. In addition, competition
for shelf space in retail grocery stores is intense. In the food service market,
the Company is competing with a number of regional and national producers of
Mexican-style food products. Many of these competitors are better capitalized
than the Company and have established sales organizations. No assurance can be
given that Sparta will be able to compete as it expands its markets.
Reliance on Principal Customers
Sparta has several customers who each accounted for a significant
percentage of Sparta's sales in fiscal 1995. During that period, sales to
Crystal Farms Refrigerated Distribution Company, Ken Davis Products, Inc.,
Catalina Specialty Foods, Inc. and Bradley Distributing, Inc. accounted for
approximately 16%, 9%, 14% and 10% of Sparta's sales, respectively. The loss of
any of the foregoing customers could have a material and adverse effect on
Sparta's sales and profitability.
Raw Material Cost Fluctuations
Sparta's operating results and financial condition may be adversely
affected by uncontrollable market fluctuations in the availability and cost of
its primary raw materials: corn, flour, cooking oil and tomato-based products.
While all supplies are readily available from two or more sources and Sparta's
purchasing program minimizes the chance of a supply interruption, any
interruption in Sparta's corn or flour supply, which is received weekly, could
cause an interruption of production which could be material depending upon the
duration of such interruption. Sparta has experienced, during its fiscal year
ending September 30, 1996, significant cost increases in the price of corn and
flour. Sparta believes that its competitors, along with other food
manufacturers, have also experienced similar price increases. Sparta has
increased the price of its products in an effort to pass on such price increases
to its customers, as it believes its competitors have done or will do. Although
Sparta will attempt to continue to pass on price increases of its raw materials
to its customers there is no assurance that its customers will accept such price
increases. The Company has not yet experienced a decrease in sales as a result
of the price increase of its raw materials. There is no assurance that its
customers and other consumers of its products will not respond to the price
increases by purchasing fewer of the Company's products, which could have a
material adverse effect on the Company's sales.
Product Liability
Sparta may be subject to significant liability should the consumption of
any of its products cause injury, illness or death. Although Sparta carries
product liability insurance in the aggregate amount of $2,000,000, with limits
per occurrence of $1,000,000, there can be no assurance that this insurance will
be adequate to protect Sparta against product liability claims, or that such
insurance will continue to be available to Sparta on reasonable terms.
Government Regulation
Sparta's business is subject to various federal, state and local
environmental and health regulations. If Sparta were found not to be in
compliance with such regulations, sanctions and penalties could be imposed which
could materially and adversely affect Sparta's business.
Prior Market for Common Stock
Sparta's Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "SPFO." It is likely that a relatively small volume of sales or purchases
of Sparta's Common Stock could have a significant impact on the prices quoted
for such Common Stock. As a result of the limited market described above, the
purchase price may not be indicative of the market price for the Shares offered
hereby. While the Common Stock has been admitted for trading on the Nasdaq
SmallCap Market and Sparta currently satisfies the requirements for continued
listing, such trading could be halted in the future for failure to meet Nasdaq
maintenance requirements. No assurances can be given that Sparta will be able to
continually satisfy the requirements for continued listing on the Nasdaq
SmallCap Market. The high and low bid prices for shares of Sparta's Common Stock
for the quarter ended June 30, 1996 were $2.312 and $1.125 per share,
respectively. On July 25, 1996, the closing price for Sparta's Common Stock as
quoted on the Nasdaq SmallCap Market was $1.75 per share.
No Dividends
The Company has paid no cash dividends on its Common Stock and does not
anticipate paying any such dividends in the foreseeable future. The Company's
current line of credit with its bank precludes the Company from declaring or
paying dividends on its Common Stock without the bank's approval.
Anti-Takeover Provisions
The Company's Articles of Incorporation provide that the Board of Directors
may issue up to 1,000,000 shares of Preferred Stock, with such rights and
preferences as may be determined from time to time by the Board of Directors,
and to issue up to 15,000,000 shares of Common Stock without further shareholder
approval. Issuance of such shares of Preferred or Common Stock could result in
dilution of the voting power of Common Stock, adversely affect its holders in
the event of liquidation of the Company, or delay or prevent a change in control
of the Company. In addition, Section 302A.671 of the Minnesota Statutes, among
other things, denies voting rights with respect to certain "control share"
acquisitions of the Company's Common Stock without prior approval of the
Company's shareholders and Section 302A.673 of the Minnesota Statutes prohibits
business combinations with any shareholder within five years of that
shareholder's control share acquisition, made without approval of a committee of
the Company's Board of Directors. The ability of the Board of Directors to issue
additional Preferred or Common Stock and Minnesota Statutes could impede or
deter a tender offer or takeover proposal regarding the Company. See
"Description of Securities - Preferred Stock" and "- Control Share Acquisition."
<PAGE>
USE OF PROCEEDS
Assuming all Selling Shareholders listed in this Prospectus exercise their
Warrants to purchase an aggregate of 2,978,900 shares of Common Stock, the
estimated net proceeds to be received by the Company are approximately
$2,124,450 net of expenses. There is no obligation on the part of Selling
Shareholders to exercise all or any portion of the outstanding Warrants. Based
upon the current market price of the Company's Common Stock there is no
assurance that the Warrants will be exercised. Thus, there can be no assurance
that the Company will receive the estimated net proceeds or any proceeds from
this offering. Any proceeds received will be used to repay existing debt and for
general working capital purposes.
SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information regarding beneficial ownership of the Company's Common Stock by each
Selling Shareholder.
<TABLE>
<CAPTION>
Before the Offering After the Offering
---------------------------------------- ---------------------------------------
Shares Percentage of Shares Shares Percentage of
Beneficially Outstanding Being Beneficially Outstanding
Name and Address of Owned(1) Shares(1)(12) Offered(13) Owned(1) Shares(1)(12)
Beneficial Owner
SELLING SHAREHOLDER(14)
<S> <C> <C> <C> <C> <C>
Carmen S. Abril-Lopez 808,481(2) 12.1% 108,334 700,147 10.5%
Nicholas G. Grammas 736,306(3) 11.0% 36,400 699,906 10.5%
Larry P. Arnold 361,000(4) 5.4% 308,000 53,000 *
Joel P. & Gail M. Bachul 160,250(5) 2.4% 100,000 60,250 *
A. Merrill & Eleanor Ayers 39,750(6) * 20,000 19,750 *
Thomas C. & Elizabeth R. House 91,768(7) 1.3% 60,000 31,768 *
Michael Kozlak 258,000(8) 3.8% 200,000 58,000 *
Raymond D. Nelson 63,000(9) * 60,000 3,000 *
Richard H. Leepart 168,000(10) 2.5% 100,000 68,000 *
Edward K. Jorgenson 43,000(11) * 40,000 3,000 *
Dr. Lee S. Chapman, P.A. 80,000 1.2% 80,000 -- *
Profit Sharing Plan & Trust
David M. Thymian and 15,000 * 15,000 -- *
Susan M. Thymian, JT
Willard Rehbein 154,000 2.3% 154,000 -- *
Courtney W. Brown 50,000 * 50,000 -- *
Thomas Harkness 27,000 * 27,000 -- *
John P. Dirksen and 10,000 * 10,000 -- *
Emily W. Dirksen, JT
Christianson Investment Company 108,000 1.6% 108,000 -- *
George I. Kosmides 54,000 * 54,000 -- *
<PAGE>
Deming L. Payne 27,000 * 27,000 -- *
Alvin S. Zelickson 20,000 * 20,000 -- *
Mitchell Krieger 110,000 1.6% 110,000 -- *
James R. Whitmas 20,000 * 20,000 -- *
Stanley J. Johnson 120,000 1.7% 120,000 -- *
Sekhavat, Ltd. 155,000 2.3% 155,000 -- *
First Trust National Association, 140,500 2.1% 140,500 -- *
as Trustee for
Richard A. Marks - IRA
James W. Swenson 47,800 * 47,800 -- *
William R. Swanson and 13,500 * 13,500 -- *
Catherine A. Swanson, JT
Donald R. Brattain 662,000 9.4% 562,000 100,000 1.4%
Roger H. Frommelt and Carol 25,000 * 25,000 -- *
Frommelt, JT
David B. Eide and Mary Jo 18,000 * 18,000 -- *
Eide, JT
John R. Dorgan 1,333 * 1,333 -- *
Randy J. Sparling 3,033 * 3,033 -- *
James W. Rude 1,000 * 1,000 -- *
Sportz Ink Inc. 9,100 * 9,100 -- *
Stan G. Eilers and Carol R. 144,200 2.1% 144,200 -- *
Eilers, JT
Bradley R. Gerlach and Laura 193,100 2.9% 167,100 26,000 *
Gerlach, JT
<PAGE>
John G. Kinnard & Company, 357,110 5.2% 158,000 199,110 2.9%
Inc.
George Christopherson 125,000 1.8% 100,000 25,000 *
Jerome R. & Carolyn D. Larson 250,000 3.6% 200,000 50,000 *
Jay M. Applebaum 106,916 1.6% 77,100 29,816 *
Raymond A. Lipkin 250,000 3.6% 200,000 50,000 *
Russell & Kris Lilienthal 125,000 1.8% 100,000 25,000 *
James S. Vieburg 40,000 * 40,000 -- *
Bradley J. & Beth L. Martinson 100,000 1.5% 100,000 -- *
Thomas R. McGuire 100,000 1.5% 100,000 -- *
Sheldon Chester 100,000 1.5% 100,000 -- *
Dennis La Valle 151,000 2.2% 151,000 -- *
Demetre M. Nicoloff 101,333 1.5% 93,000 8,333 *
Patrick M. Sidders 40,000 * 40,000 -- *
Okabena Partnership K 1,200,000 18.0% 1,200,000 -- *
Robert W. Gaines 100,000 1.5% 100,000 -- *
Thomas W. Gearou 100,000 1.5% 100,000 -- *
H. Vincent O'Connell 100,000 1.5% 100,000 -- *
Robert L. Gearou 100,000 1.5% 100,000 -- *
Andrew O'Connell 3,000 * 3,000 -- *
Michael Norton 2,000 * 2,000 -- *
Joseph Radecki 2,000 * 2,000 -- *
Jerry Johnson 2,000 * 2,000 -- *
George Mitchell 2,000 * 2,000 -- *
</TABLE>
*Less than one percent.
<PAGE>
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of the date of this Prospectus, or
within 60 days of such date, are treated as outstanding when determining
the percent of the class owned by such individual and when determining the
percent owned by the group. For purposes of calculation, the percent of
class owned after this offering, it was assumed that the officers,
directors and principal shareholders will not be purchasing shares in this
offering, unless otherwise indicated, each person named or included in the
group has sole voting and investment power with respect to the shares of
Common Stock set forth opposite his/her name.
(2) Included in this amount are (a) 754,480 shares of common stock held by a
trust of which Ms. Abril-Lopez is trustee and a beneficiary, (b) currently
exercisable warrants to purchase 10,000 shares of common stock at a price
of $.50 per share, and (c) a total of 10,667 options to purchase shares of
common stock at $5.00 per share. Ms. Abril-Lopez served as a director of
the Company until February 1996.
(3) Included in this amount are (a) currently exercisable warrants to purchase
8,400 shares of common stock at an exercise price of $0.50 per share, and
(b) options to purchase 5,333 shares of common stock at $5.00 per share.
Mr. Grammas served as an officer and director of the Company until October
1994.
(4) Includes director's options to purchase 3,000 shares of common stock at
$1.375 per share. Mr. Arnold currently serves as a member of the Company's
Board of Directors.
(5) Included in this amount are (a) currently exercisable Warrants to purchase
25,000 shares of Common Stock at an exercise price of $.50 per share and
Warrants to purchase 50,000 shares of Common Stock at $.75 per share; (b)
stock options to purchase 12,500 share of Common Stock at $1.75 per share;
and (c) options to purchase 18,750 shares of Common Stock at $.50. Mr.
Bachul serves as the President, Chief Executive Officer and a director of
the Company.
(6) Included in this amount are (a) currently exercisable Warrants to purchase
10,000 shares of Common Stock of $.75 per share; (b) stock options to
purchase 6,250 shares of Common Stock at $2.00 per share; and (c) stock
options to purchase 12,500 shares of Common Stock at $.50 per share. Mr.
Ayers serves as the Company's Chief Financial Officer.
(7) This amount includes, (a) Warrants to purchase 30,000 shares at $.75 per
share, (b) options to purchase 12,501 shares of Common Stock at $4.32 per
share, (c) options to purchase 5,000 shares of Common Stock at $2.94 per
share, and (d) options to purchase 12,500 shares of Common Stock at $1.50
per share. Mr. House serves as the Company's Vice President of Operations.
(8) This amount includes director's options to purchase 6,000 shares of Common
Stock at $.875 per share and options to purchase 2,000 shares of Common
Stock at $1.4375. Mr. Kozlak serves as the Company's Chairman of the Board
of Directors.
(9) This amount includes directors options to purchase 3,000 shares of Common
Stock at $1.375 per share. Mr. Nelson serves as a member of the Company's
Board of Directors.
(10) This amount includes: (a) 40,000 shares beneficially owned by an affiliate
of Mr. Leepart which he exercises voting and disposition power, and (b)
director options to purchase 3,000 shares of Common Stock at $1.375 per
share. Mr. Leepart is a director of the Company.
(11) This amount includes director options to purchase 3,000 shares of Common
Stock at $1.375 per share. Mr. Jorgenson is a director of the Company.
(12) Based on 6,672,799 shares of common stock issued and outstanding as of June
1, 1996. Each percentage calculation assumes the exercise of only those
options and warrants held by the corresponding person or persons which are
exercisable as of June 1, 1996.
(13) Selling Shareholder may sell, at each Selling Shareholder's discretion, all
or a portion of the Common Stock being offered pursuant to this Prospectus.
There is no obligation on the part of the Selling Shareholders to sell any
Shares pursuant to this offering or exercise any outstanding Warrants or
sell the Common Stock received by such exercise.
<PAGE>
PLAN OF DISTRIBUTION
The Selling Shareholders have advised the Company that all or a portion of
the Shares offered by the Selling Shareholders hereby may be sold from time to
time by the Selling Shareholders or by pledges, donees, transferees or other
successors in interest. Such sales may be made in the over-the-counter market or
otherwise at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The Shares may be sold
by one or more of the following means: (a) ordinary brokerage or market making
transactions and transactions in which the broker or dealer solicits purchasers;
(b) block trades in which the broker or dealer so engaged will attempt to sell
the Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; and (c) purchases by a broker or dealer
as principal and resales by such broker or dealer for its account pursuant to
this Prospectus. In effecting sales, brokers or dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Brokers or
dealers will receive commissions or discounts from the Selling Shareholders in
amounts to be negotiated immediately prior to the sale. Such brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 under the Act may be sold under Rule 144 rather than
pursuant to this Prospectus.
The Company and the Selling Shareholders have agreed to indemnify each
other against certain liabilities, including liabilities arising under the
Securities Act.
