<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K/A2
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 30, 1996
WATSON GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation)
0-16011 95-2873758
(Commission File No.) (IRS Employer Identification No.)
32-B Mauchly
Irvine, California 92718
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714)-727-4020
N.A.
(Former name or former address, if changed since last report.)
1
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 18, 1996, Watson General Corporation (the "Registrant") and the
shareholders of EnviroQuest Technologies, Ltd. (the "Shareholders") entered
into a Stock Purchase Agreement (Exhibit 1) and consummated the transaction
contemplated thereby on January 30, 1996. Pursuant to the Stock Purchase
Agreement, the Registrant delivered, in exchange for all outstanding shares of
stock of EnviroQuest Technologies, Ltd. ("ETL"), to the Shareholders 1.) One
million shares of the Registrant's common stock, 2.) Eight Hundred Thousand
dollars, and 3.) The Registrant's Promissory Note bearing no interest and
maturing on January 30, 1998 in the amount of $220,000. The purchase price was
determined by negotiation.
The Shareholders were; John Marencik, Frances Marencik, Robert Wilkinson, Roger
Sherwood. None of the Shareholders had any relationship to the Registrant
prior to the acquisition.
The Registrant completed four private placement offerings in the past three
months of restricted shares of common stock in order to finance the
transaction.
In early April of 1996, the aggregate purchase price paid by the Company for
ETL was reduced. Of the 1 million shares of the Company's common stock issued
in connection with the acquisition, 677,350 shares have been returned to the
Company. In addition, a promissory note issued by the Company to one of the
sellers for $156,860 has been returned to the Company, reducing the aggregate
amount of notes issued in connection with the transaction to $63,140. The cash
portion of the purchase price for ETL, which was $800,000 was not affected.
The reduction in the purchase price was negotiated with the largest selling
shareholder of ETL in settlement of a dispute by the Company regarding the
accuracy of certain representations, warranties and covenants made to it in
connection with the acquisition. The Company intends to seek an adjustment
from the other principal selling shareholder. The alleged inaccuracies involve
the prior conduct of certain persons employed by ETL and do not involve the
efficacy of the SIRAS technology, or the correctness in any material aspect of
the financial statements of ETL.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
- Audited Financial Statements of EnviroQuest Technologies, Ltd.
for the years ended September 30, 1995 and 1994, together
with Report of Independent Accountants.
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- Unaudited Financial Statements of EnviroQuest Technologies,
Ltd. for the quarters ended December 31, 1995 and 1994.
(b) Pro Forma Financial Information.
- Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1995.
- Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended September 30, 1995.
- Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the quarter ended December 31, 1995.
- Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
(c) Exhibits.
Exhibit 1 Stock Purchase Agreement (filed with original Current report on
Form 8-K on February 13, 1996.)
Exhibit 2 Settlement Agreement and Release
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dully caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Watson General Corporation
By:
Date 4/30/96 /s/ Joseph L. Christoffel
----------------------------
Joseph L. Christoffel,
Chief Financial Officer
3
<PAGE> 4
Report of Independent Auditors
The Board of Directors and Stockholders
EnviroQuest Technologies, Ltd.
We have audited the accompanying balance sheets of EnviroQuest Technologies,
Ltd. (the Company) as of September 30, 1995 and 1994, and the related statements
of operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EnviroQuest Technologies, Ltd.
at September 30, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
April 26, 1996
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EnviroQuest Technologies, Ltd.
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30
1995 1994
----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 104,810 $ 173,540
Accounts receivable, less allowance for doubtful
accounts of $20,000 and $5,000 at December 31,
1995 and 1994, respectively (Note 3) 121,876 162,443
Prepaid expenses and other current assets 17,593 38,352
Refundable income taxes 17,261 900
Deferred income taxes (Note 4) 16,655 10,679
----------------------
Total current assets 278,195 385,914
Property and equipment (Note 3):
Equipment 252,607 180,150
Leasehold improvements 75,183 --
Furniture and fixtures 55,840 13,856
----------------------
383,630 194,006
Less accumulated depreciation (83,125) (37,651)
----------------------
300,505 156,355
Investments in unconsolidated subsidiaries 8,392 51,204
Notes receivable from related parties (Note 9) 90,586 --
Deposits 13,551 2,272
======================
Total assets $ 691,229 $ 595,745
======================
</TABLE>
2
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<TABLE>
<CAPTION>
SEPTEMBER 30
1995 1994
----------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 96,592 $123,651
Accrued expenses 120,812 170,641
Deferred revenue on service sales 234,592 127,500
Current portion of long-term debt (Note 3) 61,495 --
----------------------
Total current liabilities 513,491 421,792
Long-term debt, less current portion (Note 3) 123,298 50,000
Deferred income taxes 16,655 15,440
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 3,000,000
Issued shares - 1,011,633 in 1995 and
986,633 in 1994 10,116 9,866
Additional paid-in capital 139,299 112,707
Accumulated deficit (63,291) (14,060)
----------------------
86,124 108,513
Treasury stock, 87,727 shares at cost in 1995 (28,395) --
Unearned stock compensation (Note 8) (19,944) --
----------------------
Total stockholders' equity 37,785 108,513
======================
Total liabilities and stockholders' equity $ 691,229 $595,745
======================
</TABLE>
See accompanying notes.
3
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EnviroQuest Technologies, Ltd.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1995 1994
--------------------------
<S> <C> <C>
Revenues:
Service revenues $ 2,192,795 $ 890,765
Environmental projects 27,617 265,423
Software license revenues 23,523 470,140
--------------------------
2,243,935 1,626,328
Operating expenses:
Selling 1,055,528 609,413
General and administrative 936,781 734,317
Research and development 267,402 390,366
--------------------------
Operating loss (15,776) (107,768)
Other income (expense):
Equity in income (losses) of unconsolidated
subsidiaries (42,812) 33,608
Interest income 8,994 2,631
Interest expense (4,398) (1,625)
--------------------------
(38,216) 34,614
--------------------------
Loss before income taxes (53,992) (73,154)
Income tax benefit (Note 4) 4,761 30,446
--------------------------
Net loss $ (49,231) $ (42,708)
==========================
Net loss per share $ (.05) $ (.04)
==========================
Weighted average common shares outstanding 923,952 986,633
==========================
</TABLE>
See accompanying notes.
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EnviroQuest Technologies, Ltd.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
ADDITIONAL RETAINED UNEARNED TOTAL
COMMON PAID-IN EARNINGS TREASURY STOCK STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) STOCK COMPENSATION EQUITY
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1993 $ 9,866 $112,707 $ 28,648 $ -- $ -- $ 151,221
Net loss -- -- (42,708) -- -- (42,708)
--------------------------------------------------------------------------------
Balances at September 30, 1994 9,866 112,707 (14,060) -- -- 108,513
Purchase of treasury stock -- -- -- (28,395) -- (28,395)
Issuance of compensatory stock options
(Note 8) -- 26,592 -- -- (26,592) --
Amortization of unearned stock
compensation -- -- -- -- 6,648 6,648
Exercise of stock options 250 -- -- -- -- 250
Net loss -- -- (49,231) -- -- (49,231)
--------------------------------------------------------------------------------
Balances at September 30, 1995 $10,116 $139,299 $ (63,291) $(28,395) $(19,944) $ 37,785
================================================================================
</TABLE>
See accompanying notes.
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EnviroQuest Technologies, Ltd.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1995 1994
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (49,231) $ (42,708)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 45,474 25,953
Provision for doubtful accounts 17,113 20,517
Loss on disposal of equipment 14,355 --
Equity in losses (earnings) of unconsolidated
subsidiaries 42,812 (33,608)
Write off of capitalized software costs -- 73,376
Compensation related to stock options 6,648 --
Deferred income taxes (4,761) (29,546)
Changes in operating assets and liabilities:
Accounts receivable 23,454 201,577
Prepaid expenses and other current assets 20,759 (27,963)
Refundable income taxes (16,361) (900)
Deposits (11,279) (809)
Accounts payable (27,059) (105,787)
Accrued expenses (49,829) 97,292
Income taxes payable -- (5,724)
Deferred revenue on service sales 107,092 (39,270)
----------------------
Net cash provided by operating activities 119,187 132,400
INVESTING ACTIVITIES
Purchases of property and equipment (203,979) (110,369)
Advances to related parties (91,000) --
Payments received on notes receivable 414 --
----------------------
Net cash used in investing activities (294,565) (110,369)
FINANCING ACTIVITIES
Proceeds from line of credit borrowings 290,000 100,000
Principal payments on line of credit borrowings (340,000) (50,000)
Proceeds from issuance of long-term debt 186,475 --
Principal payments on long-term debt (1,682) --
Purchase of treasury stock (28,395) --
Proceeds from exercise of stock options 250 --
----------------------
Net cash provided by financing activities 106,648 50,000
----------------------
Net increase (decrease) in cash and cash equivalents (68,730) 72,031
Cash and cash equivalents at beginning of year 173,540 101,509
----------------------
Cash and cash equivalents at end of year $ 104,810 $ 173,540
======================
</TABLE>
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EnviroQuest Technologies, Ltd.
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1995 1994
------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 4,398 $1,600
========================
Taxes $16,361 $5,724
========================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Unearned compensation costs associated with issuance
of compensatory stock options $26,592 $ --
========================
</TABLE>
See accompanying notes.
7
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements
September 30, 1995 and 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
EnviroQuest Technologies, Ltd. (the Company) is a full service environmental
engineering and consulting firm specializing in Underground Storage Tank (UST)
products and services.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all investments with original maturities of three months
or less to be cash equivalents. At September 30, 1994, cash equivalents
consisted primarily of money market accounts. No cash equivalents existed at
September 30, 1995.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives ranging from five to seven
years.
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
The Company owns a 48% equity interest in SIRAS North Central (SNC), a joint
venture which has the exclusive marketing and distribution rights of the
Company's product in certain domestic sales territories. Summarized financial
information for SNC is included in Note 2. The Company also owns a 48% equity
interest in LaSIR Technologies, LLC (LT), a limited liability company which is
currently developing certain environmental monitoring products. Financial
information with respect to current assets, total assets and revenues of LT is
not material to the Company at September 30, 1995 and 1994.
8
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's investments in SNC and LT are stated at cost, adjusted for their
equity in the subsidiaries' earnings and losses, and amortization for the
difference between the amount at which the investments are carried and the
amount of underlying equity in SNC and LT.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," capitalization of software development costs begins upon the
establishment of technological feasibility. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life and
changes in software and hardware technologies. Costs incurred prior to reaching
technological feasibility are considered research and development expenses.
As of September 30, 1994, the Company determined that all costs incurred and
capitalized in the continuing development of a certain software product,
totaling $73,376 at September 30, 1993, should be written off due to
substantial changes in the initial program design of the software. Costs
incurred during 1994 and 1995 were expensed as incurred as the technical
feasibility had not been established. Additionally, any costs incurred are not
considered recoverable in the foreseeable future due to changes in the market
and the Company's future sales and marketing strategy. As such, the capitalized
costs have been written off to research and development expense during the year
ended September 30, 1994. No amortization of these capitalized software costs
had previously been recorded.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
ADVERTISING COSTS
Advertising costs are charged to expense in the period the costs are incurred.
Advertising expense was approximately $82,000 and $73,000 for the years ended
September 30, 1995 and 1994, respectively.
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue on service contracts, which extend over varying terms, is recognized and
billed in the month in which the service is performed. The Company follows the
percentage of completion method of accounting for all environmental projects.
Revenue from software license sales is recognized on delivery of the software,
with an estimated accrual for additional costs to be incurred.
INCOME TAXES
The Company accounts for income taxes using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes." The liability method provides
that deferred tax assets and liabilities are recorded based on the difference
between the tax bases of assets and liabilities and their carrying amount for
financial reporting purposes as measured by the enacted tax rates and law that
will be in effect when the differences are expected to reverse.
CONCENTRATION OF CREDIT RISK
The Company grants unsecured trade credit to customers who meet the Company's
preestablished credit requirements. Credit losses are provided for in the
Company's financial statements and consistently have been within management's
expectations. Trade receivables subject the Company to a concentration of credit
risk with customers in the retail petroleum industry. This risk is limited
somewhat due to the number of customers comprising the Company's customer base
and their geographic dispersion within the United States. However, revenues from
Mobil Oil Corporation (Mobil) accounted for approximately 40% and 9% of total
revenues in fiscal 1995 and 1994, respectively. Subsequent to September 30,
1995, the Company terminated its relationship with Mobil and expects
significantly lower revenue from this customer in fiscal 1996.
NET LOSS PER SHARE
The computation of net loss per share is based on the weighted average number
of outstanding common shares. Common stock equivalent shares were considered
antidilutive in 1995. No common stock equivalents existed in 1994.
10
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees and
directors with an exercise price equal to or less than the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and accordingly, recognizes compensation expense over the related vesting period
for the difference between the exercise price and the estimated fair value of
the shares at the date of grant for the stock option grants. No compensation
expense is recognized when the exercise price equals the fair value of the
shares at the date of grant.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Asset to
Be Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cost flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS No. 121 also addresses the accounting of
long-lived assets that are expected to be disposed of. The Company will adopt
SFAS No. 121 in the first quarter of fiscal 1997 and, based on current
circumstances, does not believe the effect of adoption will be material.
RECLASSIFICATIONS
Certain amounts in the 1994 audited financial statements have been reclassified
to conform to 1995 presentation.
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
2. INVESTMENT IN SIRAS NORTH CENTRAL, INC.
The following presentation is a condensed unaudited summary of financial
information of the Company's investment in SIRAS North Central, Inc. as of and
for the years ended September 30, 1995 and 1994.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Current assets $120,106 $191,174
Property and equipment, net 22,164 10,659
Other noncurrent assets, net 32,491 42,627
---------------------------
$174,761 $244,460
===========================
Accounts payable and accrued expenses $ 10,798 $ 18,136
Deferred revenue 23,668 66,546
Stockholders' equity 140,295 159,778
---------------------------
$174,761 $244,460
===========================
</TABLE>
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Operating income $ 235,577 $185,155
Operating costs and expenses 270,669 142,221
---------------------------
Net income (loss) $ (35,092) $ 42,934
===========================
</TABLE>
3. NOTES PAYABLE AND LONG-TERM DEBT
The Company has available a line of credit with a bank which permits borrowings,
based on specified percentages of qualified accounts receivable and equipment,
furniture and fixtures, as defined in the line of credit agreement, of up to
$250,000. The agreement also contains certain covenants regarding operating and
capital expenditures and net worth requirements, among other things. At
September 30, 1995, there were no outstanding
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
borrowings against the line of credit. At September 30, 1994, there were $50,000
of borrowings against the line of credit.
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
3. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Subsequent to September 30, 1995, the Company borrowed $100,000 on the line of
credit. Borrowings under this agreement bear interest at 1 1/2% over a floating
prime rate with interest payable monthly. Borrowings are collateralized by the
Company's accounts receivable, equipment, furniture and fixtures and the
personal guarantees of the Company's principal stockholders. In conjunction with
these borrowings, the bank agreed to waive certain of the restrictive covenants.
The line of credit expires July 5, 1996.
Long-term debt at September 30 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------------------------------------
<S> <C> <C>
Note payable to bank in monthly installments of $10,750 including interest at
1.5% over the corporate base rate (10.5% at September 30, 1995) adjusted
quarterly, with any remaining unpaid principal due November 2000,
collateralized by second security interest in accounts receivable and certain
property and equipment of the Company and personally guaranteed by certain
stockholders of the Company.
$175,000 $ -
Unsecured note payable to a former officer and stockholder in monthly
installments of $226, including interest at 6.5%, maturing December 2000.
9,793 -
------------------------------------
184,793 -
Less current portion 61,495 -
------------------------------------
$123,298 $ -
====================================
</TABLE>
The note payable to bank is guaranteed by the Small Business Administration
under a loan agreement which permits borrowings up to $500,000. The note payable
is personally guaranteed by two officers of the Company. Additionally, it is
secured by an assignment of life insurance policies on the life of an officer of
the Company. The note contains certain restrictions which, among other things,
limit the amount of salaries, bonuses and dividends payable to officers and
directors of the Company. Subsequent to September 30, 1995, the Company borrowed
the remaining $325,000 available under this loan agreement. The recorded amounts
of the Company's notes payable and long-term debt approximate market value based
on current market interest rates.
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
3. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
As of September 30, 1995, future principal payments on long-term debt for the
years ending September 30 are as follows:
<TABLE>
<S> <C>
1996 $ 61,495
1997 89,065
1998 31,129
1999 2,795
2000 309
=========
$184,793
=========
</TABLE>
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of September 30 are as
follows:
<TABLE>
<CAPTION>
1995 1994
---------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 13,314 $ --
Vacation accrual 9,647 8,781
Allowance for bad debts 7,592 1,898
--------------------
Total deferred tax assets 30,553 10,679
Deferred tax liabilities:
Depreciation 16,655 (13,213)
Other -- (2,227)
--------------------
Total deferred tax liabilities 16,655 (15,440)
Valuation allowance (13,898) --
====================
Net deferred tax liability $ -- $ (4,761)
====================
</TABLE>
At September 30, 1995, the Company has a tax basis net operating loss
carryforwards of approximately $35,000 which will expire in varying amounts
through 2010, if unused.
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
4. INCOME TAXES (CONTINUED)
The components of income tax expense (benefit) for the years ended September 30
are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------
<S> <C> <C>
Current:
Federal $ - $ (579)
State - (321)
---------------------
Total current - (900)
Deferred:
Federal (4,161) (25,886)
State (600) (3,660)
---------------------
Total deferred (4,761) (29,546)
=====================
$(4,761) $(30,446)
=====================
</TABLE>
A reconciliation of the income tax provision (benefit) to the amounts computed
at the federal statutory rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1995 1994
------------------------
<S> <C> <C>
Tax provision at statutory rate $(18,357) $(24,872)
State income taxes net of federal taxes (396) (2,677)
Change in valuation reserve 13,898 (5,596)
Other 94 2,699
========================
$ (4,761) $(30,446)
========================
</TABLE>
5. ROYALTIES
The Company is obligated to pay royalties to certain employees based on
achievement of certain software sales levels. Royalties are generally calculated
at 5% to 8% of specific software sales. Royalty expense for the years ended
September 30, 1995 and 1994 were approximately $23,000 and $11,000,
respectively.
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain office space, automobiles and furniture under
long-term noncancelable operating lease arrangements, some of which are with
related parties. Future minimum rental payments, including commitments of
$85,779 per year through 1997, $51,991 in 1998 and $28,000 in 1999 in connection
with the related-party leases described in Note 9, for each of the next five
years ending September 30 are as follows:
<TABLE>
<S> <C>
1996 $131,800
1997 107,281
1998 58,592
1999 43,260
2000 28,000
</TABLE>
Total rent expense for the years ended September 30, 1995 and 1994 was $47,366
and $20,057, respectively.
At September 30, 1995, the Company was contingently liable with respect to
guarantees of certain indebtedness of a related third party amounting to
$95,214. Management of the Company is currently unaware of any conditions which
would require it to assume any financial responsibility under the terms of the
related agreement.
At September 30, 1995, the Company has pending three lawsuits involving general
contracts and employment issues. With respect to two of the claims, counsel for
the Company and management have estimated the range of possible loss to be from
no liability to $35,000. With respect to the other pending claim, counsel is
unable to estimate the range of possible loss, if any, which could result from
this claim. Management does not believe that the ultimate outcome of these
claims will have a material effect on the Company's financial statements.
7. EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing plan which covers substantially all full-time
employees. Annual contributions are discretionary as determined by the Board of
Directors, but may not exceed the maximum amount deductible for federal income
tax purposes. The Company made no contributions in 1995. The Company's
contributions charged to expense in 1994 were approximately $38,000. Subsequent
to September 30, 1995, the profit-sharing plan was merged with the 401(k) plan
described below.
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EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
During 1995, the Company established a 401(k) plan which covers substantially
all full-time employees. In accordance with the plan document, employees were
given the option to make annual contributions of up to the maximum amount
permitted by the Internal Revenue Service. Annual matching contributions are
discretionary as determined by the Board of Directors, but may not exceed the
maximum amount deductible for federal income tax purposes. The Company's
matching 401(k) contributions of approximately $13,000 were charged to expense
in 1995.
8. STOCK OPTIONS
During February 1995, the Company entered into an agreement with a consultant
under which the consultant may purchase up to 10% of the outstanding shares of
common stock of the Company for par value. These options become exercisable in
equal amounts semiannually beginning six months from the date of grant and fully
vest upon the sale of a majority of the issued and outstanding shares of common
stock of the Company. During the year ended September 30, 1995, the individual
exercised options for the purchase of 25,000 shares. At September 30, 1995, the
remaining options for the purchase of 74,879 shares are not exercisable.
Compensation expense is recorded for the difference between the option price and
the estimated fair market value of the stock over the related vesting period.
For the year ended September 30, 1995, the Company recorded compensation expense
of $6,648 in general and administrative expenses.
9. RELATED PARTIES
The Company leases certain office space, furniture and automobiles from two
related parties under noncancelable lease agreements expiring through 1998.
Payments on these leases amounted to approximately $55,232 during 1995 and were
immaterial in 1994.
During 1995, the Company advanced $40,000 to an officer and stockholder of the
Company under a note receivable agreement, due in monthly installments of $366,
including interest at 10.5%, through May 2005. This note has a balance due of
$39,586 at September 30, 1995. Also, the Company advanced $51,000 to LT in 1995
under a note
18
<PAGE> 22
EnviroQuest Technologies, Ltd.
Notes to Financial Statements (continued)
9. RELATED PARTIES (CONTINUED)
receivable agreement, bearing interest at 10%, due on demand. Subsequent to
September 30, 1995, the Company has advanced an additional $129,648 to LT. This
note is classified as a noncurrent asset in the accompanying financial
statements, as the Company does not intend to request any repayment from LT in
fiscal 1996. The recorded amounts of the Company's notes receivable approximate
market value based on current market interest rates.
10. SUBSEQUENT EVENT
On January 18, 1996, the Board of Directors and stockholders approved a stock
purchase agreement whereby all the common stock of the Company would be sold to
Watson General Corporation (WGC), a publicly traded company, for a purchase
price of $800,000 in cash, $220,000 in the form of noninterest-bearing
promissory notes due on January 31, 1998 and 1,000,000 shares of WGC stock, as
defined by the agreement. This transaction was consummated on January 30, 1996.
WGC has committed to fund the operations of the Company for the foreseeable
future.
In conjunction with the above transaction, the monthly payment on one of the
leases with a related party was reduced so that future minimum lease payments
under the related-party leases would be reduced by $24,000 per year through 1998
and $16,000 in 1999. In addition, the $39,586 note receivable from an officer
and stockholder will be forgiven effective with closing of this transaction.
On April 5, 1996, the Company, WGC and one of the selling stockholders entered
into a settlement agreement and release (Settlement Agreement). The Settlement
Agreement amended the terms of the purchase agreement above, whereby the
stockholder returned 677,350 shares of WGC stock and a $156,860 promissory note.
WGC also granted this stockholder options to purchase 50,000 shares of WGC stock
at a price per share of $2.50. These stock options vest in varying amounts over
the two-year period following the closing of the Settlement Agreement and expire
on January 31, 1999, if not exercised.
19
<PAGE> 23
EnviroQuest Technologies, Ltd
Balance Sheet
December 31,1995
(Unaudited)
<TABLE>
<S> <C>
Assets:
Current assets
Cash and equivalents $173,278
Accounts receivable 179,700
Prepaid expenses and other current assets 45,245
--------
398,223
Property and equipment 313,339
Deposits and other assets 105,452
--------
Total assets $817,014
========
Liabilities and shareholders' equity:
Current liabilities
Accounts payable, accrued expenses
and other liabilities $234,275
Current portion of long-term debt 80,700
--------
314,975
Long-term debt 429,093
Deferred income taxes 169,208
Shareholders' equity
Common stock 10,116
Additional paid-in capital 139,299
Treasury stock (28,395)
Retained earnings (accumulated deficit) (217,282)
--------
(96,262)
--------
Total liabilities and shareholders' equity $817,014
========
</TABLE>
<PAGE> 24
EnviroQuest Technologies, Ltd
Statements of Operations
Three Months ended December 31,1995 and1994
<TABLE>
<CAPTION>
1995 1994
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net sales $ 482,969 $ 533,456
Selling, general and administrative expenses 421,856 357,625
Research and development 210,118 130,208
Other expense 3,834 1,885
--------- ---------
Income (loss) from operations before
provision for income taxes (152,839) 43,738
Provision for income taxes 1,152 -
--------- ---------
Net income (loss) $(153,991) $ 43,738
========= =========
</TABLE>
<PAGE> 25
EnviroQuest Technologies, Ltd
Statements of Cash Flows
Three months ended December 31,1995 and 1994
<TABLE>
<CAPTION>
1995 1994
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ (153,991) $ 43,738
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 18,305 -
Deferred income tax 152,553 293,480
Unearned compensation 19,944 -
Changes in operating assets and
liabilities:
Accounts receivable (57,824) (118,696)
Prepaid expenses and other current
assets 6,264 9,355
Deposits and other assets 7,077 (35,265)
Accounts payable, accrued expenses
and other liabilities (272,213) (168,545)
--------- --------
Net cash provided by (used in) operating
activities (279,885) 24,067
INVESTING ACTIVITIES
Purchases of property and equipment (31,140) (11,943)
--------- --------
Net cash used in investing activities (31,140) (11,943)
FINANCING ACTIVITIES
Proceeds from line of credit borrowings 325,000 11,474
Proceeds from long-term debt 54,493 50,000
Purchase of treasury stock - (22,949)
-------- --------
Net cash provided by financing activities 379,493 38,525
Net increase in cash 68,468 50,649
Cash at beginning of period 104,810 173,540
-------- --------
Cash at end of period $173,278 $224,189
======== ========
</TABLE>
<PAGE> 26
ENVIROQUEST TECHNOLOGIES, INC.
NOTE TO UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments consisting of normal recurring accruals necessary to
present fairly the Company's financial position as of December 31, 1995 and the
results of operations and cash flows for the three-month periods ended December
31, 1995 and 1994. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The results
of operations for the three-month period ended December 31, 1995 are not
necessarily indicative of those to be expected for the entire year.
<PAGE> 27
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
Watson EnviroQuest Siras North Pro Forma Pro Forma
General Technologies Central Adjustments Consolidated
---------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets
Cash and equivalents $1,150,000 $173,000 $ 73,000 $ (800,000)(A) $ 956,000
Accounts receivable 524,000 180,000 18,000 - 722,000
Prepaid expenses and other
current assets 177,000 45,000 19,000 - 241,000
---------- -------- -------- ---------- ----------
2,211,000 398,000 110,000 (800,000) 1,919,000
Property and equipment 601,000 313,000 19,000 (80,000)(A) 853,000
Deposits and other assets 49,000 106,000 - (40,000)(A) 81,000
(34,000)(B)
Intangibles and goodwill 379,000 - 30,000 2,215,000 (A) 2,624,000
---------- -------- -------- ---------- ----------
Total assets $3,240,000 $817,000 $159,000 $1,261,000 $5,477,000
========== ======== ======== ========== ==========
Liabilities and shareholders' equity
Current liabilities
Accounts payable, accrued expenses
and other liabilities $ 583,000 $234,000 $30,000 $ 88,000 (A) $ 935,000
Current portion of long-term
debt 22,000 81,000 - - 103,000
---------- -------- -------- ---------- ----------
605,000 315,000 30,000 88,000 1,038,000
Long-term debt 347,000 429,000 - - 776,000
Deferred income taxes - 169,000 - - 169,000
Deferred employee benefits
and other liabilities 435,000 - - - 435,000
SHAREHOLDERS' EQUITY
Common stock 8,009,000 10,000 13,000 830,000 (A) 8,856,000
(6,000)(B)
Additional paid-in capital 153,000 139,000 112,000 136,000 512,000
(28,000)(B)
Treasury stock - (28,000) - 28,000 (A) -
Retained earnings (accumulated
deficit) (6,309,000) (217,000) 4,000 213,000 (A) (6,309,000)
---------- -------- -------- ---------- ----------
1,853,000 (96,000) 129,000 1,173,000 3,059,000
---------- -------- -------- ---------- ----------
$3,240,000 $817,000 $159,000 $1,261,000 $5,477,000
========== ======== ======== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
financial statements.
<PAGE> 28
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Watson EnviroQuest Siras North
General Technologies Central
------------- ------------- ------------
Fiscal year ended
------------------------------------------------
September 30, September 30, December 31, Pro Forma Pro Forma
1995 1995 1995 Adjustments Consolidated
------------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $2,990,000 $2,244,000 $172,000 $ - $5,406,000
Cost of sales 1,846,000 - - - 1,846,000
---------- ---------- -------- --------- ----------
Gross profit 1,144,000 2,244,000 172,000 - 3,560,000
Selling, general and administrative
expense: 2,193,000 1,992,000 188,000 113,000 (C) 4,576,000
90,000
Research and development - 485,000 - - 485,000
Interest and other expense
(income) 52,000 38,000 (1,000) 40,000 (E) 129,000
---------- ---------- -------- --------- ----------
Loss from operations before provision
for income taxes (1,101,000) (271,000) (15,000) (243,000) (1,630,000)
Provision (benefit) for income taxes 5,000 (87,000) - - (F) (82,000)
---------- ---------- -------- --------- ----------
Net loss ($1,106,000) ($184,000) ($15,000) $(243,000) ($1,548,000)
========== ========== ======== ========= ==========
Net loss per share ($0.13) ($0.18)
========== ==========
Weighted average shares 8,370,000 8,693,000
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
financial statements.
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Watson EnviroQuest Siras North Pro Forma Pro Forma
General Technologies Central Adjustments Consolidated
--------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $548,000 $483,000 $52,000 $ - $1,083,000
Cost of sales 426,000 - - - 426,000
--------- -------- ------- -------- ---------
Gross profit 122,000 483,000 52,000 - 657,000
Selling, general and
administrative expense: 464,000 422,000 63,000 28,000(C) 999,000
22,000(D)
Research and development - 210,000 - - 210,000
Interest and other expense 13,000 4,000 - 10,000(E) 27,000
--------- -------- ------- -------- ---------
Loss from operations before provision
for income taxes (355,000) (153,000) (11,000) (60,000) (579,000)
Provision for income taxes 5,000 1,000 - -(F) 6,000
--------- -------- ------- -------- ---------
Net loss ($360,000) ($154,000) ($11,000) $(60,000) ($585,000)
========= ======== ======= ======== =========
Net loss per share $ (0.04) $ (0.06)
========= =========
Weighted average shares 9,418,000 9,741,000
========= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
financial statements.
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(A) To reflect consideration paid and the purchase price allocation in
connection with the Company's acquisition of EnviroQuest Technologies,
Ltd. (ETL) and SIRAS North Central (SNC). The purchase price was
$2,102,000 comprised of $800,000 in cash, $88,000 in promissory notes,
322,650 shares of common stock of Watson General Corporation valued at
$847,000 and stock options for 195,000 shares of common stock of
Watson General Corporation valued at $367,000.
<TABLE>
<S> <C>
Estimated purchase price in excess of net assets acquired:
Purchase price $2,102,000
Less estimated fair market value of recorded net
assets of acquired companies 757,000
----------
Excess of purchase price over fair value of net assets
acquired $1,345,000
==========
</TABLE>
The primary adjustment in the fair market value of the net assets
acquired pertained to the valuation of acquired software of $900,000.
(B) Elimination of investment in SNC by ETL.
(C) Amortization expense for software over 8 years on a straight-line
basis.
(D) Amortization expense for excess of purchase price over fair value of
net assets acquired over 15 years on a straight-line basis.
(E) Interest on cash and notes issued in transaction
(F) There is no pro forma tax provision due to net losses incurred without
benefit.
<PAGE> 1
Exhibit 2
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release (the "Agreement") is made and
entered into as of the 5th day of April, 1996 by and among Frances E. Marencik,
an individual ("F Marencik"), Watson General Corporation, a California
corporation ("Watson"), and EnviroQuest Technologies, Ltd., a Missouri
corporation ("ETL").
WHEREAS, F. Marencik and certain other individuals sold stock of ETL
to Watson pursuant to that certain Stock Purchase Agreement dated on or about
January 18, 1996 (the "Stock Purchase Agreement"); and
WHEREAS, Watson believes that certain representations, warranties and
covenants made to it in the Stock Purchase Agreement have been breached and
that it was fraudulently induced to enter into the Stock Purchase Agreement;
and
WHEREAS, ETL believes that one or more persons who previously were
officers, directors and/or employees of ETL have breached their fiduciary duty
to ETL and committed willful and/or negligent acts against ETL; and
WHEREAS, F Marencik, on the one hand, and Watson and ETL, on the other
hand, desire to resolve all differences between them without admitting any
wrongdoing on the part of either party;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Return of Watson Stock. F. Marencik hereby returns, transfers and
assigns to Watson all right, title and interest in and to the 677,350 shares of
Watson common stock (the "Watson Shares") issued to F Marencik by Watson
pursuant to the Stock Purchase Agreement. F Marencik hereby confirms that she
has not transferred or assigned any right or interest in or to the Watson
Shares to any other person. The certificate(s) representing the Watson Shares
shall be delivered to Watson or ETL concurrently with the execution of this
Agreement.
2. Return of Promissory Note. F. Marencik hereby returns, transfers
and assigns to Watson all right, title and interest in and to the promissory
note issued to F Marencik by Watson pursuant to the Stock Purchase Agreement in
the amount of $156,860 (the "Note"). F Marencik hereby confirms that she has
not transferred or assigned any right or interest in or to the Note to any
other person. The Note shall be delivered to Watson or ETL concurrently with
the execution of this Agreement.
3. Amendment of Employment Agreement. Concurrently with the execution
of this Agreement by F. Marencik and ETL, such parties shall execute an
amendment to the existing Employment Agreement of F Marencik by ETL, which
amendment is attached hereto as Exhibit A.
4. Amendment of Stock Option Agreement. Concurrently with the
execution of this Agreement by F. Marencik and Watson, such parties shall
execute an amendment to
<PAGE> 2
the existing Stock Option Agreement between Watson and F Marencik, which
amendment is attached hereto as Exhibit B.
5. Certain Undertakings By Watson and ETL. Watson and ETL hereby
represent, warrant and covenant to F Marencik that (a) Watson shall not seek to
rescind the Stock Purchase Agreement, (b) neither Watson nor ETL shall seek
the return by F Marencik of the $520,400 cash purchase price paid to F Marencik
pursuant to the Stock Purchase Agreement, and (c) neither Watson nor ETL shall
seek the return by John M. Marencik of the $133,600 cash purchase price paid to
John M. Marencik pursuant to the Stock Purchase Agreement or otherwise seek
monetary damages from John M. Marencik in connection with the matters set forth
in that certain letter dated April 4, 1996 from Edward T Swanson, Esq. to Mark
Meers, Esq. (but the foregoing shall not limit the right to seek the return of
Watson stock or other non-cash consideration paid to John M. Marencik or future
cash payments to be paid to John M. Marencik pursuant to the Stock Purchase
Agreement or to modify or terminate non-cash benefits or future cash payments
provided pursuant thereto to John M. Marencik, including without limitation the
employment agreement with John M. Marencik or the obligation to cause his
election as a director of Watson).
6. Actions Necessary or Advisable To Implement the Foregoing. F
Marencik, Watson and ETL each hereby agree to take such other action, including
but not limited to the execution of one or more documents, which may be
necessary or advisable to implement the foregoing agreements and undertakings
of each such party pursuant to sections 1, 2, 3 and 4 of this Agreement.
Without limiting the foregoing, F Marencik shall deliver a written request to
James Ewan, as escrow holder under that certain Escrow Agreement dated January
30, 1996, to release the shares of ETL common stock previously owned by her
from such escrow and to deliver such shares to Watson.
7. Representation By F Marencik. F Marencik hereby represents,
warrants and covenants to Watson and ETL that, except for the matters set forth
in that certain letter dated April 4, 1996 from Edward T Swanson, Esq. to Mark
Meers, Esq., F Marencik has no actual knowledge as of the date hereof that any
representation, warranty or covenant in the Stock Purchase Agreement by the
Sellers (as that term is defined in the Stock Purchase Agreement) was not
correct in all material respects.
8. Release of F Marencik. Watson and ETL shall and hereby do relieve,
release and discharge F Marencik, and each of her heirs, successors and
assigns, of and from any and all claims, debts, liabilities, demands,
obligations, promises, acts, agreements, costs, expenses, damages, actions and
causes of action, of whatsoever kind or nature, whether now known or unknown,
suspected or unsuspected, based on, arising out of, or in connection with (a)
the representations, warranties and/or covenants of F Marencik or John M.
Marencik pursuant to the Stock Purchase Agreement, (b) any actions or omissions
by F Marencik in her capacity as an officer, director and/or employee of ETL
prior to the date of the Stock Purchase Agreement, and (c) any personal
liability that F Marencik may have to Watson and/or ETL as a result of any act
or omission by John M. Marencik as an officer, director and/or employee of ETL
prior to the date of the Stock Purchase Agreement; provided, however, that
nothing herein shall release, waive, or prejudice any rights that Watson or ETL
may have against F Marencik for any breach by F Marencik or any representation,
warranty, covenant or undertaking of F Marencik pursuant to this Agreement, and
further provided, however, that nothing in this Agreement is intended to
relieve, release or discharge John M Marencik of or from any liability that
John M. Marencik may have to Watson and/or ETL.
<PAGE> 3
9. Representations and Warranties. The parties hereto, and each of
them, represent and warrant to each other and agree with each other as follows:
(a) Each of the parties hereto has had the opportunity to
obtain independent legal advice from an attorney of his or her own choice with
respect to the advisability of executing this Agreement.
(b) There have been no other agreements or understandings
between the parties relating to the settled and released matters, except as
stated in this Agreement.
(c) Each party hereto, together with his or her attorney, has
made such investigation of the facts and of the law pertaining to this
settlement and this Agreement, and of all the matters pertaining thereto, as he
or she deems necessary.
(d) Each party hereto is the sole and rightful owner of all
right, title and interest in and to every claim, action and other matter which
he or she releases herein and has not heretofore assigned or otherwise
transferred, and shall not assign or otherwise transfer, any interest in any
claim, action or other matter which he or she may have against the other party
hereto.
10. Binding Effect. This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto and their respective representatives,
successors, heirs and assigns. However, except as otherwise expressly provided
herein, this Agreement is not for the benefit of any person not a party hereto
or specifically identified as a beneficiary herein, and is not intended to
constitute a third party beneficiary contract.
11. Captions. The headings of the sections of this Agreement are
intended solely for convenience of reference and are not intended and shall not
be deemed for any purpose whatever to modify or explain or place any
construction upon any of the provisions of this Agreement.
12. Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which will be an original, but all of which,
when taken together, will constitute one and the same instrument.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings of
the parties, and there are no representations, warranties or other agreements
between the parties in connection with the subject matter hereof except as
specifically set forth herein.
14. Amendment or Waiver. No supplement, modification, amendment, or
waiver of this Agreement shall be binding unless executed in writing by the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any provision hereof (whether or not
similar), nor shall waiver constitute a continuing waiver.
15. Governing Law. The parties hereto hereby agree that this
Agreement shall be governed by the laws of the State of California.
<PAGE> 4
16. Severability. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, to achieve the intent of the parties to the extent possible. In any
event, all other provisions of this Agreement shall be deemed valid and
enforceable to the extent possible.
17. Survival of Warranties and Representations. The warranties and
representations of this Agreement are deemed to survive the date of execution
hereof.
IN WITNESS WHEREOF, the parties hereto have each approved and executed
this Agreement as of the date set forth above.
/s/Frances E. Marencik
--------------------------------
FRANCES E. MARENCIK
WATSON GENERAL CORPORATION
By: /s/Ronald G. Crane
----------------------------
ENVIROQUEST TECHNOLOGIES, LTD.
By /s/Roger H. Sherwood
-----------------------------
