<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 29, 1996
REGISTRATION NO. 33-64310
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WATSON GENERAL CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-2873757
------------------------ -----------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
32-B MAUCHLY
IRVINE, CALIFORNIA 92718
(714) 727-4020
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
RONALD CRANE, PRESIDENT
WATSON GENERAL CORPORATION
32-B MAUCHLY
IRVINE, CALIFORNIA 92718
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
Edward T. Swanson, Esq.
Swanson & Meepos
100 Wilshire Boulevard, Suite 200
Santa Monica, California 90401-1113
(310) 576-4841
---------------------------------
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
===============================================================================
<PAGE> 2
PROSPECTUS
397,880 SHARES OF COMMON STOCK
WATSON GENERAL CORPORATION
This Prospectus, on behalf of Watson General Corporation (the
"Company"), is to be used in connection with offers and sales of the Company's
common stock, no par value per share ("Common Stock") by the Selling
Shareholders as follows: (i) 147,880 shares of the Common Stock underlying the
Warrants purchased by certain "Selling Shareholders" (see "Selling
Shareholders") pursuant to the Company's Unit Private Placement concluded in
January 1993, which Warrants are exercisable at $3.50 per share and expire at
11:59 p.m., New York time, on December 31, 1997; (ii) 200,000 shares of Common
Stock underlying the option (the "Selling Agent Option") granted to the
Placement Agent for the Unit Private Placement, Drake Capital Securities, Inc.
("Drake"); and (iii) 50,000 shares of Common Stock underlying the Warrants
included in the Selling Agent Option.
The Shares being offered by the Selling Shareholders may be offered
from time to time in transactions in the over-the-counter market, in negotiated
transactions, or a combination of such methods of sale, at prices relating to
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 whom such broker-dealers may act as agents or to whom they
sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholders. However, the Company will receive funds of
up to $992,580 from exercise of Warrants, the Selling Agent Option, and the
Warrants issuable upon exercise of the Selling Agent Option. See "Selling
Shareholders." However, there is no assurance that any Warrants or the Selling
Agent Option will be exercised, and if the Company does receive any proceeds
from the exercise thereof, such exercise may not occur until as late as March
16, 1998. The Company has agreed to bear certain expenses (other than
underwriting discounts and commissions and brokerage commissions and fees) in
connection with the registration and sale of the Shares being offered by the
Selling Shareholders, which expenses are estimated to be approximately $42,000.
The Common Stock is traded on NASDAQ under the symbol: WGEN. On
February __, 1996, the closing sales price per share for the Common Stock as
reported by NASDAQ was $____.
--------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. THESE SECURITIES SHOULD BE PURCHASED ONLY BY THOSE PERSONS WHO CAN
AFFORD A LOSS OF THEIR ENTIRE INVESTMENT. 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.
--------------------
THE DATE OF THIS PROSPECTUS IS ______, 1996
<PAGE> 3
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, AND SELLING SHAREHOLDER, OR BY ANY OTHER PERSON. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES TO ANY PERSON OR BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE
MADE.
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION 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 OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................... 2
Incorporation of Certain Documents by Reference .... 2
Risk Factors........................................ 3
The Company......................................... 5
Acquisition of EnviroQuest.......................... 5
Plan of Distribution................................ 8
Selling Shareholders................................ 9
Indemnification of Directors, Officers and
Controlling Persons Against Securities
Act Liabilities.................................. 10
Legal Matters....................................... 10
Experts............................................. 10
</TABLE>
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, information statements
and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by the
Company may be inspected and copied 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 located at 75 Park Place,
New York 10007 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained by mail from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No 0-16011)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-KSB for the Fiscal Year
Ended September 30, 1995.
2. The Company's Quarterly Report on Form 10-QSB for the Quarter Ended
December 31, 1995.
3. The Company's Current Report on Form 8-K as filed with the
Commission on January 10, 1996 and the Company's Current Report on
Form 8-K as filed with the Commission on February 13, 1996 and
amended on _____, 1996.
4. The Company's Reports on Form 10-C as filed with the Commission on
February 2, 1995, December 28, 1995 and February 8, 1996.
5. The description of the Company's Common Stock contained in its
registration statement on Form 10 filed with the Commission on June
29, 1987, as amended by Amendment No. 2 on Form 8 filed with the
Commission on October 30, 1987.
6. All other documents filed by the Company pursuant to Section 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 of the
Shares.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the request of any such person, a copy of
any or all of the documents which are incorporated herein by reference (other
than exhibits to such information, unless such exhibits are specifically
incorporated by reference into the information this Prospectus incorporates).
Requests should be directed to Watson General Corporation, 32-B Mauchly,
Irvine, California 92718, Attention: Joseph L. Christoffel, Chief Financial
Officer, telephone (714) 727-4020.
<PAGE> 5
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following factors in
evaluating the Company and its business before purchasing the shares of Common
Stock offered hereby.
NO ASSURANCE AS TO FUTURE OPERATIONS.
There is no assurance that the Company will be able to generate
earnings or successfully expand its operations in the future. To date, the
Company has not generated net income from continuing operations, and continues
to generate net losses from operations; the Company has been able to sustain
its operations only through the periodic sale of equity. The Company cannot
predict with any certainty the success or failure of its present and future
operations.
DEPENDENCE ON KEY PERSONNEL.
The Company believes that its success depends to a significant extent
on the efforts and abilities of certain of its senior management. The loss of
key employees could have a material adverse effect on the Company. There can
be no assurance that satisfactory individuals will be available to replace
existing management should replacement become necessary.
NATURE OF INDUSTRY; DEPENDENCY ON GOVERNMENT REGULATIONS TO CREATE DEMAND FOR
THE COMPANY'S PRODUCTS AND SERVICES.
The market for the Company's products and services is created
principally by new governmental regulations. The Environmental Protection
Agency ("EPA") has cited estimates that as many as 25 percent of underground
storage tanks ("USTs") have leaked or are leaking. In 1984 Congress responded
to the problem by amending the Resource Conservation and Recovery Act of 1976
to require that EPA to develop regulations to protect human health and property
from leaking USTs. Regulations became effective in December 1988, with all
USTs obligated to meet specified requirements by December 1998. If these
regulations are delayed or not enforced, the demand for the Company's products
and services could be materially adversely affected.
In January 1996, it was reported that the State of California was
halting cleanup operations at underground gas tank sites more than 350 feet
from drinking water wells. This decision was made after a report conducted by
the Lawrence Livermore National Laboratory concluded that natural processes in
the ground remove most of the toxic ingredients left by underground petroleum
leaks. Such halt could adversely affect the business of the Company's
subsidiary, Toxguard Systems, Inc.
CONTROL BY PRESENT MANAGEMENT.
As of the date of this Prospectus, present officers and directors own
or control beneficially approximately 31% of the Company's Common Stock and
accordingly may be in a position to substantially influence the election of a
majority of the Company's directors, and may otherwise control the Company. As
part of the acquisition of EnviroQuest Technologies, Ltd. ("EnviroQuest"), the
Board of Directors of the Company elected John Marencik and Roger Sherwood, the
current chief executive officer and president, respectively, of EnviroQuest to
the Board of Directors, and the Company agreed to use its best efforts to
ensure that they continue to be elected to the Board of Directors of the
Company during their employment by EnviroQuest.
COMPETITION.
Management of the Company is aware of at least two major monitoring
panel manufacturers who offer their own software monitoring system. Their
software is written only for use by their own equipment, whereas the Company's
software currently interfaces with all major brands. Major oil companies could
decide to build proprietary systems for their own station outlets, and such
software could be designed to directly compete with the Company's products and
services. In addition, third parties could enter this market at any time,
possibly with substantially greater resources than the Company. Many of its
competitors have substantially greater resources than the Company.
<PAGE> 6
FINANCING AND CASH FLOW REQUIREMENTS.
The Company believes that proceeds of certain recent sales of Common
Stock should be sufficient to satisfy its cash flow requirements for at least a
twelve-month period of time. In the event that the Company is not successful
in generating cash flow from its operations to sustain such operations, the
Company may need to secure additional financing to develop and maintain its
business. There can be no assurance that additional financing, either through
the sale of placement of debt or equity, will be available on terms acceptable
to the Company.
ACQUISITION OF ENVIROQUEST.
On January 30, 1996, the Company acquired all of the outstanding stock
of EnviroQuest Technologies, Ltd. ("EnviroQuest") for 1,000,000 shares of
Common Stock, $800,000 cash and a two-year promissory note for $220,000.
During late 1995, EnviroQuest lost its largest customer, Mobil, which accounted
for approximately 20% of EnviroQuest's recurring revenue base and approximately
40% of its 1995 revenues. Management of EnviroQuest believes that such loss
was due to client servicing problems rather than any dissatisfaction with
EnviroQuest's product. The loss of this customer will result in significant
pre-tax losses in the first two quarters of fiscal 1996 (which began on October
1, 1995). Management of EnviroQuest has taken steps to mitigate the effects of
losing this customer and to protect against similar situations in the future.
However, losses by EnviroQuest may continue until the revenues previously
attributable to Mobil have been replaced. See "Acquisition of EnviroQuest."
RECENT OFFERINGS BY THE COMPANY.
During late 1995 and early 1996, the Company sold a total of 1,114,287
shares of Common Stock to three accredited investors for an aggregate of
$1,950,000 ($1.75 per share) in private transactions in order to provide
sufficient funds for the pending acquisition of EnviroQuest and to provide
additional working capital for the Company. In connection with the
transactions, the Company also issued an aggregate of 60,000 shares of Common
Stock to two finders.
SHARES ELIGIBLE FOR SALE UNDER RULE 144
As of January 31, 1996, there were approximately 1,176,000 restricted
shares of Common Stock outstanding which had been held for more than two years
and were eligible for resale pursuant to Rule 144 under the Securities Act of
1933. Although Rule 144, with certain exceptions, imposes restrictions on the
number of shares which may be sold pursuant to that rule by a person during a
three-month period, the sale of a significant number of the shares eligible for
resale under Rule 144 could adversely affect the market for the Company's
Common Stock.
PENDING LITIGATION
As described under "Acquisition of EnviroQuest - Litigation," there
presently is litigation pending against EnviroQuest which, if decided adversely
to EnviroQuest, could have a material adverse impact on EnviroQuest.
NO DIVIDENDS AND NONE ANTICIPATED.
The Company has not paid any cash dividends, nor does it contemplate
or anticipate paying dividends upon its Common Stock in the foreseeable future.
<PAGE> 7
THE COMPANY
Watson General Corporation (the "Company"), a California corporation
based in Irvine, California, considers itself to be a leader in the emerging
industry of remote monitoring software. Environmental consulting and
construction project management provide a significant portion of the Company's
business today. However, the Company believes that it has a special niche in
offsite monitoring of underground storage tanks because its proprietary
software is capable of interfacing with virtually every leak detection device
presently being manufactured. Monthly revenues are derived from software
sales/support and for performing the logistics of monitoring if customers
decide to outsource. The Company is evolving from an environmental consulting
firm, with emphasis on services for the petroleum industry, to a developer of
proprietary software for monitoring leakage and inventory levels in underground
storage tanks. This software not only assists in compliance with regulations
but also provides critical management information. The Company's primary
market is petroleum-related. Customers include federal and municipal agencies
and oil, transportation and retail companies.
The recent acquisition of EnviroQuest Technologies, Ltd.
("EnviroQuest"), a national provider of statistical inventory reconciliation
services (see "Acquisition of EnviroQuest"), is expected to complement the
Company's current operations and enhance the Company's unique position in the
management service industry, with comprehensive solutions for multiple unit
offsite monitoring needs.
The Company's goal is to increase its revenues significantly and
establish long-term profitability by:
o Building long-term relationships with customers and, in the process,
develop strong recurring revenue streams with value-added or
additional services.
o Focusing on niches where there is currently little or no competition.
o Furthering growth by acquiring businesses that add market share
and/or technologies to the Company, and by forming strategic
alliances to market and deliver the Company's proprietary products
and services.
The Company currently is engaged in niche market environmental
businesses through its operating subsidiaries:
<TABLE>
<CAPTION>
Subsidiary Product/Service
---------- ---------------
<S> <C>
EnvirAlert, Inc. Remote monitoring software
Toxguard Systems, Inc. Environmental consulting and project management
Toxguard Fluid Technologies, Inc. On-site antifreeze recycling
EnviroQuest Technologies, Ltd. Statistical inventory reconciliation services
</TABLE>
ACQUISITION OF ENVIROQUEST
General
On January 30, 1996 the Company purchased all of the outstanding
common stock of EnviroQuest Technologies, Ltd. ("EnviroQuest"), a national
provider of statistical inventory reconciliation services which is
headquartered in Kansas City, Missouri. Statistical inventory reconciliation
software is an approved method of leak detection for underground storage tanks
and is synergistic to the software systems and services provided by the
Company's EnvirAlert, Inc. subsidiary, in that the EnvirAlert software can
collect the data remotely from virtually any electronic device, while the
EnviroQuest software analyzes that data.
EnviroQuest's proprietary software is used to monitor underground
storage tanks (USTs) for leak detection and tightness testing as required by
federal, state and local environmental regulations. EnviroQuest's statistical
inventory reconciliation analysis software ("SIRAS") is one of the most cost
effective and least intrusive methods of detecting leaks in USTs. Customers
pay a monthly fee to subscribe to EnviroQuest's information processing system.
<PAGE> 8
The principal uses of EnviroQuest's products are service stations and
convenience stores throughout the United States.
Pursuant to the stock purchase agreement with the shareholders of
EnviroQuest, the aggregate purchase price for the outstanding stock of
EnviroQuest was 1,000,000 shares of the Company's Common Stock, $800,000 cash
and a promissory note for $220,000. The note does not bear interest and will
be due and payable on January 30, 1998. In addition, EnviroQuest is obligated
to employ John and Frances Marencik for three years for an aggregate
compensation of $500,000, payable over four years. Mr. Marencik and Roger
Sherwood, the chief executive officer and president, respectively, of
EnviroQuest, have been elected to the Board of Directors of the Company.
During the term of Mr. Marencik's employment, the Company must use its
reasonable best efforts to cause Messrs. Marencik and Sherwood to be elected to
the Board of Directors of the Company.
SIRAS Service
EnviroQuest's proprietary Statistical Inventory Reconciliation
Analysis System (SIRAS) is one of several methods certified by Midwest Research
Institute to detect leaks in USTs. Statistical Inventory Reconciliation (SIR)
is an EPA-approved method of leak detection which has substantial cost and
operational advantages over other approved methods. It is considered a
permanent method of compliance. The software system has received several third
party certifications under the EPA's protocol for evaluating SIR methods.
SIRAS is provided as a service to tank owners through the process of
collecting and analyzing data on a monthly basis. Such monthly monitoring
addresses the need for permanent leak detection. Permanent leak detection will
be mandatory on all USTs in the United States by December 1998. SIRAS is
approved for use as monthly monitoring in over 46 states, and in 20 states, a
monthly monitoring application is the only way a tank owner can utilize SIR
technology to satisfy leak detection requirements. UST owners subscribing to
SIRAS service provide standard data (daily tank levels, sales, and deliveries)
monthly which EnviroQuest analyzes. Costs to tank owners for this service
range from $120 to $300 per tank per year, depending upon the number of USTs
the owner-operators places into SIR service.
Recent Developments
During late 1995, EnviroQuest lost its largest customer, Mobil, which
accounted for approximately 20% of EnviroQuest's recurring revenue base and
approximately 40% of its 1995 revenues. Management of EnviroQuest believes
that such loss was not due to any dissatisfaction with EnviroQuest's product.
The loss of this customer will result in significant pre-tax losses in the
first two quarters of fiscal 1996 (which began on October 1, 1995). Management
of EnviroQuest has taken steps to mitigate the effects of losing this customer
and to protect against similar situations in the future. However, losses by
EnviroQuest may continue until the revenues previously attributable to Mobil
have been replaced.
Key Management of EnviroQuest
John M. Marencik, currently a director and Chief Executive Officer of
EnviroQuest, served as President of EnviroQuest since its formation in 1990
until September 1995. Prior to founding EnviroQuest, Mr. Marencik was employed
by Hall-Kimbrell Environmental Services as Director of Analytical Sales. Mr.
Marencik is a graduate of the University of Missouri, where he received a B.S.
in Chemistry.
Roger H. Sherwood joined EnviroQuest as its President in September
1995. Prior thereto, he was with Amoco Oil Company for approximately thirty
years, most recently serving as Regional Manager for the Kansas City region
from 1988 through 1994. As such, Mr. Sherwood managed and directed a
five-state marketing and distribution operation which had net sales of $450
million. Mr. Sherwood is a graduate of the Program for Management Development
of Harvard University and has a B.S. in Advertising from the University of
Florida.
Compensation of Management
In September 1995, Roger H. Sherwood entered into a three-year
employment agreement with EnviroQuest pursuant to which he is to receive a base
salary of $100,000 per year as well as a monthly bonus equal to 1/2 of one
percent of EnviroQuest's gross sales revenue and a monthly bonus equal to 1% of
EnviroQuest's net income. In
<PAGE> 9
addition, the Company has agreed to issue to Mr. Sherwood options to purchase
40,000 shares of the Company's Common Stock each year during the term of the
employment agreement.
As part of the stock purchase agreement pursuant to which the Company
acquired all of the outstanding common stock of EnviroQuest, John M. Marencik
and Frances E. Marencik each are being employed by EnviroQuest for three years
for an aggregate cash compensation of approximately $500,000, payable over four
years.
Litigation
In National Environmental Tank Testing Company, a/k/a Nettco, Inc. v.
EnviroQuest Technologies, Ltd. et al., plaintiff has filed suit against
EnviroQuest and John Marencik on grounds of breach of contract, intentional
interference with business relationships and fraud. Actual damages in excess
of $25,000 and punitive damages of $5,000,000 are sought by plaintiff. The
case presently is in discovery stages. Based upon the information which
counsel for EnviroQuest has obtained to date relative to the testimony of
witnesses associated with this matter, the Company believes that a successful
claim against EnviroQuest for actual damages is possible but not likely.
In James Dash and Northeast Equipment & Supply Co., Inc. vs.
EnviroQuest Technologies, Ltd. and John M. Marencik, which has been filed in
the United States District Court for the District of New Jersey, plaintiffs
have alleged that the defendants breached an agreement between the parties
wherein EnviroQuest was to pay commissions to plaintiffs for services rendered.
In addition, plaintiffs have alleged fraud, breach of employment contract and
have requested an accounting. EnviroQuest terminated the agreement with
plaintiffs based upon nonperformance in May 1995 retroactive to March of 1995.
Defendants believe that all sums due plaintiffs have been paid, and that in
fact there may have been overpayments of commissions under the agreement.
Defendants also believe that plaintiffs were in violation of the
non-competition provisions of their Commission Sales Agreement during the
period of time in which plaintiffs claim commissions due. Plaintiffs claim
actual and punitive damages in sums exceeding $200,000. The contracts provide
for an exclusive jurisdiction in the State Courts of Missouri with venue in
Jackson County, Missouri. Presently, action is being taken to seek a dismissal
in its present venue. The Company believes that a successful claim against
EnviroQuest in this matter is remote.
Aerotek Contract Engineering Services, through legal counsel, has
made a claim of an account in the sum of approximately $56,000, representing
alleged sums due for personnel provided by plaintiff for placement of temporary
technical/engineering service personnel. No suit has been filed to date,
however. EnviroQuest believes it has a counterclaim against plaintiff based
upon misrepresentation of the credentials of certain personnel provided to
EnviroQuest. However, it is possible that the third party for whom EnviroQuest
provided services might request a refund from EnviroQuest due to the
qualifications of the personnel used on the project. The Company believes that
a successful claim against EnviroQuest in this matter is remote.
Competition
To the knowledge of EnviroQuest, there are five national and four
regional firms in the Statistical Inventory Reconciliation (SIR) Services
business today. Other SIR systems may be in development. SIRAS is believed to
be the only computer program to have received its third party certifications
through Midwest Research Institute (MRI), which management of EnviroQuest
considers to be the premier certifying entity in this country. SIRAS is
certified not only for method (as applied by trained statistical experts), but
also as a self-interpreting software program which can be operated by
non-statistical staff.
EnviroQuest Facilities
EnviroQuest's headquarters currently are located in 3,000 square feet
of leased office space at 4501 Madison Avenue, Kansas Avenue, Missouri 64111.
The rent currently is $2,125 per month. The lease expires in October 1996,
but EnviroQuest has the option to extend the lease for two additional years at
a monthly rent of $2,220 per month.
Proprietary Technology
EnviroQuest has registered the SIRAS trademark/service mark and has
provided copyright notice for the software. EnviroQuest has not, however,
applied for patent protection for any of its products or processes.
<PAGE> 10
EnviroQuest relies on confidentiality and non-compete agreements with all
critical development personnel to protect its proprietary rights in these
products and processes. Although EnviroQuest has such proprietary rights,
EnviroQuest believes that the successful marketing of its products generally
depends more upon the experience, technical know-how and creative ability of
its personnel rather than upon ownership of such rights. There can be no
assurance however, that the steps taken by EnviroQuest to safeguard its
proprietary rights will preclude the manufacturer or sale of similar comparing
items.
SELLING SHAREHOLDERS
The Selling Shareholders consist of persons who purchased Units in the
Unit Private Placement concluded in January 1993, Drake Capital Securities,
Inc. ("Drake"), which acted as the placement agent for the Company in
connection with the Unit Private Placement, and two officers of Drake who have
received a portion of the Selling Agent Option granted to Drake. Each Unit
consisted of four shares of common Stock and one Warrant to purchase one share
of Common Stock at the exercise price of $3.50 per share until December 31,
1995, which date subsequently was extended to December 31, 1997. The Selling
Agent Option entitles Drake to purchase up to 50,000 Units at a price of $6 per
Unit (an aggregate of 200,000 shares of Common Stock and 50,000 Warrants).
The following table sets forth information concerning the beneficial
ownership of Common Stock of the Selling Shareholders as of the date of this
Prospectus. Such information in the tables was furnished to the Company by the
individual Selling Shareholders.
PLAN OF DISTRIBUTION
The Shares being offered by the Selling Shareholders (consisting of
shares of Common Stock receivable upon exercise of the Warrants, the Selling
Agent Option and the Warrants included in the Selling Agent Option) may be sold
from time to time as market conditions permit in the over-the-counter market,
or otherwise, at prices and upon terms then prevailing, or at prices related to
the then-current market price, or in negotiated transactions. The Shares
offered hereby by Selling Shareholders may be sold by one or more of the
following methods, without limitation: (a) ordinary brokerage transactions and
transactions in which the broker solicits the purchaser; (b) a block trade in
which a 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; (c) purchases by a broker or dealer as principal and resale by
such broker or dealer for its own account pursuant to this Prospectus; and (d)
direct transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by Selling Shareholders may arrange
for other brokers or dealers to participate. Such brokers or dealers may
receive commissions or discounts from 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, in connection
with such sales. In addition, any securities covered by this Prospectus that
qualify for sale pursuant to Rule 144 might be sold under Rule 144 rather than
pursuant to this Prospectus.
The reoffers or resales of the shares to which this Prospectus relates
may require qualification or registration under state "blue sky" laws unless an
appropriate exemption exists. The Company currently intends to take such
reasonable actions, if any, as may be necessary for the securities to be
reoffered or resold in the states of California and New York, but, depending on
the circumstances, may not take any action to qualify or register the
securities for reoffer or resale in any other jurisdiction.
The Selling Shareholders will pay the expenses of their counsel, if
any, as well as any commissions, discounts or other compensation payable to
brokers or dealers to effect sales, and the Company will pay the other expenses
of this offering, estimated to be approximately $42,000.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously engage
in market making activities with respect to the Common Stock of the Company for
a period of two business days prior to the commencement of such distribution.
In addition and without limiting the foregoing, each Selling Shareholder will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Shareholders.
<PAGE> 11
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED(1)
------------------------------------------- WARRANTS UNDERLYING
PRIOR TO OWNED COMMON STOCK
THE REGISTERED AFTER THE BEFORE THE REGISTERED
NAME OF SELLING SHAREHOLDER OFFERING HEREWITH OFFERING OFFERING HEREWITH
- - --------------------------- ---------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Hung Ming Chen 15,000 0 15,000 10,000 10,000
Chin-Wen Lai 70,000 0 70,000 17,500 17,500
Seligson Living Trust 0 0 0 2,080 2,080
Bernice J. Scott 0 0 0 2,500 2,500
Michael S. Raya 20,000 0 20,000 5,000 5,000
Arthur E. & Sherry A. Nicholas 100,000 0 100,000 25,000 25,000
Carol McGrew Living Trust 0 0 0 2,000 2,000
Verner Kraft 0 0 0 5,000 5,000
Jordan G. Kakas and Mary Kakas 0 0 0 10,000 10,000
Eli Benzur 0 0 0 800 800
Mortimer Andron Trust 0 0 0 10,000 10,000
Ronald G. Crane & Karen M. Crane(2) 1,129,500 0 1,129,500 2,500 2,500
Sun Gen Lo Sun 70,000 0 70,000 17,500 17,500
Theodore C.C. King & Li Heng King, 0 0 0 8,000 8,000
trustees, King Trust
Leo D. Fialkoff Trust 60,000 0 60,000 15,000 15,000
Joseph DiLillo & Martina Shih 126,235 88,200 38,035 20,373 20,373
DiLillo(3)
Mary L. Watson, trustee of the Charles 1,216,000 0 1,216,000 10,000 10,000
A. Watson & Mary L. Watson Trust(4)
Mark Tipton 50,308 50,308 0 12,577 12,577
Drake Capital Securities, Inc. 153,492 61,492 92,000 22,050 22,050
--------- ------- --------- ------- -------
TOTAL 3,010,535 200,000 2,810,535 197,880 197,880
========= ======= ========= ======= =======
</TABLE>
______________________
(1) Assumes the exercise of the Selling Agent Option, but excludes shares of
Common Stock underlying Warrants and indicated elsewhere in the table. No
Selling Shareholder owns more than 1% of the outstanding shares of the
Common Stock of the Company except as otherwise indicated.
(2) Includes options to purchase 700,000 shares of Common Stock. Mr. Crane
beneficially owns approximately 9.4% of the outstanding Common Stock.
(3) In addition, Drake Capital Securities, Inc., of which Mr. DiLillo is a
principal and shareholder, beneficially owns 153,492 shares of Common
Stock.
(4) Beneficially owns approximately 10.8% of the outstanding Common Stock.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND CONTROLLING
PERSONS AGAINST SECURITIES ACT LIABILITIES
Section 317 of the California Corporations Code permits a corporation
to grant indemnification to directors, officers and other agents in terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities, including expenses, arising in connection with federal securities
laws, including but not limited to the Securities Act of 1933, as amended.
Pursuant to the Articles of Incorporation of the Company, as amended, and the
Bylaws of the Company, the Company is authorized to indemnify its directors,
officers and other agents to the full extent permitted by law and has
indemnified its directors for monetary damages to the full extent permitted by
law. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or
<PAGE> 12
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the sale of the Shares, the Company will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for
the Company by Swanson & Meepos, Santa Monica, California. Edward T. Swanson
of such firm represented Drake Capital Securities, Inc. in connection with the
Unit Private Placement.
EXPERTS
The consolidated financial statements (including schedules incorporated
by reference of the Company and its subsidiaries as of September 30, 1995 and
1994 and for each of the three years ended September 30, 1995, incorporated by
reference herein, have been so incorporated in reliance on the report of Ernst
& Young, independent accountants, given upon the authority of said firm as
experts in auditing and accounting.
<PAGE> 13
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
Item Amount
---- ----------
<S> <C>
Registration fee.............................. $ 1,915.05
Blue Sky fees*................................ 5,000.00
Legal fees and expenses*...................... 22,500.00
Accounting fees and expenses*................. 6,500.00
Printing costs*............................... 3,000.00
Miscellaneous*................................ 3,000.00
----------
Total................................... $41,915.05
==========
</TABLE>
_________________
*Estimated.
The Selling Shareholders will bear their own sales commissions and
related sales expenses in connection with this offering, but will not bear any
of the expenses listed above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the California Corporations Code permits a corporation
to grant indemnification to directors, officers and other agents in terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities, including expenses, arising in connection with federal securities
laws, including but not limited to the Securities Act of 1933, as amended.
Pursuant to the Articles of Incorporation, as amended, and the Bylaws of the
Company, the Company is authorized to indemnify its directors, officers and
other agents to the full extent permitted by law and has indemnified its
directors for monetary damages to the full extent permitted by law.
ITEM 16. EXHIBITS.
5.1 Opinion of Swanson & Meepos*
23.1 Consent of Ernst & Young (to be filed by amendment)
23.2 Consent of Swanson & Meepos (included in opinion filed as
Exhibit 5.1).*
24.1 Power of attorney (included on page II-3 of the original
Registration Statement).
____________
* Previously filed.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933 (the "Act"); (ii) to reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and (iii) to include any additional or changed
material information on the plan of distribution; provided, however, that (i)
and (ii) do not apply if the information required in a post-effective amendment
is incorporated by reference from periodic reports filed by the Registrant
under the Securities Exchange Act of 1934.
<PAGE> 14
(b) That for determining liability under the Act, each
post-effective amendment will be treated as a new registration statement of the
securities offered, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering.
(c) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(d) That insofar as indemnification for liabilities arising
under the Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling persons of
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling persons in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(e) That for determining any liability under the Act, the
Registrant will treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or
497(h) under the Act as part of this registration statement as of the time the
Securities ad Exchange Commission declared it effective.
(f) That for determining any liability under the Act, each
post-effective amendment that contains a form of prospectus will be treated as
a new registration statement for the securities offered in the registration
statement, and that offering of the securities at that time will be treated as
the initial bona fide offering of those securities.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment No. 1 to Registration Statement No. 33-64310 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Irvine, state of California, on this 29th day of February, 1996.
WATSON GENERAL CORPORATION
By /s/ RONALD G. CRANE
---------------------------
Ronald G. Crane
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement No. 33-64310 has been
signed by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
CHARLES A. WATSON* Chairman of the Board and Director February 29, 1996
--------------------------
(Charles A. Watson)
/s/ RONALD G. CRANE Chief Executive Officer, President February 29, 1996
-------------------------- and Director
(Ronald G. Crane)
JOSEPH L. CHRISTOFFEL* Chief Financial Officer (Principal February 29, 1996
-------------------------- Financial Officer and Principal
(Joseph L. Christoffel) Accounting Officer), Secretary and
Director
Director February , 1996
--------------------------
(John Marencik)
DENNIS E. MULLIGAN* Director February 29, 1996
--------------------------
(Dennis E. Mulligan)
/s/ ROGER SHERWOOD Director February 29, 1996
--------------------------
(Roger Sherwood)
JAMES M. SMATHERS* Director February 29, 1996
--------------------------
(James M. Smathers)
*By: /s/ RONALD G. CRANE
-------------------------------------
Ronald G. Crane, Attorney in Fact
</TABLE>
