<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
WATSON GENERAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
WATSON GENERAL CORPORATION
12265 W. Bayaud Avenue, Suite 110
Lakewood, Colorado 80228
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 28, 1998
TO THE SHAREHOLDERS OF WATSON GENERAL CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders of
Watson General Corporation, a California corporation (the "Company"), will be
held at the Westin Hotel, Tabor Center Denver, 1672 Lawrence St., Denver,
Colorado, on January 28, 1998 at 9:00 a.m. local time for the following
purposes:
1. To elect five directors, to hold office until the next Annual
Meeting and until their successors are elected.
2. To consider and vote upon a proposal to amend the Company's
Articles of Incorporation to change the name of the Company to
"USTMAN Technologies, Inc."
3. To consider and vote upon a proposal to amend the Company's
Articles of Incorporation to increase the total number of
authorized number of shares of the Company's common Stock from
25,000,000 to 40,000,000.
4. To consider and vote upon a proposal to amend the Company's
Articles of Incorporation to authorize the issuance of two new
classes of Common Stock of the Company, to be designated Class
A Non-Participating Common Stock and Class B Non-Voting Common
Stock.
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The attached Proxy Statement, which is part of this notice, provides
you with more information.
The Board of Directors has fixed the close of business on December 12,
1997 as the record date for the determination of shareholders entitled to
receive notice of, and to vote at, the Annual Meeting and any adjournments or
postponements thereof, and only holders of record of Common Stock at the close
of business on that date will be entitled to receive notice of, and to vote at,
the Annual Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE FILL IN,
SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE
PROVIDED.
We look forward to seeing you.
By Order of the Board of Directors.
/s/ DAN R. COOK
-----------------------------------
Dan R. Cook
President
Lakewood, Colorado
January 12, 1998
<PAGE> 3
WATSON GENERAL CORPORATION
12265 W. Bayaud Avenue, Suite 110
Lakewood, Colorado 80228
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
JANUARY 28, 1998
This Proxy Statement is furnished to the shareholders of Watson General
Corporation, a California corporation (the "Company") in connection with the
solicitation of proxies by and on behalf of the Board of Directors for the
Annual Meeting of Shareholders of the Company to be held on Wednesday, January
28, 1998, at 9:00 a.m. local time, and at any adjournment or postponement
thereof (the "Annual Meeting"). This Proxy Statement and the accompanying Notice
of Annual Meeting and Proxy Card are first being mailed to shareholders on or
about January 12, 1998.
As more fully described in this Proxy Statement, the shareholders will be asked
to consider and vote upon (i) the election of five Directors; (ii) a proposal to
amend the Company's Articles of Incorporation to change the name of the Company
to "USTMAN Technologies, Inc."; (iii) a proposal to amend the Company's Articles
of Incorporation to increase the total number of authorized number of shares of
the Company's Common Stock from 25,000,000 to 40,000,000; (iv) a proposal to
amend the Company's Articles of Incorporation to authorize the issuance of two
new classes of Common Stock of the Company, to be designated "Class A Voting
Common Stock" and "Class B Non-Voting Common Stock"; and (v) such other business
as may properly come before the meeting or any adjournment thereof.
Shareholders of record at the close of business on December 12, 1997 are
entitled to notice of and to vote at the Annual Meeting. On such date, there
were 18,361,100 shares of the Company's Common Stock issued and outstanding. A
majority of the shares entitled to vote, represented in person or by proxy,
constitutes a quorum for the meeting. If a quorum is not present, the Annual
Meeting may be adjourned to a later date at which a quorum is present, and
shares represented by proxies may be voted for such adjournment.
Abstention and broker non-votes are each included in the number of shares
present at the Annual Meeting for purposes of establishing a quorum. The
affirmative vote of the holders of a plurality of the shares of Common Stock
present or represented at the Annual Meeting is required for the election of
Directors (Proposal 1). The vote of a majority of the outstanding shares
entitled to vote is required to approve the proposed change of the name of the
Company (Proposal 2), the proposed increase in the authorized number of shares
of Common Stock of the Company (Proposal 3), and the proposed authorization of
two new classes of Common Stock, a Class A Voting Common Stock and a Class B
Non-Voting Common Stock (Proposal 4). Abstentions and broker non-votes will have
the same effect as a vote against Proposals 2, 3 and 4.
A shareholder may revoke a proxy given with respect to the Annual Meeting at any
time prior to the exercise thereof at the Annual Meeting by filing with the
Secretary of the Company a written revocation or a duly executed proxy bearing a
later date or, if such shareholder is present, indicating his or her intention
to vote in person at the Annual Meeting.
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<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of December 12, 1997 of persons (other than
officers or directors of the Company) known to the Company to own more than 5%
of the Company's outstanding Common Stock. Unless otherwise indicated in the
footnotes following the table, the persons as to whom the information is given
have sole voting and investment power over the shares shown as beneficially
owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name Beneficially Owned Outstanding Shares
- ---- ------------------ ------------------
<S> <C> <C>
Sagaponack Partners, L.P. 7,344,520(1) 40.0%
170 Columbus Ave., 5th Floor
San Francisco, CA 94133
Charles A. Watson 1,045,000 5.7%
5166 Soledad Road
San Diego, CA 92109
</TABLE>
- --------------------
(1) Does not include 2,625,432 warrants to purchase shares of Common Stock which
are exercisable at the times and prices, and to the extent, that other
options and warrants of the Company are exercised after May 22, 1997 in
order to maintain Sagaponack Partners, L.P.'s 40% ownership of the
outstanding Common Stock of the Company.
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of December 12, 1997 of (i) each director, (ii) the
chief executive officer of the Company named in the Summary Compensation Table
appearing in Item 10, and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated in the footnotes following the
table, the persons as to whom the information is given have sole voting and
investment power over the shares shown as beneficially owned, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name Beneficially Owned Outstanding Shares
- ---- ------------------ ------------------
<S> <C> <C>
Ronald G. Crane 1,121,500(1) 5.89%
12265 W. Bayaud Ave, #110
Lakewood, CO 80228
Dan R. Cook 600,000(2) 3.17%
12265 W. Bayaud Ave., #110
Lakewood, CO 80228
Barry S. Rosenstein 7,344,520(3) 40.00%
170 Columbus Ave., 5th Floor.
San Francisco, CA 94133
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
Number of Shares Percent of
Name Beneficially Owned Outstanding Shares
- ---- ------------------ ------------------
<S> <C> <C>
Marc A. Weisman 0 0.00%
645 Fifth Ave., 8th Floor
New York, NY 10022
Donald W. Phillips 0 0.00%
111 W. Jackson Blvd., Ste 1800
Chicago, IL 60604
All officers and directors
as a group (five persons) 9,413,020 47.07%
</TABLE>
- ----------------------
(1) Includes options granted by the Company to purchase up to 700,000 shares of
common stock. The options are fully vested and expire April 3, 2002. The
options are exercisable at $1.53 per share.
(2) Includes options granted by the Company to purchase up to 600,000 shares of
common stock. The options vest as to 150,000 on each of April 30, 1998,
1999, 2000, 2001 and expire three years from vesting. All options are
exercisable at $1.00 per share. Mr. Cook has agreed not to exercise any of
his options until and unless the authorized number of shares of Common Stock
is increased, in order to enable the Company to issue shares of Common Stock
in connection with the acquisition of Advanced Tank Certification, Inc.
(3) Includes 7,344,520 shares of Common Stock owned by Sagaponack Partners, L.P.
which are indirectly beneficially owned by Mr. Rosenstein as the managing
member of RSP Capital, L.L.C. which is the general partner of Sagaponack
Partners, L.P.
Does not include 2,625,432 warrants to purchase shares of Common Stock which
are exercisable at the times and prices, and to the extent, that other
options and warrants of the Company are exercised after May 22, 1997 in
order to maintain Sagaponack Partners, L.P.'s 40% ownership of the
outstanding Common Stock of the Company. Mr. Rosenstein indirectly
beneficially owns these warrants as the managing member of RSP Capital,
L.L.C. that is the general partner of Sagaponack Partners, L.P.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors presently consists of five directors. At the
Annual Meeting, five directors will be elected, each to hold office until the
next Annual Meeting and until his successor is elected.
The California General Corporation Law, as applicable to the Company, provides
that a shareholder may cumulate votes if a shareholder gives notice, prior to
the voting, of an intention to cumulate votes. If such a notice is given, every
shareholder may cumulate votes. Under cumulative voting, a shareholder is
entitled to a number of votes for election of directors equal to the number of
his or her shares times the number of directors to be elected; these votes could
be cast all for one nominee, or spread among more than one, as the
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<PAGE> 6
shareholder wishes. If cumulative voting is elected, the enclosed form of proxy
gives the proxyholders discretion to cumulate votes so that they can elect the
maximum possible number of nominees identified below. Assuming the presence of a
quorum, the candidates receiving the highest number of affirmative votes of the
shares entitled to vote will be elected, and abstentions will have no legal
effect.
Any shareholder executing the enclosed form of proxy may withhold authority to
vote for any one or more nominees by so indicating in the manner described in
the form of proxy. The total number of votes which such shareholder is entitled
to cast will not be affected by such action. However, the proxyholders, by
cumulating the votes of other shareholders, could offset the effect of the
withheld authority.
It is intended that the proxies received by management will be voted FOR the
election of the nominees for directors described below, unless authority to do
so is withheld. The Board of Directors anticipates that each of the nominees for
director will serve as a director if elected. However, if any person nominated
by the Board of Directors is unable to accept election, the proxies will be
voted for the election of such other person or persons as the Board of Directors
may recommend.
NOMINEES FOR DIRECTOR
The following information as of December 12, 1997 is provided about the five
nominees for election as directors of the Company.
DAN R. COOK has served as a Director of the Company since May 1997. At the May
22, 1997 Watson General Corporation Board of Directors meeting, Mr. Cook was
appointed President of the Company. In 1992 Mr. Cook was appointed as Chief
Operating Officer of USTMAN Industries, and has also been its President since
January 1994. Mr. Cook is also a CPA. Mr. Cook is 47.
RONALD G. CRANE has served as a Director of the Company since 1973. At the
January 19, 1993 Watson General Corporation Board of Directors meeting, Mr.
Crane was appointed President of the Company. In July 1994 Mr. Crane was
appointed Chief Executive Officer. In May, 1997 Mr. Crane relinquished the
positions of President, and in November 1997 he relinquished the position of
Chief Executive Officer Mr. Crane is a Director of Toxguard Systems, Inc. which
as previously disclosed has filed for bankruptcy. Mr. Crane is 51.
BARRY S. ROSENSTEIN has served as a Director of the Company since May 1997. Mr.
Rosenstein is a Managing Partner of Sagaponack Partners, L.P. and Sagaponack
International Partners, L.P. From 1991 to 1996 Mr. Rosenstein served as a
General Partner of Genesis Merchant Group Securities and served as the head of
its Investment/Merchant Banking Group. Mr. Rosenstein is currently a director of
Venture Stores, Inc., PDS Associates, and Marisa Christina, Inc. Mr. Rosenstein
is 38.
MARC A. WEISMAN has served as a Director of the Company since May 1997. Mr.
Weisman is a Managing Partner of Sagaponack Partners, L.P. and Sagaponack
International Partners, L.P. From January 1996 to August 1996, Mr. Weisman
served as Director in the Principal Transactions Group at CS First Boston where
he ran the High Yield Real Estate Finance Division. From 1988 to 1996, Mr.
Weisman was Chief Financial Officer and Executive Vice President of the Adco
Group, a privately held real estate and financial services company. Mr. Weisman
is currently a director of two private companies: Product Resources, Inc. and
Superior Bank SFB. Mr. Weisman is 44.
4
<PAGE> 7
DONALD W. PHILLIPS has served as a Director of the Company since May 1997. Mr.
Phillips is the President and CEO of Forstmam-Leff International, Inc. a Refco
Group, Ltd. Company. From 1990 to 1997, Mr. Phillips was Chairman of Equity
Institutional Investors. Mr. Phillips is a Director of several manufacturing and
investment companies.
ATTENDANCE AT BOARD MEETINGS
During the fiscal year ended June 30, 1997, the Company's Board of Directors
held nine meetings. Each current director attended at least 75% of the Board
meetings that he was eligible to attend. The Company has no separate Audit,
Compensation or Nominating Committee.
DIRECTORS' COMPENSATION
On May 22, 1997 the Company began paying $25,000 per quarter to Sagaponack
Partners, L.P. as compensation for the Board of Director fees of Barry
Rosenstein and Marc Weisman.
On May 22, 1997 the Company began to pay Don Phillips Board of Directors fees of
$1,667, along with reasonable expenses, for physical attendance per Board of
Directors meeting, plus $5,000 annually. In addition the Company has represented
that it will issue to Don Phillips shares of common stock of the Compnay equal
to one tenth of one percent of the outstanding stock of the Company at the
conclusion of each year of service on the Board of Directors.
OBLIGATION TO NOMINATE CERTAIN DIRECTORS
In connection with a $7,000,000 financing agreement in May 1997, the Company
entered into a Company Agreement with Sagaponack Partners, L.P. ("Sagaponack"),
and its foreign affiliate, Sagaponack International Partners, L.P.
(collectively, the "Investors"), pursuant to which the Company agreed that the
Board of Directors will at all times consist of five members, and that the
Company will nominate to become members of the Board two persons designated by
the Investors and one person selected from a list of persons. The Company also
agreed to nominate Dan R. Cook as a member of the Board of Directors. In
addition, pursuant to a Shareholders Agreement entered into among the Investors
and certain shareholders of the Company, including Ronald G. Crane and Dan R.
Cook, the shareholders are obligated to vote their shares during any election of
directors of the Company for the two nominees of the Investors and for the
person nominated from the list of persons specified in the Company Agreement,
unless Investors have sufficient votes to cause the election of such persons.
Such obligation shall terminate at such time as the aggregate number of shares
of Common Stock owned by an Investor or under the direct or indirect control of
an Investor is less than 10% of the total outstanding number of shares of Common
Stock. The persons nominated pursuant to the above procedure are Barry
Rosenstein, Marc Weisman and Don Phillips.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's executive officers and directors, and persons who are beneficial
owners of more than 10% of a registered class of the
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<PAGE> 8
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and beneficial owners of greater than 10% are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, and written representations that no other
reports were required during the fiscal year ended June 30, 1997, all Section
16(a) filing requirements applicable to such persons were satisfied.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1994, Charles A. Watson loaned $49,900 to the Company at no interest
as earnest monies for the potential acquisition of real property located in San
Diego, California. The loan of $49,900 was repaid by the Company.
In November 1996, Charles A. Watson agreed to loan the Company $200,000 at an
annual interest rate of 10.25% for a period of 120 days. In November and
December 1996 $165,000 was drawn from this commitment. The loan is secured by
the Company's stock in Watson Value Assets LLC that was formed in October 1996.
The loan was repaid by the Company.
PROPOSAL 2
APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
The Board of Directors has unanimously adopted a resolution amending Article
FIRST of the Company's Articles of Incorporation to change the name of the
Company to "USTMAN Technologies, Inc." The Board of Directors believes that this
change is desirable to reflect the focus of the Company since the acquisition
earlier this year of a business utilizing such name, and to benefit from the
perceived reputation of such name in the industry.
The name change will not affect the validity or transferability of stock
certificates presently outstanding or the listing of any of its securities on
the NASDAQ SmallCap Market. The Company's shareholders will not be required to
surrender for exchange any stock certificates presently held by them.
If the proposed amendment to the Company's Articles of Incorporation is approved
by the shareholders at the Annual Meeting, such amendment will become effective
when a Certificate of Amendment of the Company's Articles of Incorporation is
filed of record with the Secretary of State of the State of California.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO CHANGE THE
COMPANY'S CORPORATE NAME.
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<PAGE> 9
PROPOSAL 3
APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has unanimously adopted a resolution amending Article
THIRD of the Company's Articles of Incorporation to increase the authorized
shares of the Company's Common Stock from the current amount of 25,000,000
shares to 40,000,000 shares. At the close of business on December 12, 1997,
there were 18,361,100 shares of Common Stock outstanding, and an additional
6,348,579 shares of Common Stock were reserved for issuance upon exercise of
outstanding options and warrants. Furthermore, there were an aggregate of
1,300,000 options to purchase 1,300,000 shares of Common Stock which may not be
exercised unless and until the authorized shares of Common Stock have been
increased. The Company also may be obligated to issue additional shares of
Common Stock under certain circumstances. Consequently, the increase in the
authorized number of shares of Common Stock is necessary to permit the Company
to issue all shares which it may be obligated to issue under presently existing
commitments, as well as to enable the Company to grant additional stock options
or other stock-based compensation to its employees and, where advantageous to
the Company, to issue shares of its capital stock in connection with future
acquisitions, to raise additional capital, or for other purposes.
Under the terms of a Securities Purchase Agreement dated May 22, 1997 by and
among the Company, Sagaponack Partners, L.P. and Sagaponack International
Partners, L.P., the failure of the Company to increase its authorized shares of
Common Stock will result in an event of default and cause the $7,000,000 loan to
the Company pursuant to the Securities Purchase Agreement to become immediately
due and payable.
Except for the shares of Common Stock issuable under current obligations of the
Company, the Company does not presently have any immediate plans to issue any of
the additional shares of Common Stock which would be authorized if the increase
in authorized shares of Common Stock contemplated by this amendment is approved.
Other than increasing the number of authorized shares of the Company's Common
Stock, the proposal to increase the authorized shares of Common Stock will not
affect the rights, preferences or privileges of the Company's shareholders.
The affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting will be required for approval of the
proposal to increase the authorized shares of Common Stock. In the absence of
approval, the authorized number of shares of Common Stock of the Company will
remain as described above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO INCREASE THE
AUTHORIZED SHARES OF COMMON STOCK.
PROPOSAL 4
APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
TO AUTHORIZE CLASS A VOTING COMMON STOCK
AND CLASS B NON-VOTING COMMON STOCK
The Board of Directors has unanimously adopted a resolution amending Article
THIRD of the Company's Articles of Incorporation to (i) authorize a new class of
common stock designated as Class A Voting Common Stock ("Class A Stock") and
(ii) a new class of common stock designated as Class B Non-Voting Common Stock
("Class B Stock"). The Class A Stock would be identical to the currently
authorized Common Stock of the Company, except that upon the payment of a
dividend, distribution or similar right, one share of Class A Stock would be
entitled to receive only 46.118% of the dividend, distribution, or similar right
payable with respect to one share of Common Stock. The Class B Stock would be
identical to the currently authorized Common Stock of the Company, except that
(i) holders of such stock would not be entitled to any voting rights with
respect to such shares and (ii) upon the payment of a dividend, distribution or
similar right, one share of Class B Stock would be entitled to receive only
53.882% of the dividend, distribution, or similar
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<PAGE> 10
right payable with respect to one share of Common Stock. One share of Class A
Stock and one share of Class B Stock could be exchanged at any time for one
share of Common Stock. The Company will not seek to list the Class A Stock or
the Class B Stock on any national securities exchange or with NASDAQ. The
proposed language of the Class A Stock and Class B Stock is attached hereto as
Appendix A.
Sagaponack Partners, L.P. and Sagaponack International Partners, L.P.
(collectively, the "Investors"), which own in the aggregate 40% of the
outstanding shares of Common Stock of the Company, have requested that the
Company authorize the Class A Stock and the Class B Stock and permit the
Investors to exchange the 7,344,520 shares of Common Stock presently owned by
them for 7,334,520 shares of Class A Stock and 7,344,520 shares of Class B
Stock. Such proposed transaction would neither increase the voting power of the
Investors nor increase the aggregate dividend and distribution rights of the
Investors, and after the proposed exchange the Investors would not have in the
aggregate any increased rights as shareholders of the Company than the rights
that they presently have. The Investors have made their request in order to
reallocate among themselves the voting and dividend/distribution rights they
currently have as shareholders of the Company, and have offered to reimburse the
Company for any expenses incurred by the Company in connection with the proposed
authorization and issuance of the Class A Stock and Class B Stock. The Company
does not intend to issue the Class A Stock or Class B Stock to any other
shareholders of the Company.
The Investors have provided the following explanation of the reason for their
request for the authorization and issuance of the Class A Stock and Class B
Stock: Sagaponack Partners, L.P. is a limited partnership organized under the
laws of the State of Delaware. Its general partner is RSP Capital, L.L.C.
Sagaponack International Partners, L.P. is organized under the laws of the
Cayman Islands and has the same general partner as Sagaponack Partners, L.P.
Sagaponack International Partners is an offshore entity which does no business
in the United States, and consequently maintains a passive role in its U.S.
investments. To this end, Sagaponack International Partners generally will have
no vote in corporate matters of U.S. companies until the subject company
completes a secondary offering of shares which includes some portion of the
Investors' shares. At that time, the Investors may decide to exchange shares of
Class A Stock and Class B Stock for normal common stock. A transfer of voting
rights by means of a stock power or other assignment does not eliminate the
potential voting power of Sagaponack International Partners. The proposed
creation of two new classes of common stock would, on the other hand, enable
Sagaponack International Partners to maintain a fully passive investment in the
Company. Although other methods, such as a voting trust agreement, might
accomplish the Investors' objectives, the procedure of voting and non-voting
common stock has been utilized by the Investors for other investments involving
non-public companies and they would prefer to utilize such procedure in this
instance as well. The Investors have no present intention to redistribute any of
the Class A Stock or Class B Stock, but they would have the right to do so.
It is the belief of the Company that the proposed authorized issuance of Class A
Stock and Class B Stock under the circumstances outlined above will not violate
the corporate governance regulations imposed by NASDAQ on issuers whose
securities are listed on the NASDAQ SmallCap Market. The Company has been
advised orally that the authorization of the Class A Stock and Class B Stock,
without more, does not violate such corporate governance regulations. Assuming
that the shareholders approve the authorization of the Class A Stock and Class B
Stock, the Company will not issue such stock unless the issuance will not cause
its Common Stock to be delisted from the NASDAQ Small Cap Market or such other
market on which the Common Stock is then listed.
The authorization of Class A Stock and Class B Stock and issuance thereof to the
Investors in exchange for their shares of Common Stock would not cause any
change in the relative voting power or equity of any other existing holder of
Common Stock of the Company. However, the Investors could sell shares of Class
B Stock without selling shares of Class A Stock, enabling them to dispose of up
to 53.882% of their economic interest in the Company without reducing their
voting control.
The proposed amendment has been approved unanimously by the Board of Directors,
including the two directors who are not affiliated with or nominated at the
request of the Investors. The Board believes that the proposed amendment, and
the exchange with the Investors contemplated thereby, are in the best interests
of the Company and its shareholders. The Board considers the proposed amendment
and exchange to be in the best interests of the Company because the Company has
obtained and in the future will continue to seek various accommodations from
the Investors from the requirements imposed upon the Company by the Securities
Purchase Agreement between the Company and the Investors. For example, the
Company is prohibited from issuing additional shares of Common Stock other
than pursuant to outstanding options, warrants and rights. Nevertheless, the
Company considers the issuance of Common Stock in connection with the
attraction of key employees and potential acquisitions to be critical to the
Company, and the Investors have permitted such issuances.
There are no restrictions on subsequent transfers of the new Class A and Class
B shares. Sagaponack Partners, L.P. will hold the Class A shares and Sagaponack
International Partners will hold the Class B shares. Since both partnerships
are controlled by the same general partner, there is no change in control
effected by the exchange.
The affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting will be required for approval of the
proposal to authorize the Class A Stock and Class B Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO AUTHORIZE CLASS
A VOTING COMMON STOCK AND CLASS B NON-VOTING COMMON STOCK.
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation provided to
the Company's Chief Executive Officer. No other executive officer or employee
received, total annual salary and bonus exceeding $100,000.00.
<TABLE>
<CAPTION>
NAME AND FISCAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY COMPENSATION
- ------------------ ------ ------ ------------
<S> <C> <C> <C>
RONALD G. CRANE(1) 1997 59,319(3)
Chief Executive Officer 1996 75,000
Ex-President 1995 75,000
CHARLES A. WATSON(2) 1997 54,923(3) 27,978(3)(4)
Retired Chairman 1996 84,000 36,183(3)
of the Board 1995 84,000 34,992(3)
</TABLE>
- -----------------
(1) Mr. Crane did not receive any bonus or other annual compensation during the
fiscal year ended June 30, 1997. Mr. Crane did not receive or exercise any
options to purchase Common Stock during the fiscal year ended June 30, 1997.
Certain options granted to Mr. Crane in prior years were restructured during
the year ended June 30. Mr. Crane did not receive any long-term incentive
plan award during the fiscal year ended June 30, 1997. Mr. Crane received no
other compensation during the fiscal year ended June 30, 1997.
(2) Mr. Watson resigned from the Company on May 22, 1997. Mr. Watson did not
receive any bonus or other annual compensation. Mr. Watson did not receive
or exercise any options to purchase Common Stock during the fiscal year
ended June 30, 1997 and held no unexercised options on June 30, 1997. In
addition, Mr. Watson did not receive any long-term incentive plan award
during the fiscal year ended June 30, 1997. Mr. Watson does not have an
employment agreement with the Company.
(3) The Company changed its fiscal year in July of 1997 to end June 30. The
amount presented is for the nine-month period October 1, 1996 to June 30,
1997.
(4) The Company has adopted a retirement plan for Mr. Charles A. Watson.
Benefits of $2,700 per month are payable to Mr. Watson or his wife, if she
survives him, for life with a ten year guaranteed payment, subject also to
annual cost of living increases.
OPTION GRANTS IN LAST FISCAL YEAR
There were no option grants to Named Executive Officers during the nine month
fiscal year ended June 30, 1997.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND YEAR-END OPTION VALUE
There were no options exercised during the nine month fiscal year ended June 30,
1997 and all options held by Named Executive Officers at June 30, 1997 had a
value of zero.
9
<PAGE> 12
OTHER MATTERS
Management does not know of any other matters to be presented at the Annual
Meeting. However, if any other matters shall properly come before the meeting,
it is the intention of the persons named in the proxy to vote it in accordance
with their judgment.
PROPOSALS OF SHAREHOLDERS FOR 1998 ANNUAL MEETING
All proposals of shareholders intended to be presented at the Company's 1998
Annual Meeting of Shareholders must be received by the Company at its executive
offices no later than September 30, 1998 in order to be considered for inclusion
in the proxy statement and form of proxy relating to that meeting.
REQUESTS FOR FORM 10-KSB
The Company will provide without change, at the written request of any
beneficial owner of shares entitled to vote at the Annual Meeting of
Shareholders, a copy (without exhibits) of the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1997, as filed with the Securities and
Exchange Commission. Requests should be made to the President, Watson General
Corporation a.k.a. USTMAN Industries, Inc., 12265 W. Bayaud Avenue, Suite 110,
Lakewood, Colorado 80228.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ DAN R. COOK
----------------------------------
Dan R. Cook
President
January 12, 1998
10
<PAGE> 13
APPENDIX A
TERMS OF PROPOSED CLASS A VOTING COMMON STOCK
AND CLASS B NON-VOTING COMMON STOCK
Article THIRD of the Articles of Incorporation of the Company would be amended
as follows:
(i) Paragraph 1 of Article THIRD would be amended to read in its
entirety as follows, subject to the blank being filled in depending upon whether
the authorized number of shares of Common Stock is increased:
"1. AUTHORIZED CAPITAL. The Corporation shall be authorized
to issue four classes of shares which shall be designated,
respectively, Common Stock, Preferred Stock, Class A Voting Common
Stock and Class B Non-Voting Common Stock. The total number of
shares which the Corporation shall have authority to issue is
____________. The total number of shares of Common Stock which
this Corporation is authorized to issue is _____________. The
total number of shares of Preferred Stock which this Corporation
is authorized to issue is 1,000,000. The total number of shares of
Class A Voting Common Stock which this Corporation is authorized
to issue is 15,000,000. The total number of shares of Class B
Non-Voting Common Stock which this Corporation is authorized to
issue is 15,000,000."
(ii) New paragraphs 3, 4 and 5 would be added to Article THIRD to read
as follows:
"3. CLASS A VOTING COMMON STOCK. Shares of Class A Voting
Common Stock shall have the same voting rights as shares of Common
Stock, and each share of Class A Voting Common Stock shall be
entitled to 46.118% of the amount of any dividends, distributions,
powers, preferences, or other rights or privileges to which one
share of Common Stock shall be entitled. Without limiting the
foregoing, each share of Class A Voting Common Stock shall receive
46.118% of the consideration to which a share of Common Stock
shall be entitled in the event of a merger or consolidation of the
Corporation with or into another entity (whether or not the
Corporation is the surviving corporation).
"4. CLASS B NON-VOTING COMMON STOCK. Shares of Class B
Non-Voting Common Stock shall have no voting rights, except as
otherwise required by law, and each share of Class B Non-Voting
Common Stock shall be entitled to 53.882% of the amount of any
dividends, distributions, powers, preferences, or other rights or
privileges to which one share of Common Stock shall be entitled.
Without limiting the foregoing, each share of Class B Non-Voting
Common Stock shall receive 53.882% of the consideration to which a
share of Common Stock shall be entitled in the event of a merger
or consolidation of the Corporation with or into another entity
(whether or not the Corporation is the surviving corporation).
"5. EXCHANGE OF CLASS A VOTING COMMON STOCK AND CLASS B
NON-VOTING COMMON STOCK FOR SHARES OF COMMON STOCK. At any time, a
holder may exchange (a) one share of Class A Voting Common Stock,
plus (b) one share of Class B Non-Voting Common Stock, for one
share of Common Stock."
11
<PAGE> 14
PROXY WATSON GENERAL CORPORATION PROXY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Ronald G. Crane and Dan R. Cook, or
either of them, proxies and attorneys, each with full power of substitution, to
vote all the shares of Common Stock of Watson General Corporation, a California
corporation, which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on January 28, 1998, at 9:00 a.m., local time, and at
any postponement or adjournment thereof with respect to the Proposals set forth
in the Proxy Statement and upon any other matter that may properly come before
the meeting or any adjournment.
This Proxy (properly executed) will be voted in the manner directed
herein by the undersigned shareholder. The Board of Directors recommends that
you vote for the election of the five director nominees in this proxy.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below (except as marked to
the contrary)
[ ] WITHOUT AUTHORITY to vote for all nominees listed below
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK A
LINE THROUGH THE NOMINEE'S NAME BELOW:
Dan R. Cook Ronald G. Crane Don Phillips Barry Rosenstein Marc Weisman
(Continued and to be signed on reverse side)
<PAGE> 15
(Continued from other side)
2. TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO CHANGE THE
COMPANY'S NAME TO USTMAN TECHNOLOGIES, INC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES FROM 25,000,000 TO 40,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO AUTHORIZE CLASS
A NON-PARTICIPATING COMMON STOCK AND CLASS B NON-VOTING COMMON STOCK.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR AND FOR THE PROPOSED AMENDMENTS TO
THE ARTICLES OF INCORPORATION OF THE COMPANY, AND IN THEIR DISCRETION ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Date ____________________, 1998
_______________________________
Signature
_______________________________
Signature if held jointly
(Please mark, sign, date and return the proxy card promptly)
