<PAGE> 1
As Filed with the Securities and Exchange Commission on October 14, 1996
File No. 333-13687
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
(AMENDMENT NO. 1)
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
CROWN LABORATORIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-2300995
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) ID No.)
6780 Caballo Street
Las Vegas, Nevada 89119
(702) 696-9300
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Principal Executive Offices)
CRAIG E. NASH, CHIEF EXECUTIVE OFFICER
CROWN LABORATORIES, INC.
6780 Caballo Street
Las Vegas, Nevada 89119
(702) 696-9300
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies of Communications to:
JAMES SCHROPP, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
1001 Pennsylvania Avenue, Suite 800
Washington, DC 20004-2505
(202) 639-7110
Fax: (202) 639-7003
Approximate date of commencement of proposed sale to the public: As soon as
possible after the Registration Statement is declared effective.
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
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Aggregate Offering Registration
Price Per Share Price Fee
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<S> <C> <C> <C> <C> <C>
Common Stock, $0.001 par value 3,453,748 Shs. $1.0625 (1) $3,669,607 $1,112.00
=============================================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 3
P R O S P E C T U S October 14, 1996
CROWN LABORATORIES, INC.
COMMON STOCK
($0.001 PAR VALUE)
This Prospectus relates to 3,453,748 shares of the Common Stock of
CROWN LABORATORIES, INC. (the "Company"). Of these shares, 1,822,499 are held
by certain Selling Stockholders named herein ( the "Selling Stockholders;" such
shares, the "Selling Stockholder Shares"). Selling Stockholder Shares may be
offered and sold from time to time by the Selling Stockholders. The remaining
1,631,249 shares are reserved for issuance upon the exercise of certain warrants
and options granted by the Company (the "Warrants" and "Options," respectively;
such shares, the "Warrant Shares" and "Option Shares" respectively). The
Warrant Shares and Option Shares will be offered and sold by the Company to the
Holders of such Warrants and Options upon exercise by the holders. The Company
will not receive any proceeds from the sale of the Selling Stockholder Shares
offered hereby but will receive certain proceeds upon exercise of the Warrants
and Options, which proceeds will be used for working capital. The Company will
not receive proceeds from the sale of the Warrant Shares and the Option Shares.
The Company estimates that the expenses of this offering will be approximately
$27,500, all of which, other than commissions or discounts paid to brokers and
dealers, will be paid by the Company.
The Company has been advised by the Selling Stockholders that they may
sell all or a portion of the Selling Stockholder Shares offered hereby from time
to time on the American Stock Exchange Emerging Company Marketplace (the
"Amex-ECM") in privately negotiated transactions, or otherwise, including sales
through or directly to brokers or dealers. Sales will be at prices and terms
then prevailing or at prices related to the then current market prices or at
negotiated prices. In connection with any sales, the Selling Stockholders and
any broker or dealer participating in such sales may be deemed to be
underwriters within the meaning of the Securities Act of 1933. The Company will
issue shares of Common Stock upon exercise of Warrants and Options, as set forth
in the agreements providing for the grant of these Warrants and Options. The
Company has been further advised by the holders of Warrants and Options that
they may sell all or a portion of the Warrant Shares and Option Shares from time
to time on the Amex-ECM in privately negotiated transactions, or otherwise,
including sales through or directly to brokers or dealers. There can be no
assurances that the Selling Stockholders will sell any of the shares offered
hereby, or that any of the Warrants or Options will be exercised. There can be
no assurances that the Selling Stockholders will sell any of the shares offered
hereby, or that any of the Warrants or Options will be exercised, or that any of
the Warrant Shares or Option Shares will be sold. See "Plan of Distribution."
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the Proceeds to the
the Public Discount Company Selling Stockholders
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<S> <C> <C> <C> <C>
Per Selling Stockholder Share $1.0625 -0- -0- $1.0625
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Total Selling Stockholder Shares $1,936,405 -0- -0- $1,936,405
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Per Warrant Share $1.575(1) -0- $1.575 -0-
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Total Warrant Shares $2,489,998 -0- $2,489,998 -0-
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Per Option Share $1.4375(2) -0- $1.4375 -0-
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Total Option Shares $71,875 -0- $71,875 -0-
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Total $4,498,278 -0- $2,561,873 $1,936,405
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</TABLE>
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(1) Represents weighted average exercise price of all Warrants. If Warrant
Shares are subsequently resold, proceeds to holders of such Shares are at a
price per share to the public.
(2) Represents weighted average exercise price of all Options. If Option
Shares are subsequently resold, proceeds to holders of such Shares are at a
price per share to the public.
The Common Stock of Crown Laboratories, Inc. is traded on the
AMEX-ECM (AMEX-ECM symbol: CLL.ec). On October 10, 1996, the last sale
price of the Company's Common Stock, as reported by the AMEX-ECM, was $1.0625.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" ON PAGES 6-9.
SEE ALSO "RECENT SIGNIFICANT DEVELOPMENTS" ON PAGES 10-13.
<PAGE> 4
OF RISK. SEE "RISK FACTORS" ON PAGES 6-9.
SEE ALSO "RECENT SIGNIFICANT DEVELOPMENTS" ON PAGES 10-13.
1.
<PAGE> 5
TABLE OF CONTENTS
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Page
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<S> <C>
Incorporation of Certain Documents by Reference........................................................ 3
Available Information.................................................................................. 3
Prospectus Summary..................................................................................... 4
Risk Factors........................................................................................... 5
Use of Proceeds........................................................................................ 9
Recent Significant Developments........................................................................ 9
Selling Stockholders................................................................................... 12
Plan of Distribution................................................................................... 14
Legal Opinion.......................................................................................... 15
Experts................................................................................................ 15
</TABLE>
2.
<PAGE> 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the
Securities and Exchange Commission (the "Commission") are incorporated herein
by reference: the Company's Annual Report on Form 10-KSB, Form 10-KSB/A1 and
Form 10-KSB/A2 for the fiscal year ended December 31, 1995, the Company's
Quarterly Reports on Form 10-QSB and Form 10-QSB/A1 for the fiscal quarters
ended March 31, 1996 and June 30, 1996, and the Company's Registration
Statement on Form 8-A.
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 securities under
this Prospectus shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing of such documents, except as to any
portion of any future Annual or Quarterly Report to Stockholders which is not
deemed to be filed under said provisions or any portion of a Proxy Statement
not deemed incorporated herein by reference. Any statement made in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that such statement is replaced
or modified by a statement contained in a subsequently dated document
incorporated by reference or contained in this Prospectus. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated in this Prospectus by reference, other than exhibits to
such documents. Written or oral requests for such copies should be directed to
Larry Rosenthal, Director of Investor Relations, or Craig Nash, Chief Executive
Officer, 6780 Caballo Street, Las Vegas, Nevada 89119 (Telephone: (702)
696-9300).
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission. These reports, proxy statements and
other information can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: The Chicago Regional Office, Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago Illinois 60661-2511 and the New York
Regional Office, 7 World Trade Center, 12th Floor, New York, New York 10048.
Such reports, proxy statements and other information filed by the Company can
also be inspected at the offices of the American Stock Exchange, Inc., 86
Trinity Place, New York, New York 10006. Copies of such materials can also be
obtained by mail at prescribed rates upon written request addressed to the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-3 under the Securities Act of 1933, with
respect to the Common Stock offered hereby (the "Registration Statement").
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 with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement, including the exhibits and financial statements and
schedules, if any, filed therewith or incorporated therein by reference.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement or incorporated herein by reference, each statement
being qualified in its entirety by such reference. The Registration Statement,
including the exhibits thereto, may be inspected without charge at the
Commission's principal office in Washington, D.C., and copies of any and all
parts thereof may be obtained from such office after payment of the fees
prescribed by the Commission.
3.
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements (including notes thereto)
appearing elsewhere in or incorporated by reference into this Prospectus.
THE COMPANY
Crown Laboratories, Inc. (the "Company") is engaged in the development
of, and intends to manufacture and market, a proprietary line of
pharmaceutically-balanced nutritional and medical application products designed
for the special needs of residents in nursing homes and patients in hospitals.
Generally, these individuals are over age 70, and prefer foods that are easy to
ingest, and are flavorful, easily digestible, and nutritionally complete. The
Company's liquid products will be provided in aseptically sealed, flexible
packages. Formulations are designed to provide a maximum of nutrient and caloric
support in easily consumable forms. The Company currently intends to offer
three liquid products, two medical solutions, and 26 dry-mixed products for use
by individuals with dietary restrictions including low sodium diets and diabetic
diets. Additionally, caloric enhancement and nutritional supplement products
will be available.
The Company's product lines will consist of standard products for
nursing homes and specialized products such as those for kidney dysfunction and
tube feeding. Currently the Company is in the final stages of completing the
liquid manufacturing line on which it will produce primary products for sale.
The Company will have limited sales until such line is complete and
operational.
The commissioning process regarding the Company's proprietary line of
aseptic liquid products was completed on June 25, 1996. The Company was not
permitted to begin manufacturing its liquid products until this process was
completed.
The Company was incorporated in Delaware on February 23, 1989. The
Company's address and telephone number are 6780 Caballo Street, Las Vegas,
Nevada 89119; (702) 696-9300.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered(1) . . . . . . . . . . . . . . . . . . This Prospectus covers the offer and sale from
time to time of 3,453,748 shares of Common
Stock, including the offer and sale of
1,822,499 shares (the "Selling Stockholder
Shares") held by certain Selling Stockholders;
and the offer and sale of the Company of
1,631,249 shares reserved for issuance upon
the exercise of certain options and warrants
(the "Options" and "Warrants," respectively;
such shares, the "Option Shares" and "Warrant
Shares," respectively,) and the offer and sale of
the Option Shares and Warrant Shares by the
holders thereof.
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . The proceeds to be received by the Company
upon exercise of the Options and Warrants,
which will total $ 2,561,873 if all such
Options and Warrants are exercised, will be
used for working capital.
Number of Shares of Common Stock
Outstanding on June 30, 1996(1) . . . . . . . . . . . . . 16,644,981 shares.
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
Risk Factors . . . . . . . . . . . . . . . . . . . . . . An investment in the Common Stock involves
a high degree of risk. Prospective
investors should review carefully and
consider the factors described in "Risk
Factors."
</TABLE>
(1) Unless otherwise indicated, all references in the Prospectus to per
share data and number of shares exclude 7,116,651 shares of Common
Stock issuable upon exercise of outstanding warrants and options,
including options which have been granted under the 1992 Stock Option
Plan. A total of 1,631,249 shares underlying 1,631,249 Warrants and
Options are included in the shares offered by the Selling
Stockholders, but are not included in outstanding shares. Such
references to per share data and number of shares also do not include
an undetermined number of shares of Common Stock underlying 100
shares of Series E Preferred Stock.
4.
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The following tables set forth for the periods indicated selected
financial information for Crown Laboratories, Inc.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
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Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 June 30, 1996 June 30, 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Sales(1) . . . . . $ 80,100 $ -0- $-0- $ -0- $ -0-
Net loss . . . . . (3,839,092) (1,569,979) (660,964) (1,941,870) (1,425,557)
Net loss per share (.30) (.15) (.09) (.14) (.12)
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Dec. 31, 1995 Dec. 31, 1994 June 30, 1996
------------- ------------- --------------
<S> <C> <C> <C>
Working capital . . $ (828,291) $1,354,684 $ (1,232,541)
Total assets . . . 9,986,302 6,065,044 10,047,728
Total liabilities . 3,515,382 1,355,581 3,458,078
Stockholders' equity 6,470,921 4,709,463 6,589,650
</TABLE>
(1) In the fourth quarter of 1995, the Company sold approximately $80,000
of dry mix products in one European country through an affiliate and has
collected a substantial portion of the resulting receivables. See "Recent
Significant Developments".
RISK FACTORS
INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES CERTAIN
SUBSTANTIAL RISKS AND PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS:
LIMITED OPERATING HISTORY; OPERATING LOSS
Since inception, the Company has been in the pre-marketing phase of
operation. It had no sales for the years ended December 31, 1995, and 1994
except for approximately $80,000 of dry-mix products sold in the fourth quarter
of 1995. For the six months ended June 30, 1996, and 1995, the Company
incurred losses of ($1,941,870) and ($1,425,557), respectively. 1996's higher
losses are attributable to increased salaries associated with additional
employees and higher operating and start-up expenses as the Company nears
production and sale of its liquid nutritional products. The accumulated
consolidated deficit at June 30, 1996, was ($9,736,840). Losses
5.
<PAGE> 10
have continued since such date due primarily to expenditures for salaries,
plant start-up and other operating expenses. Lack of funds and difficulties
associated with the start up of the Company's liquid products manufacturing
facility have restricted the Company's marketing and sales efforts. The Company
and its operations are subject to the various risks inherent in the start-up and
development of a new business enterprise. Because the operating history of the
Company is limited, there can be no assurance that the Company will operate
profitably.
NO DIVIDENDS LIKELY
Since inception, the Company has had no earnings and has not paid any
dividends on its Common Stock. Payment of future dividends, if any, will be
determined by the Company's Board of Directors. The Company intends for the
foreseeable future to follow a policy of retaining all or substantially all of
its earnings, if any, to finance the development and expansion of its business.
NEED FOR MANUFACTURING FACILITY
The Company has previously produced its dry-mix and liquid dietary
products through contract manufacturers. However, these arrangements have been
unsatisfactory in respect of timely manufacture and delivery and impact on
costs, particularly for liquid products. In order to assure a supply of its
liquid and dry-mix products at a competitive price, management has determined
that the Company must operate its own manufacturing facility. The Company is
leasing a building and has constructed a manufacturing facility in Las Vegas,
Nevada. The Company now faces the risk of start-up manufacturing on a full
time basis.
NEED FOR ADDITIONAL FINANCING
The Company has spent, and will continue to spend, substantial amounts
of money to develop and market its products. The Company believes that
existing funds, proceeds of a loan recently negotiated, and future revenues
from the sale of products, if any, will satisfy the Company's cash requirements
into 1997. The Company may seek to raise additional funds and will have to
raise such funds if such proposed loan is not funded. However, no assurance can
be given as to the amount of future sales, if any, or when additional working
capital may be required. There can be no assurance that any financing will be
available or available on attractive terms, or that such financing would not
result in a substantial dilution of stockholders' interests.
RISK INHERENT IN OPERATIONS
The Company is subject to all the risks inherent in a small company
seeking to develop, market and distribute new products. The potential success
of the Company must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection
with new product introductions into a competitive environment.
REQUIRED FDA APPROVAL OF ASEPTIC MACHINERY
The Company's operations are regulated principally by the FDA,
although state and local regulations also apply. Failure to comply with
regulatory requirements could result in fines and other penalties, including
cessation of production. Additionally, there can be no assurance that
regulatory requirements will not change or that the Company will be able to
comply with changes at an acceptable cost, if they were to occur. On June 25,
1996, the Company received the FDA's certification of its aseptic processing
equipment.
6.
<PAGE> 11
COMPETITION
The market for the Company's nutritional supplement products is
extremely competitive and characterized by frequent new product introductions,
short product life cycles and changing customer preferences. Many of the
Company's existing and potential competitors in the nutritional supplements
market possess substantially greater financial, personnel, technological,
research and marketing resources than the Company. The Company is not
presently, and may not be in the near or foreseeable future, a significant
factor in its markets. The Company's competitors have succeeded in
establishing a market share for their products. The Company can only expect to
achieve significant market share through service and product differentiation,
principally its plans to sell product in concentrated four-ounce servings
instead of the competition's generally standard eight-ounce packaging, to
package its products in ready-to-consume "Peel and DrinkTM" plastic cups which
do not need refrigeration, and to sell products which taste better to
consumers. There can be no assurance that the Company's approach of targeting
products directly to nursing homes will be a viable alternative within he
industry or that other competitors will not target their products directly to
nursing homes. While the Company believes that it can compete favorably in the
market, there can be no assurance that the Company will be able to do so, or
that competition will not have a materially adverse effect on the Company's
business, financial condition or results of operations.
GOVERNMENT REGULATION
The manufacturing, processing, formulation, packaging, labeling,
storage, promotion, distribution and advertising of the Company's products are
subject to extensive regulation by federal agencies, including the FDA and the
Department of Agriculture. These activities are also regulated by agencies of
the states and localities in which the Company's products will be manufactured
or sold. Failure to comply with regulatory requirements could result in fines
and other penalties, including cessation of production.
Historically, the manufacturing and production of nutritional
supplements has been subject to less intensive regulation than pharmaceutical
products, but government oversight in this area is currently increasing. Under
the Dietary Supplement Health & Education Act of 1994, the FDA may exercise
increased authority over the labeling and sales of vitamin and mineral
supplements. In addition, the United States Postal Service and the FTC
regulate advertising claims with respect to the Company's products sold by
solicitation through the mail.
Recent proposed regulations issued by the FDA require the re-labeling
of dietary supplements with regard to nutrition labeling, ingredient
information and nutrient content claims. The proposed rules are not due to
become effective until January 1997 and may be modified prior to final
adoption. Although no current regulatory approval is required prior to or
after the introduction of a new nutritional supplement, the FDA must be
notified regarding the use of new dietary ingredients and future regulation
could result in a recall or discontinuance of certain products.
The Company cannot predict the extent to which it may be affected in
the future by legislative and other regulatory developments concerning its
products. There can be no assurance that legislative action with respect to
health care will not have a material adverse effect on the Company's business,
financial condition or results of operations.
PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
Although the formulation, manufacturing quality control and packaging
of the Company's products are regulated by federal and local governments, there
can be no assurance that the manufacturing process will not result in a defect
or taint that could result in harm to a user. The Company faces an inherent
risk of exposure to product liability claims in the event that the use of its
product is alleged to have resulted in adverse effects to users. While the
Company has taken, and continues to take, what it believes are appropriate
precautions, there can be no assurance that it will avoid significant product
liability exposure. The Company
7.
<PAGE> 12
presently carries product liability insurance; however, there can be no
assurance that any harm to a user of the Company's products will be an insured
event or, if it is an insured event, that the Company's insurance will provide
sufficient coverage. A claim which is not insured, or for which coverage is
not sufficient, could have a material adverse effect on the Company's business,
financial condition and results of operations. Further, there can be no
assurance that adequate insurance coverage will be available in the future on
commercially reasonable terms, if at all, or that a product liability claim
would not materially adversely affect the Company's business, financial
condition and results of operations.
RISK OF PRODUCT RECALL
Product recalls may be issued at the discretion of the Company, the
FDA, or other government agencies having regulatory authority for product sales
and may be caused as a result of manufacturing issues, quality defects or other
reasons. No assurance can be given that there will be no recalls of the
Company's products. Any product recall could materially adversely affect the
Company's business, financial condition and results of operations.
PRODUCT PROTECTION
The Company regards the formulations of its products to be proprietary
and has filed for a patent covering the formulation and production process for
its primary liquid nutritional product, WINLAC(TM). There can be no assurances
that any patent will be issued. The Company has also trademarked its company
name, its liquid nutritional product names as well as "PEEL AND DRINK"(TM) and
"THE NUTRITIONAL DIFFERENCE"(TM). The Company exerts substantial efforts to
protect trade secrets and to keep formulas and related process know-how
confidential. Currently, the Company requires each of its employees to sign
confidentiality agreements as a condition of employment to protect its
formulations and production know-how. However, there can be no assurances that
the Company will be successful in its efforts to preserve confidentiality.
RELIANCE UPON KEY PERSONNEL
The Company is largely dependent upon the efforts and abilities of
Craig E. Nash, Chairman of the Board of Directors and Chief Executive Officer,
and Scott O. Nash, Vice Chairman of the Board of Directors and President. Craig
E. Nash and Scott O. Nash, devote substantially all of their time to the affairs
of the Company. They have had 16 years experience in developing, manufacturing
and marketing pharmaceutical and food products and have great knowledge of the
industry. Because of this knowledge and experience, the loss or unavailability
of their services would have a materially adverse effect upon the Company.
Presently, the Company has accident insurance in the amount of one million
dollars for Craig Nash and Scott Nash and for lesser amounts for other key
executives. The Company does not have any insurance for non-accidental loss.
DEPENDENCE ON KEY ACCOUNTS
Due to the size of the major nursing home and hospital chains, and the
current consolidation trend in the nursing home market, the Company may find
that its sales are initially concentrated in, and therefore dependent on, a few
large accounts. The loss of any such account could have a material adverse
effect on the Company's business, financial condition or results of operations.
CONTROL BY EXISTING MANAGEMENT
As of June 10, 1996, officers and directors as a group own 6,552,213
shares of Common Stock, option and warrants exercisable within 60 days of June
10, 1996, of 18,023,661 shares outstanding or 36.4%, including 4,922,281 shares
or 28.2% owned by Craig Nash and Scott Nash. Thus, the management of the
Company, principally Craig Nash and Scott Nash, is able to continue to control
the policies and affairs of the Company.
8.
<PAGE> 13
VOLATILITY OF COMMON STOCK PRICE
The market price for the stocks of many publicly traded manufacturers
and marketers of nutritional supplements, including the Company, is subject to
periods of high volatility. A variety of events, both concerning and unrelated
to the Company and the markets in which it participates, may have significant
negative impact on the market price of the Common Stock, including the
performance of other nutritional supplement companies. Both the volume of
trading (which has been limited to date) and price of the Common Stock may be
sensitive to the number of analysts reporting on the Company and such analysts'
comments concerning the Company. The realization of any of the risks described
in these "Risk Factors" could have a dramatic and adverse impact on the price
of the Company's Common Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION
Certain provisions of the Company's Certificate of Incorporation (the
"Certificate") may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt, merger, consolidation or other business
combination that a shareholder might consider in its best interest. Such
provisions may also affect prevailing market prices for the Common Stock.
These provisions authorize the issuance of 5,000,000 shares of $0.001 par value
preferred stock and authorize the Board of Directors of the Company to
determine the rights, preferences, privileges and restrictions thereof. Rights
could be granted to the holders of preferred stock that could reduce the
Company's attractiveness as a potential takeover target, make the removal of
management more difficult, or adversely impact the rights of holders of Common
Stock. During 1995, the Company issued $3.5 million of Series C Preferred
Stock and $500,000 in 1996. As of September 27, 1996, all of the outstanding
Series C Preferred Stock had been converted into Common Stock. On July 31,
1996, the Company sold $1 million of Series E Preferred Stock. This amount is
presently outstanding as of September 27, 1996.
The Certificate also contains provisions which require the affirmative
vote of the disinterested holders of at least fifty-one percent (51%) of the
voting power of all outstanding shares of the Company entitled to vote
generally, to approve certain "business combinations" proposed by an individual
or entity that (i) is the beneficial owner, directly or indirectly, of more
than 25% of the outstanding voting stock of the Company, of any affiliate or
associate of any such person, or (ii) has been the beneficial owner, directly
or indirectly, of more than 25% of the outstanding voting stock of the Company
and is an affiliate of the Company. This voting requirement is not applicable
to "business combinations" between the Company and such an entity which meet
certain price and procedural conditions. In addition, the Company is subject
to the provisions of Section 203 of the Delaware General Corporation Law. The
Board of Directors of the Company is currently evaluating the adoption of
alternative anti-takeover provisions to the Certificate.
RISK OF OPTIONS AND WARRANTS
As of September 23, 1996, options or warrants for 5,241,684 shares of
Common Stock were outstanding, exercisable at prices between $0.25 and $3.00 per
share. In addition, 1,874,967 options have been issued under the 1992 Stock
Option Plan exercisable at $1.375 per share. For the term of such options and
warrants, the holders thereof will have an opportunity to profit from the rise
in the market price of the Company's Common Stock without assuming the risks of
ownership. The existence of all of these options and warrants may have an
adverse effect on the terms upon which the Company would be able to obtain
additional capital. Furthermore, it might be expected that the holders of all
of such options and warrants would exercise their options and warrants at a time
when the Company could obtain equity capital on terms more favorable for the
Company than those provided for by the options and warrants.
9.
<PAGE> 14
USE OF PROCEEDS
The Company will not receive the proceeds of any sale of the Selling
Stockholder Shares. The Company will receive the proceeds from the exercise of
Warrants and Options; these proceeds which will total $2,561,873 if all Options
and Warrants are exercised will be used for working capital.
RECENT SIGNIFICANT DEVELOPMENTS
MANUFACTURING PLANT
The Company received the certification of its aseptic processing and
filling equipment from the U.S. Food and Drug Administration, (the "F.D.A.")
on June 25, 1996. Commissioning of the equipment is required by the F.D.A.
The commissioning process began on April 13, 1995 with the manufacturer (in
this case, the Company), working with National Food Laboratories (the "Process
Authority"), to review its manufacturing equipment, manufacturing procedures,
manuals and monitor the bacteriological kill tests for compliance with the
applicable federal regulations. National Food Laboratories is an international
food and research and development organization with laboratory facilities in
Dublin, California, Washington, D.C. and Seattle, Washington and is a
wholly-owned subsidiary of the National Food Processors Association.
After the samples of inoculated product (the final test required for
certification) were prepared, they were incubated for a 21 day period and, when
the test results were favorable, the Process Authority summarized and presented
its findings to the F.D.A. on the Company's behalf. Subsequent to the
Company's filing to the F.D.A., the F.D.A. contacted the Company with questions
and requests for clarification regarding its filing. These questions were
resolved to the satisfaction of the F.D.A. and, on June 25, 1996, the agency
sent the Company a letter authorizing it to commence operation of its aseptic
facility.
Although the equipment manufacturers warranted that the purchased
equipment was manufactured to the F.D.A. regulatory specifications for aseptic
packaging and processing equipment, the filler was the first of its kind
manufactured for a U.S. company requiring F.D.A. aseptic processing approval.
The Company's production equipment took more than a year to certify because of
problems attributable to the aseptic filling machine. The machine was unable to
pass certification testing when it was originally shipped from Germany and
received by the Company in February, 1995. Numerous modifications, primarily
related to the installation of monitoring devices to seek to meet F.D.A.
requirements, were made to the machinery at the request of the Process
Authority. The manufacturer of the aseptic filling machine has filed for
bankruptcy in the German courts. The Company in June, 1995, filed a claim
against the manufacturer of the aseptic filler in the German Bankruptcy Court
(bankruptcy of Time Pack, GmbH) for damages caused by the delays in certifying
the filler and seeks to have these damages applied against the remaining balance
of the $1,730,000 purchase price of the machine; this claim has been submitted
to the German Bankruptcy Court for decision. Further, the Company in March,
1995, filed suit in Nevada District Court for the County of Clark, against the
manufacturer and its alter egos and subsidiaries alleging fraud,
misrepresentation, and alter ego among other allegations. The Company has
served the complaints, as amended in September, 1995, on the defendants. To
further protect its rights to the machinery and its related technology, the
Company has purchased the blueprints and the rights to the aseptic filling
machine from the German Bankruptcy Court.
There can be no assurances that, now that the machinery is certified,
as to when the Company will commence initial production of its liquid
nutritional products; or that the products will meet with acceptance in the
market.
10.
<PAGE> 15
The Company has spent approximately $8.0 million on equipment
acquisition for the manufacturing plant. It has also spent approximately $1.2
million on leasehold improvements for upgrading the production area to meet
minimum standards required for manufacturing and for offices, which
improvements and upgrading are essentially complete. The Company has also
received $3.0 million in financing secured by a first lien against such
equipment and leasehold improvements. The equipment purchased and financed
included the necessary equipment to manufacture liquid and dry mixed products,
including boilers, tanks, mixers, processors, fillers and packaging equipment,
as well as all related plumbing and electrical infrastructure.
The Company in June, 1995 received approval from the State of Nevada
Health Department to produce its dry mix product line for adult nutritional and
specialty products. In the fourth quarter of 1995, the Company sold
approximately $80,000 of dry mixed products in one European country through an
affiliate and has collected a portion of the resulting receivables.
FUNDING
The Company entered into a term loan agreement with FINOVA Capital
Corporation which provides for a $3 million, fixed rate, (pegged at a spread of
561 basis points above the 5 year Treasury Note rate at the time of closing), 5
year term loan (interest only for the first six months, amortized over the
remaining 54 months) secured by a first lien against the fixed assets and
leasehold improvements of the Company. The commitment provides for the advance
of an additional $1.5 million upon securing sales contracts totaling $7 million
on an annualized basis. The loan agreement requires that the Company adhere to
certain covenants. Specifically, it requires that the Company maintain a
minimum tangible net worth of $5 million, a senior debt to tangible net worth
ratio of 1 to 1 and a cash flow ratio of 2.0 to 1. The first two ratios are
effective on the closing date of the loan while the cash flow ratio takes
effect on December 31, 1997. Additionally, as part of the terms of the loan
agreement, the Company has agreed to issue 300,000, 5 year, warrants to FINOVA
to purchase the Company's common stock at the closing market price of the stock
on the date prior to closing, or $1.4375 per share. These warrants expire on
December 31, 2001. The Company paid a "Finders Fee" for the loan consisting of
an $80,000 cash payment, the issuance of 100,000 shares of the Company's Common
Stock and the issuance of 50,000 five year options to purchase the Company's
Common Stock at the closing market price of the Company's Common Stock on the
date of closing the loan ($1 7/16 per share). The options expire on August
15, 2001. A portion of the finder's cash fee and all of the finder's stock and
all of the finder's options were issued to the finder's nominee.
On July 31, 1996, the Company raised $1 million through the sale of
its Series E Preferred Stock to a "Regulation S" investor. The Series E
Preferred Stock imputes an average effective interest rate of 6% which is
payable in shares of the Company's common stock on the "Dividend Dates"
(August 1, 1997 and August 1, 1998). The Series E Preferred Stock is
convertible into common shares based on discounts to the market price at the
time of conversion which range from 15% to 31% depending on the time they are
held from the issuance date, (the longer the stock is held, the deeper the
discount). A total of 50,000 five year options to purchase the Company's
common stock at $2.00 per share were issued to two finders for their role in
raising these funds.
On May 10, 1996, the Company offered a private placement of equity
securities with a minimum of $540,000 to a maximum of $2,520,000 (the private
placement provides for the over-subscription of the placement up to $3,000,000
at the Company's discretion) in units of $45,000. Each unit consists of 30,000
shares of the Company's common stock and 30,000 warrants to purchase the
Company's common stock at a price of $1.60 for a period of six months after the
final closing of the placement. These options expire on January 30, 1997. As
of June 28, 1996, the Company raised $708,750 through the private placement
(fractional units have been sold). The Company extended the private
placement's expiration date from June 28, 1996 to July 31, 1996 but has
retained the right to terminate the placement at any time before the expiration
date. Since June 30, 1996, the Company has raised an additional $1,203,750 in
the private placement. The private placement was closed on July 30, 1996.
11.
<PAGE> 16
On September 19, 1996, the Company's Board of Directors approved a re-pricing of
the May 10, 1996 Private Placement which had the effect of issuing 36,000 shares
of Common Stock per Unit purchased as compared to the 30,000 shares per Unit
contained under the original terms of the Private Placement. This resulted in
the issuance of an additional 255,000 shares of Common Stock in conjunction
with the Private Placement.
On February 15, 1996, the Company offered the holders of its
warrants issued in conjunction with private placements in 1994 and 1995, the
opportunity to lower the exercise price of the warrants from $3.00 to $1.375
per share provided that they exercise at least 60% of their holdings. The
expiration date of the remaining warrants, if any, would be extended for one
year at the original exercise price. This offer was extended on March 12, 1996
until March 28, 1996. A total of 613,688 warrants representing $843,821 were
exercised.
During the quarter ended March 31, 1996, the Company raised an
additional $500,000 through a "Reg S" sale of its Series C Preferred Stock,
bringing the total of Series C Preferred Stock issued to $4 million. The
Series C Preferred Stock pays no dividends, but imputes a 6% effective annual
interest rate upon conversion into common stock which will be accounted for
over the time during which the preferred stock is outstanding. The conversion
rate is determined by the acquisition value of the preferred stock (plus
imputed interest referred to above) and an 18% discount to the 5 day average
market price of the common shares at the time of exercise. As of July 2, 1996,
all of the Series C Preferred Stock issued had been converted into 3,294,735
common shares.
In 1995, the Company raised approximately $2,400,000 (before offering
expenses of $330,000) in equity financing through a private placement of units
and this amount is reflected in the Company's financial statements for such
period. Each unit was purchased for $50,000. A unit consists of 25,000 shares
of Common Stock and warrants to purchase 12,500 shares of Common Stock for $3
per share. The warrants expire two years from the date of issuance.
(Fractional units have been sold). In addition, the Company isued to the
placement agent and brokers 2,500 options to acquire shares of the Company's
Common Stock at a price of $2.40 per share for each unit sold. These options
expire five years from the date of issuance. Such private placement was closed
as of September 30,1995.
To the extent that the Company uses equity securities to raise
additional funds to satisfy its working capital needs, there will be additional
dilution to the Company's existing shareholders.
None of the above securities were registered under the Securities Act
of 1933 and may not be sold in the United States in absence of such
registration or an exemption therefrom. The Warrants and Options to which this
Prospectus relates include: (a) the 300,000 warrants granted to FINOVA Capital
Corporation ("FINOVA") in connection with the FINOVA term loan agreement; (b)
the 50,000 options granted to the finder's nominee in connection with the FINOVA
term loan; (c) 1,274,999 warrants granted in connection with the private
placement that closed on July 30, 1996; and (d) 6,250 warrants granted in
connection with private placements that closed in 1994 and 1995.
The Selling Stockholder Shares to which this Prospectus related
include (a) 1,529,999 shares issued in conjunction with the private placement
that closed on July 30, 1996; (b) 100,000 shares granted to the finder's
nominee issued in conjunction with the FINOVA term loan; (c) 180,000 shares
issued to a consultant for a marketing introduction agreement; and (d) 12,500
shares issued in conjunction with private placements that concluded in 1995.
FINANCIAL CONDITION
Working capital at June 30, 1996 was $ (1,232,541) with $ 0.7 million
in accounts payable attributable to capital expenditures and leasehold
improvements. Cash and equivalents balances were $459,709 as of June 30, 1996.
Since June 30, 1996, the Company has raised an additional $1,000,000 from the
sale of Series E Preferred Stock. Additionally, the Company has secured a $4.5
million term loan with $3 million advanced to date. The Company believes that
it has adequate funds to support its operations into 1997.
12.
<PAGE> 17
For the reasons enumerated in Note 11 to the Company's consolidated
financial statements for the year ended December 31, 1995, included in the
Company's Form 10-KSB/A1 filed with the U.S. Securities and Exchange Commission
on August 16, 1996, the Company's independent public accountants reissued their
unqualified report dated April 15, 1996. The reissued report no longer made
reference to certain factors which gave rise to concerns as to the ability of
the Company to continue as a going concern.
The Company had forecasted that it would begin manufacturing its line
of dry mix nutritional and specialty dietary products in April 1995 and that
commissioning of the equipment to manufacture the Company's line of aseptic
liquid products would begin by the second quarter of 1995 and be completed
within a two month time frame. Due to unforeseen delays in finalizing the
installation of all the equipment necessary to manufacture the Company's
products, the commissioning process was significantly delayed and sales have
yet to commence. Management now expects that significant sales will commence
in the fourth quarter of 1996.
There can be no assurances, if and when the Company will commence
initial production of its liquid nutritional products or that the products will
meet with acceptance in the market.
KOURI SETTLEMENT
On September 9, 1996, the Company entered into a settlement agreement
(the "Settlement Agreement") with Paul Kouri to settle all claims, demands
and/or causes of action which may exist between them, whether known, unknown or
suspected. Under the Settlement Agreement, the Company has agreed, among other
things, to provide to Mr. Kouri 180,000 shares of Common Stock. The Company
further agreed to include these shares in the next registration statement which
the Company would use its best efforts to file within 30 days from the date of
the Settlement Agreement. In return, Mr. Kouri has agreed to enter into a
non-assignable four year marketing agreement with the Company pursuant to which
Mr. Kouri will assist the Company in marketing its products.
SELLING STOCKHOLDERS
The following table shows for each of the Selling Stockholders and
Holders of Warrant and Options (i) the number of shares of issued and
outstanding Common Stock of the Company beneficially owned by each of them as of
August 26, 1996, (ii) the number of shares of Common Stock covered by this
Prospectus (including shares of Common Stock underlying options and warrants),
and (iii) the percentage of ownership if all shares of Common Stock covered by
this Prospectus were sold.
<TABLE>
<CAPTION>
Number of
Selling
Stockholder Number of Shares
Number of Shares Underlying Warrants
Shares Covered and Options Covered
Beneficially by this by this
Selling Stockholder Owned Prospectus Prospectus
------------------- ------------ ----------- -------------------
<S> <C> <C> <C>
Altman, Herbert G 118,411 36,000 30,000
Blue Henron, Ltd. 150,000 100,000 50,000
Casella, Vincent J. (1) 543,850 36,000 30,000
Paine Webber as Custodian for
Stephanie Casella, IRA 36,750 18,000 15,000
Paine Webber as Custodian for
Suzanne Casella, IRA 36,750 18,000 15,000
Chessed Congregations of
America 66,000 36,000 30,000
Cook, James C. & Stacy W. 157,000 72,000 60,000
Thomas P. Deeb, Trust 264,000 144,000 120,000
Demetree, Christopher
(1),(2),(3) 965,575 108,000 90,000
Demetree, Jr., J. C. 253,197 108,000 90,000
Demetree, Sr., Jack Charles 235,500 108,000 90,000
</TABLE>
13.
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
Demetree, Mark Charles 293,197 108,000 90,000
Diede, Marvin W. & Dormilee 33,000 18,000 15,000
Domino, Carl 86,000 36,000 30,000
Dynamic Value Partners, LTD 66,000 36,000 30,000
FINOVA Capital Corporation 300,000 -- 300,000
G.P.S. Fund Limited 132,000 72,000 60,000
Helinger, Ron 113,500 36,000 30,000
Hilltop Offshore Limited 66,000 36,000 30,000
Hilltop Partners, L.P. 330,000 180,000 150,000
Korkowski, Robert J. 66,000 36,000 30,000
Kouri, Dr. Paul 276,494 180,000 --
Murray, Thomas & Judith King 14,666 7,999 6 666
Christopher J. Payne Trust, Neil
Meyer, Trustee 16,500 9,000 7,500
Melissa Payne Trust, Neil Meyer,
Trustee 16,500 9,000 7,500
Payne, Sherman J. & Geraldine
JTWROS 16,500 9,000 7,500
Robert W. Baird as Trustee FBO
Susan L. Paine IRA 16,500 9,000 7,500
Rowley Development Corporation 51,333 28,000 23,333
United Congregations Messorah 132,000 72,000 60,000
Univest Management E.P.S.P. 66,000 36,000 30,000
Van Brocklin, Finley G., Jr. &
Semmes R. JTWROS 108,500 36,000 30,000
Wolf, Stephen 132,000 72,000 60,000
Zych, Gregory A. & Jacqueline L. 37,500 12,500 6,250
</TABLE>
(1) Directors of the Company
(2) National Accounts Manager and Corporate Secretary
(3) Includes options and vested and unvested shares issued in conjunction
with an employment agreement
14
<PAGE> 19
PLAN OF DISTRIBUTION
The purpose of this prospectus is to permit (a) the Company to offer
and sell shares of Common Stock reserved for issuance upon exercise from time
to time of the Options and Warrants, (b) the holders of the Warrants and
Options to offer and sell any Warrant Shares or Option Shares, they obtain upon
exercise, at such times and at such places as the holders choose, and (c)
Selling Stockholders, if they desire, to offer and sell the Selling Stockholder
Shares at such times and at such places as the Selling Stockholders choose.
The decision to exercise Options or Warrants is within the sole
discretion of the holders thereof. There can be no assurances that any of such
Options and Warrants will be exercised.
The decision to offer and sell Selling Stockholder Shares, Warrant
Shares or Option Shares, and the timing and amount of any offers or sales that
are made, is and will be within the sole discretion of the Selling Stockholders,
the holders of Warrant Shares or the holders of Option Shares as the case may
be. Any Selling Stockholder Shares, Warrant Shares or Option Shares offered for
sale by the Selling Stockholders, holders of Warrant Shares or holders of Option
Shares, respectively, on the AMEX-ECM, or otherwise, at prices and on terms then
obtainable, at fixed prices, at prices then prevailing at the time of sale, or
in negotiated transactions at negotiated prices, or otherwise. The Selling
Stockholder Shares, Warrant Shares or Option Shares offered hereby may be sold
by one or more of the following: (a) through block trades in which the broker
or dealer so engaged will attempt to sell the shares of Common Stock as an
agent, but may position and resell a portion of the block as principal to
facilitate the transactions; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions; or (d) transactions in which the broker
solicits purchasers. In addition, any Common Stock covered by this Prospectus
that qualifies for sale pursuant to Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"), may be sold under Rule 144 rather than
pursuant to this Prospectus.
Brokers or dealers engaged to sell the Selling Stockholder Shares,
Warrant Shares or Option Shares will receive compensation from the Selling
Stockholders, holders of Warrant Shares or holders of Option Shares, the form of
commissions or discounts in amounts to be negotiated immediately prior to the
sale. Any gain realized by such brokers or dealers on the sale of Common Stock
which they purchase as a principal may be deemed to be compensation to the
broker dealers in addition to any commissions they will receive from the Selling
Stockholders, holders of Warrant Shares or holders of Option Shares. Brokers or
dealers engaged by the Selling Stockholders, holders of Warrant Shares or
holders of Option Shares may arrange for other brokers or dealers to
participate. Such brokers or dealers and any other participating broker dealers
may be deemed to be "underwriters" within the meaning of the Securities Act and
any discounts or commissions received by them or any profit on the resale of
shares by them may be deemed to be underwriting discounts and commissions
thereunder.
The Company will not receive any proceeds from any sales of the Selling
Stockholder Shares, Warrant Shares of Option Shares but will receive the
proceeds from the exercise of Warrants and Options, which proceeds, if any, will
be used for working capital. The Company will pay all expenses, other than
commissions or discounts due to brokers and dealers, incurred in connection with
this offering.
15.
<PAGE> 20
In connection with the registration by the Company, the Company shall
use its best efforts to prepare and file with the Commission such amendments
and supplements to the registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of such shares of Common Stock covered by the registration
statement for the period required to effect the distribution of such shares of
Common Stock.
Unless granted exemption by the Commission from Rule 10b-6 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or unless
otherwise permitted under Rule 10b-6A, the Selling Stockholders will not engage
in any stabilization activity in connection with the Company's securities, will
furnish each broker and dealer engaged by the Selling Stockholders and each
other participating broker or dealer the number of copies of this Prospectus
required by such broker or dealer, and will not bid for or purchase any
securities of the Company or attempt to induce any person to purchase any of
the Company's securities other than as permitted under the Exchange Act.
Selling Stockholders who may be "affiliated purchasers" of the Company as
defined in Rule 10b-6 have been advised that pursuant to Exchange Act Release
34-23611 (September 11, 1986), they must coordinate their sales under the
Prospectus with each other and the Company for purposes of Rule 10b-6.
LEGAL OPINION
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for the Company by Fried, Frank, Harris, Shriver &
Jacobson.
EXPERTS
The audited consolidated financial statements as of and for the years
ended December 31, 1995 and 1994 incorporated by reference in this Prospectus
and elsewhere in the Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
16.
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the offering described in this Registration Statement. None of such
expenses will be paid by the Selling Stockholders.
<TABLE>
<CAPTION>
Total
-----
<S> <C>
Registration Fee Under Securities Act of 1933 . . . . . . . . . . . $1,190
Photocopying and Postage . . . . . . . . . . . . . . . . . . . . . 1,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . 2,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 20,000
Blue Sky Fees and EDGAR Expenses (including related legal fees) . . 2,500
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 810
---
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $27,500
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law Section 145 provides that the
Registrant may indemnify any officer or director who was made a party to a suit
because of his position, including derivative suits, if he was acting in good
faith and in a manner he reasonably believed was in the best interest of the
Registrant, except, in certain circumstances, for negligence or misconduct in
the performance of his duty to the Registrant. If the director or officer is
successful in his suit, he is entitled to indemnification for expenses,
including attorney's fees. The Company's Certificate of Incorporation
eliminates director liability to stockholders or the Company for monetary
damages arising out of certain breaches by the directors of their fiduciary
duty of care. The duty of care refers to the fiduciary duty of directors to be
sufficiently diligent and careful in considering a transaction or taking or
refusing to take some corporate action. Finally, Registrant's by- laws provide
for indemnification of Registrant's officers and directors, except in case of
gross negligence or willful misconduct, if they are a party to an action
because they were an officer or director.
ITEM 16. EXHIBITS
3(a) Certificate of Incorporation, as amended(1)
3(b) By-Laws, as amended(2)
4(f) See Exhibit 3(a) and (b)
5(a) Opinion of Fried, Frank, Harris, Shriver & Jacobson (3)
24(a) Consent of Fried, Frank, Harris, Shriver & Jacobson (contained
in Exhibit 5(a))
24(b) Consent of Arthur Andersen LLP (included as page II-6)(3)
_________________
(1) Previously filed as exhibits to a Form 10-KSB/A-1 of Registrant for
the December 31, 1994 fiscal year.
(2) Previously filed as exhibits to a Form 8-K of Registrant for September
24, 1991.
(3) Filed herewith.
II-1
<PAGE> 22
ITEM 17. UNDERTAKINGS
(a) The registrant as a small business issuer registering
securities under Rule 415 of the Securities Act will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to
include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions in Item 15 hereof, 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 the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person 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 of 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.
II-2
<PAGE> 23
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form S-3 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Las Vegas, Nevada on the 14th day of October 1996.
CROWN LABORATORIES, INC.
By: /s/ CRAIG E. NASH
--------------------------------------
CRAIG E. NASH, Chief Executive Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby constitutes
and appoints Craig E. Nash or Scott O. Nash as his true and lawful
attorney(s)-in-fact, each with full power of substitution to execute in the
name and on behalf of such person, individually and in each capacity stated
below, and to file, any and all amendments to this Registration Statement,
including any and all post-effective amendments.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CRAIG E. NASH
--------------------------------- Chief Executive Officer and Chairman of the October 14, 1996
CRAIG E. NASH Board of Directors
/s/ SCOTT O. NASH
--------------------------------- President and Vice Chairman of the Board of October 14, 1996
SCOTT O. NASH Directors
/s/ SCOTT E. HILLEY
--------------------------------- Vice President, Finance October 14, 1996
SCOTT E. HILLEY
/s/ CHRISTOPHER DEMETREE
--------------------------------- Director October 14, 1996
CHRISTOPHER DEMETREE
/s/ VINCENT J. CASELLA
--------------------------------- Director October 14, 1996
VINCENT J. CASELLA
/s/ LEE ALLEN HOOKER
--------------------------------- Director October 14, 1996
LEE ALLEN HOOKER
</TABLE>
II-3
<PAGE> 24
<TABLE>
<S> <C> <C>
/s/ ARTHUR M. BERKOWITZ
--------------------------------- Director October 14, 1996
ARTHUR M. BERKOWITZ
/s/ LINDA CARRICK, Ph. D.
--------------------------------- Director October 14, 1996
LINDA CARRICK, Ph. D.
</TABLE>
II-4
<PAGE> 25
CONSENT OF COUNSEL
The consent of Fried, Frank, Harris, Shriver & Jacobson is contained in
their opinion, Exhibit 5(a).
II-5
<PAGE> 26
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
April 15, 1996 (except for matters discussed in Note 11 as to which the date of
our report is August 16, 1996) included in Crown Laboratories, Inc.'s Form
10-KSB/A1 for the year ended December 31, 1995 and to all references to our
Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
--------------------------
New York, New York ARTHUR ANDERSEN LLP
October 14, 1996
II-6
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Page No.
- ------- --------
<S> <C> <C>
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LETTERHEAD]
October 14, 1996
(202) 639-7915
Crown Laboratories, Inc.
6780 Caballo Street
Las Vegas, Nevada 89119
Ladies and Gentlemen:
We are acting as special counsel for Crown Laboratories, Inc. a Delaware
corporation (the "Company") in connection with the sale (the "Offering") of
3,453,748 shares of the Company's common stock, $.001 par value per share (the
"Common Stock"), including 1,822,499 shares held by certain selling stockholders
and 1,631,249 shares underlying 1,631,249 warrants and options to acquire Common
Stock granted by the Company to certain persons. Capitalized terms used herein
and not defined herein shall have the meaning given to them in the Registration
Statement on Form S-3 filed by the Company with the Securities and Exchange
Commission on October 14, 1996 (the "Registration Statement").
In connection with this opinion, we have (i) investigated such questions
of law, (ii) examined originals or certified, conformed or reproduced copies of
such agreements, instruments, documents and records of the Company and its
subsidiaries, such certificates of public officials and other such documents and
(iii) reviewed such information from officers and representatives of the Company
and its subsidiaries and others as we have deemed necessary for the purpose of
this opinion.
In all such examinations, we have assumed the legal capacity of all
natural persons executing documents, the genuineness of all signatures, the
authenticity of all original or certified documents and the conformity to
original or certified documents of all copies submitted to us conformed or
reproduced copies. As to various questions of fact relevant to the opinions
expressed herein, we have relied upon, and assume the accuracy of, the
statements made in certificates and oral and written statements and other
information of or from public officials and officers and representatives of the
Company, its subsidiaries and others.
Based on the foregoing, and subject to the limitations set forth herein, we are
of the opinion that:
1. The shares of Common Stock held by Selling Stockholders that are
registered for sale under the Registration Statement by the Company
have been legally issued, fully paid and non-assessable.
2. When the shares of Common Stock underlying the warrants and options
that are registered for sale under the Registration Statement by the
Company are issued, delivered and paid for in accordance with the
terms of the Prospectus, such shares will be legally issued, fully
paid and non-assessable.
We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement. In giving this consent, we do not hereby admit that
we are in a category of persons whose consent is required under Section 7 of the
Act, as amended.
We are members of the Bars of State of New York and the District of
Columbia. The opinions expressed herein are limited to the federal laws of the
United States and the General Corporation Law of the State of Delaware.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ STEPHEN I. GLOVER
------------------------------------
Stephen I. Glover
