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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
___________
COSMETIC GROUP U.S.A., INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4040591
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11312 PENROSE STREET, SUN VALLEY, CALIFORNIA 91352, (818) 767-2889
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
___________
ALFRED E. BOOTH, JR., PRESIDENT AND CHIEF EXECUTIVE OFFICER
COSMETIC GROUP U.S.A., INC.
11312 PENROSE STREET, SUN VALLEY, CALIFORNIA 91352, (818) 767-2889
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
DAVID R. EANDI, ESQ.
ERVIN, COHEN & JESSUP
9401 WILSHIRE BOULEVARD
BEVERLY HILLS, CALIFORNIA 90212
(310) 273-6333
___________
Approximate date of proposed sale to the public: From time to time after the
effective date of this registration statement.
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. / /
CALCULATION OF REGISTRATION FEE
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Amount Proposed maximum Proposed maximum
Title of each class of to be offering price per aggregate offering Amount of
securities to be registered registered(1) share (1) price(1) registration fee
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<S> <C> <C> <C> <C>
Common Stock. . . . . . . . 1,374,732 shares $2.875 $3,952,354.50 $1,362.88
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(1) Estimated solely for purposes of calculating the registration fee 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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 19, 1996
PROSPECTUS
1,374,732 SHARES
COSMETIC GROUP U.S.A., INC.
COMMON STOCK
This Prospectus relates to a shelf registration of an aggregate of
1,374,732 shares of the Common Stock of Cosmetic Group U.S.A., Inc. (the
"Company") which are being offered for sale by certain selling shareholders (the
"Selling Shareholders"). The shares offered hereby include 600,000 currently
outstanding shares of Common Stock and 774,732 shares of Common Stock issuable
upon the exercise of outstanding warrants (the "Warrants"). The 774,732 shares
of Common Stock included in this Prospectus that are issuable upon the exercise
of the Warrants consist of: (a) 44,732 shares of Common Stock issuable upon the
exercise of Warrants at an exercise price of $1.95 per share at any time from
August 16, 1996 to August 14, 2000 (the "August Placement Warrants"); (b)
600,000 shares of Common Stock issuable upon the exercise of Warrants at an
exercise price of $3.75 per share at any time prior to September 30, 1997 (the
"October Placement Warrants"); (c) 60,000 shares of Common Stock issuable upon
the exercise of Warrants to purchase 60,000 units (the "Unit Warrants"), with
each unit consisting of one share of Common Stock and one October Placement
Warrant, at an exercise price of $2.70 per unit at any time from September 25,
1996 to September 30, 1998; (d) 60,000 shares of Common Stock issuable upon the
exercise of the October Placement Warrants included in the Unit Warrants; and
(e) 10,000 shares of Common Stock issuable upon the exercise of Warrants at an
exercise price of $2.60 per share at any time prior to July 5, 1999 (the
"Consultant Warrants"). The exercise prices of, and the number of shares of
Common Stock subject to, the Warrants are subject to adjustment in certain
circumstances. See "Selling Shareholders and Plan of Distribution". The
Company will not receive any proceeds from the sale of shares by the Selling
Shareholders.
This Prospectus relates only to resales by the Selling Shareholders of the
shares of Common Stock issuable upon the exercise of the Warrants and does not
cover sales or transfers of the Warrants. The Warrants may be transferred only
in transactions which are registered under, or exempt from the registration
provisions of, the Securities Act of 1933, as amended (the "Securities Act").
The Common Stock is traded on the Nasdaq SmallCap Market under the symbol
"CUSA" and on the Boston Stock Exchange under the symbol "CGU". On June 17,
1996, the last sales price of the Common Stock, as reported on the Nasdaq
SmallCap Market, was $3.00 per share.
___________
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS".
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The shares of Common Stock offered by the Selling Shareholders generally
may be offered for sale from time to time in the over-the-counter market or on
the Boston Stock Exchange in ordinary brokerage transactions at market prices
prevailing at the time of sale or in negotiated transactions at prices related
to prevailing market prices. Brokers or dealers will receive commissions or
discounts from Selling Shareholders in amounts to be negotiated prior to the
sale. Any brokers or dealers participating in the offering of any such shares
may be deemed to be "underwriters" within the meaning of the Securities Act, and
the compensation received by them may be deemed to be underwriting commissions
or discounts. See "Selling Shareholders and Plan of Distribution".
The date of this Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices at 7 World Trade Center, 13th Floor, New York, NY 10048 and 500 West
Madison Street, Suite 1400, Chicago, IL 60661. Copies of such material can be
obtained from the Public Reference section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, and on the
World Wide Web at the Commission's Web site located at "http://www.sec.gov".
The Company's Common Stock is traded on the Nasdaq SmallCap Market and the
Boston Stock Exchange, and such reports and other information also can be
inspected at the office of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006 and at the office of the Boston Stock Exchange, One Boston Place,
Boston, MA 02108.
The Company has filed with the Commission a registration statement under
the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all the information set forth in the registration
statement and the exhibits thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the registration
statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement is qualified in its entirety by
such reference. Any interested parties may inspect the registration statement,
without charge, at the public reference facilities of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and any interested parties may obtain
copies of all or any part of the registration statement from the Commission at
prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company with
the Commission are incorporated by reference into this Prospectus:
1. The Company's Annual Report on Form 10-KSB for the year ended December
31, 1995.
2. All other reports filed by the Company pursuant to Sections 13(a) or
15(d) of the Exchange Act since December 31, 1995, including the
Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996 and the Company's Current Reports on Form 8-K dated March 26,
1996 and May 10, 1996.
3. The description of the Company's Common Stock contained in its
Registration Statement pursuant to Section 12 of the Exchange Act, as
amended from time to time.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference into this Prospectus and made a part hereof from the date of filing of
such documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified, to constitute a part of this Prospectus.
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The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request, a copy of any and
all documents incorporated by reference in this Prospectus, other than exhibits
to such documents, unless such exhibits are specifically incorporated by
reference in such documents. Requests should be directed to Mr. Frank McGarvey,
Corporate Secretary, Cosmetic Group U.S.A., Inc., 11312 Penrose Street, Sun
Valley, CA 91352, or by telephone at (818) 767-2889.
THE COMPANY
GENERAL
The Company operates in two segments, contract manufacturing and the
manufacture and sale of professional hair care products under the "Zegarelli"
name. Through its contract manufacturing operations, the Company custom
develops, formulates and manufactures a wide range of color cosmetics and other
personal care products for customers that market products for sale under their
own brand names. Products are manufactured both from formulas developed by the
Company and proprietary formulas owned by the Company's customers. The
Company's contract manufacturing operations consist of the manufacture of
products in three principal categories: color cosmetics and fragrances, creams
and lotions and hair care products. As part of the Company's efforts to expand
its product offerings, the Company upgraded its in-house capacity to manufacture
powder-based cosmetics and creams and lotions during 1993 and completed the
installation of a high capacity system for the manufacture of hair care products
and creams and lotions in February 1994.
Contract manufacturers, such as the Company, formulate and manufacture
cosmetics and other personal care products for companies that market products
for sale at the retail level under their own brand names. Customers for
contract manufacturers range from marketers of personal care products that lack
manufacturing capabilities to marketers that manufacture a significant portion
of their personal care products. Companies with manufacturing capabilities
utilize services of contract manufacturers as a result of internal decisions not
to devote manufacturing resources to certain product lines, due to the size of
the product run or the nature of the manufacturing process, or in response to
scheduling needs or a lack of sufficient manufacturing capacity. Although these
customers eventually may bring in-house the production of products manufactured
for them by contract manufacturers, it is the Company's experience that many
manufacturers and distributors of cosmetics and other personal care products
utilize the services of contract manufacturers on a regular basis and that the
relationships established in filling specific product orders can lead to orders
for additional products in the future.
In addition to its operations as a contract manufacturer, in 1994, the
Company developed with Arnold Zegarelli, a professional hair designer, a line of
professional hair care products which are manufactured by the Company and
marketed to beauty salons and hair care professionals under the Zegarelli name.
The line includes shampoos, conditioners and styling and finishing products.
The Company has entered into a license agreement with a corporation owned by Mr.
Zegarelli which grants to the Company an exclusive, non-transferable license to
use the Zegarelli name in connection with the manufacture and sale of hair care
and other personal care products. The Company also has entered into a
distribution agreement with Sally Beauty Company, Inc. ("Sally"), a subsidiary
of Alberto-Culver Co., which grants to Sally the exclusive right to distribute
the Zegarelli product line in the United States through beauty supply stores for
sale to salons and professional hairdressers. The Company also uses independent
distributors to sell the Zegarelli product line directly to larger salons and
salon chains, and, in connection therewith, the Company generally expects to
repurchase products from Sally for sale to its independent distributors and to
use warehouse and shipping services provided by Sally. Sales of the
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Zegarelli product line to Sally commenced in the second quarter of 1995, and
sales to independent distributors commenced in the third quarter of 1995.
The Company's efforts during 1995 with respect to its Zegarelli product
line primarily focused on introducing the product line to the professional hair
care industry through participation in trade shows and other promotional and
marketing activities and on seeking to establish relationships with independent
distributors. The Company also expended a significant effort in 1995 in
developing the sales programs, sales aids and other promotional materials that
the Company believes are necessary to establish relationships with independent
distributors and promote salon sales. The Company believes that it now has in
place the promotional materials and programs that are required to support its
marketing efforts.
The current sales levels of the Zegarelli line are not sufficient to cover
the related costs and expenses. The Company's ability to increase sales of the
Zegarelli line to the level necessary to meet ongoing costs and expenses is
dependent upon an expansion of the Company's distribution network and increased
market acceptance of the product line. There can be no assurance that the
Company will be able to successfully establish and maintain the necessary
distribution network for its Zegarelli product line or otherwise successfully
compete in the professional hair care products market. See "Risk Factors -
Competition; Introduction of Zegarelli Product Line" and "Risk Factors -
Reliance on Independent Distributors".
The Company is the product of a reorganization of two previously
unaffiliated companies, Cosmetic Group USA, Inc. ("CUSA") and K7 Capital
Corporation ("K7"). Unless the context indicates otherwise, as used in this
Prospectus, the term the "Company" refers to the operations of CUSA prior to and
following the reorganization of CUSA and K7. The Company is a California
corporation, its executive offices and manufacturing facilities are located at
11312 Penrose Street, Sun Valley, CA 91352, and its telephone number is (818)
767-2889.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER
THE FOLLOWING FACTORS RELATING TO THE BUSINESS OF THE COMPANY IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK.
DEPENDENCE ON CERTAIN CUSTOMERS; RECENT OPERATING RESULTS
During 1995, sales to the Company's three largest customers, Avon Products,
Inc. ("Avon Products"), Victoria Jackson Cosmetics, Inc. ("Victoria Jackson")
and Sally, accounted for approximately 39%, 22% and 13%, respectively, of net
sales, and sales to the Company's four largest customers accounted for
approximately 80% of net sales. During 1994, sales to the Company's largest
customer, Avon Products, accounted for approximately 37% of net sales, and sales
to the Company's four largest customers accounted for approximately 54% of net
sales. With the exception of the Company's agreement with Sally, the Company
does not have any long-term contractual relationships with any of its customers,
nor are any of the Company's customers subject to any contractual provisions or
other restrictions which preclude them from purchasing products from the
Company's competitors. The loss of one or more significant customers, or a
material reduction in the amount of orders placed by a significant customer,
could have a material adverse effect on the Company's business and results of
operations.
For 1995, the Company reported a net loss of $1,964,000, as compared to net
income of $23,000 for 1994. The loss for 1995 is primarily attributable to
start-up and operating expenses incurred in connection with the Zegarelli
product line and an increase in cost of sales as a percentage of net sales.
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The increase in the cost of sales percentage is primarily attributable to the
write-down of a product purchased as a finished product for resale by the
Company, changes in the sales mix and the effect of special promotional
offerings for the Zegarelli product line. For the quarter ended March 31, 1996,
the Company reported net income of $71,000, as compared to a net loss of
$177,000 for the comparable period of the prior year. The improvement in
operating results is primarily attributable to an increase in net sales and an
improvement in the cost of sales percentage, the effects of which were partially
offset by expenses incurred in connection with the Zegarelli product line and an
increase in interest expense.
LIQUIDITY; RECENT CASH FLOW DEFICIENCIES
The Company's working capital at December 31, 1995 was $1,891,000, a
reduction of $52,000 from December 31, 1994, and was $1,830,000 at March 31,
1996. Operations resulted in a cash flow deficiency of $2,308,000 in 1995 and
resulted in positive cash flow of $8,000 in the quarter ended March 31, 1996.
Working capital needs during 1995 were met by drawing on the Company's cash
balance of $1,026,000 at December 31, 1994 and from the proceeds of two private
placements of equity securities completed by the Company in 1995. In the first
placement (conducted between March 1995 and August 1995) (the "August
Placement"), the Company received approximately $896,000 in proceeds (net of
commissions) from the sale of 642,320 shares of Common Stock at a purchase price
of $1.50 per share. In the second placement (completed in October 1995) (the
"October Placement"), the Company received approximately $1,255,000 in proceeds
(net of commissions) from the sale of 600,000 units at a purchase price of $2.25
per unit. Each unit consists of one share of Common Stock and one October
Placement Warrant. The shares of Common Stock offered by this Prospectus
include the 600,000 shares of Common Stock included in the units sold in the
October Placement, the 600,000 shares of Common Stock issuable upon the exercise
of the October Placement Warrants included in such units and 164,732 shares of
Common Stock issuable upon the exercise of Warrants issued to placement agents
in the August and October Placements.
In order to supplement its working capital, in June 1996, the Company
borrowed the sum of $150,000 from Eric Nickerson, who has been nominated for
election to the Board of Directors of the Company. See "Selling Shareholders
and Plan of Distribution". The Company believes that funds generated from
operations, available borrowings under its credit facilities and the proceeds
of the foregoing loan will be sufficient to finance its working capital and
capital expenditure requirements through the end of 1996. However, there can
be no assurance that such funds will be sufficient or that the Company's
operations will not result in cash flow deficiencies. In addition, in order
to take advantage of business opportunities, the Company may consider raising
additional funds from time to time through the private placement of debt or
equity securities.
DEPENDENCE ON KEY EXECUTIVES
The Company's business is substantially dependent on the efforts and
abilities of Mr. Booth, its President and Chief Executive Officer, and Judith
E. Zegarelli, its Vice President -- New Product Development and Infomercial
Sales. The loss of the services of either of these executives could have a
material adverse effect on the Company's business and results of operations.
The Company currently is not a party to any employment agreement with Mr.
Booth or Ms. Zegarelli. The Company maintains and is the beneficiary of term
life insurance on the life of Mr. Booth in the amount of $1.0 million. There
can be no assurance that the proceeds of such insurance will be sufficient to
compensate the Company in the event of the death of Mr. Booth. The Company
does not maintain any insurance against the loss of Mr. Booth's services as a
result of disability or any other cause other than death, and the Company
does not maintain any insurance on the life of Ms. Zegarelli or against the
loss of her services.
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VARIABILITY OF QUARTERLY RESULTS
The Company's contract manufacturing segment generally manufactures
products only in response to specific customer orders. Since orders from a small
number of customers (which may change from period to period) typically account
for a substantial portion of the Company's net sales in any period, the
Company's net sales and operating results may fluctuate significantly from
quarter to quarter depending upon the timing of customer orders and shipment
dates. Therefore, year-to-year comparisons of quarterly results may not be
meaningful and quarterly results during the course of a year may not be
indicative of the results that may be expected for the entire year.
COMPETITION; INTRODUCTION OF ZEGARELLI PRODUCT LINE
The market for the contract manufacturing of cosmetics and other personal
care products is highly competitive. The industry is characterized by a large
number of small to medium-sized manufacturers who may operate on a national,
regional or local scale. Most of the Company's competitors are larger and have
greater financial and other resources than the Company. In addition to direct
competition, the Company also faces indirect competition from present and
potential customers who from time to time evaluate the "make or buy" decision of
whether to manufacture a particular product or purchase the product from outside
sources.
The Company's Zegarelli hair care product line competes in the professional
hair care products segment of the health and beauty aids industry. The market
for professional hair care products also is highly competitive. Competitors
include divisions or subsidiaries of large, nationally-known consumer products
companies and small to medium-sized independent professional hair care
companies. The Company's competitors generally have substantially greater
resources and name recognition than the Company. The Company historically has
operated as a contract manufacturer and has not manufactured products for sale
under its own brand name, nor has the Company directly competed in the
professional hair care products market. There can be no assurance that the
Company will be able to successfully introduce its Zegarelli product line or
otherwise successfully compete in the professional hair care products market.
RELIANCE ON INDEPENDENT DISTRIBUTORS
The success of the Zegarelli product line will depend to a significant
extent upon the Company's ability to establish and maintain a network of
independent distributors. It is anticipated that all or substantially all of
the Company's distributors will be multi-line distributors, i.e., distributors
that will offer for sale both the Company's Zegarelli product line and products
sold by competitors. Because many of the Company's competitors have
substantially greater resources and name recognition than the Company, the
Company's competitors may be able to provide greater incentives to independent
distributors to sell their respective products rather than the Zegarelli product
line. In addition, some distributors (in particular, larger distributors) may
be reluctant to take on the Zegarelli product line for fear of jeopardizing
their relationship with the Company's larger competitors. There can be no
assurance that the Company will be successful in establishing and maintaining
the required network of independent distributors.
SINGLE MANUFACTURING FACILITY
The Company's manufacturing facilities are located in two adjacent
buildings in Sun Valley, California, a suburb of Los Angeles located in the San
Fernando Valley. If the buildings were to suffer substantial damage, whether by
reason of fire, earthquake or otherwise, such damage could disrupt the
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Company's manufacturing activities and other business operations and have a
material adverse effect on the Company's business and results of operations. The
Company maintains property insurance for its own tangible assets and the
property of its customers in the amount of $5.0 million and business
interruption insurance which provides coverage in the amount of $3.0 million per
claim and in the aggregate (determined annually). There can be no assurance that
the proceeds of such insurance will be sufficient to compensate the Company in
the event of any interruption of its business activities. The Company's property
and business interruption insurance policies do not provide coverage against
losses caused by earthquake or flood.
PRODUCT LIABILITY RISKS; LITIGATION
The sale of any product can expose the seller to product liability claims.
Although no material product liability claims ever have been asserted against
the Company, there can be no assurance that such claims will not arise in the
future. The Company currently maintains product liability insurance which
provides coverage in the amount of $1.0 million per occurrence, with an annual
limit of $2.0 million. A product liability claim that results in a judgment or
settlement in excess of the Company's insurance coverage could have a material
adverse effect on the Company's business and results of operations.
The Company is a defendant in a lawsuit filed in March 1996 in the United
States District Court for the District of Minnesota by Watkins Incorporated, a
Minnesota corporation ("Watkins"). During the first half of 1995, the Company
formulated and manufactured a product for Watkins that was included in a line of
skin care products introduced by Watkins in late 1994 or the first part of 1995.
The complaint alleges that a portion of the product delivered by the Company
developed a mold which discolored the product and rendered it defective and that
Watkins recalled any bottles of the product that had been shipped to its
independent sales representatives and their customers. The Company promptly
replaced the discolored product at the request of Watkins. The Company believes
that the growth of the mold and the resulting discoloration were caused by a
component included in the product at the request of Watkins. The replacement
product was formulated in cooperation with Watkins, and it is the Company's
understanding that the replacement product did not discolor or develop any mold.
In its complaint, Watkins alleges that, following the discovery of the
discolored product, its independent distributors shunned the entire skin care
line and lost confidence in Watkins, thereby adversely affecting sales of other
Watkins products, and that, as a result, Watkins was forced to withdraw and
discontinue the entire skin care line. The complaint seeks incidental and
consequential damages in an unspecified amount, including damages for loss of
sales, income and profits and loss of and damage to goodwill and business
reputation and reimbursement of certain fees and expenses. The Company intends
to vigorously defend the action and believes it has defenses against the
plaintiff's claims. However, because the litigation has just commenced, the
Company is unable to predict the ultimate outcome of the action. The Company's
insurance carriers have informed the Company that the lawsuit is not covered by
any of the Company's insurance policies.
GOVERNMENT REGULATION
The Company's products and manufacturing operations are subject to
regulation by federal and state governmental agencies and, in particular, by the
United States Food and Drug Administration ("FDA"). The principal FDA
regulations applicable to the Company generally pertain to the use of required
ingredients, label contents and compliance with "Current Good Manufacturing
Practices for Finished Pharmaceuticals". The Company believes that its products
and manufacturing procedures comply in all material respects with existing
regulations, and the Company never has been the subject of an FDA recall or
other enforcement action by a governmental agency. The Company does not believe
that existing
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regulations have had a material effect on its operations. There can be no
assurance, however, that future FDA action, or other federal or state regulatory
activity, would not be material to the operations of the Company.
CONTROL BY MANAGEMENT
As of June 3, 1996, the principal shareholders, directors, nominees for
director and officers of the Company beneficially owned approximately 39% of
the Common Stock. Because of their stock ownership and positions with the
Company, these persons are in a position to control the affairs of the
Company. The foregoing does not include any shares of Common Stock with
respect to which Kennedy Capital Management, an investment advisor, has
discretionary authority with respect to voting and disposition.
SHARES ELIGIBLE FOR FUTURE SALE; OUTSTANDING REGISTRATION RIGHTS
The registration statement of which this Prospectus is a part covers the
sale of 600,000 shares of Common Stock which currently are outstanding and an
aggregate of 774,732 shares of Common Stock issuable upon the exercise of the
Warrants, which shares are, or upon their issuance will be, "restricted
shares" under the Securities Act. Separate registration statements cover the
sale of an additional 1,160,989 restricted shares, consisting of: (a) 160,749
shares of Common Stock issued by the Company in a 1993 private placement; (b)
137,500 shares of Common Stock issued by the Company in a private placement
completed in April 1994; (c) 118,200 shares of Common Stock purchased by
certain shareholders from affiliates of the Company; (d) 102,220 shares of
Common Stock issued by the Company upon the conversion of convertible
promissory notes; and (e) 642,320 shares of Common Stock issued by the
Company in a private placement conducted between March 1995 and August 1995.
At March 31, 1996, the Company had outstanding five year warrants to
purchase up to 465,839 shares of Common Stock, at an exercise price of $3.22 per
share, which were issued as part of the Units sold in the Company's July 1994
public offering (the "Public Warrants"). The Company also granted to certain
underwriters in such public offering warrants (the "Underwriters' Warrants") to
purchase up to 40,000 Units, at an exercise price of $7.35 per Unit, each Unit
consisting of two shares of Common Stock and one Public Warrant. An aggregate
of 126,583 shares of Common Stock are issuable upon exercise of the
Underwriters' Warrants and the Public Warrants issuable as part of the Units
underlying the Underwriters' Warrants. In addition, at March 31, 1996, the
Company had outstanding, in addition to the Warrants, the following warrants and
stock options: (a) warrants to purchase up to 189,061 shares of Common Stock, at
an exercise price of $3.00 per share, issued as part of units sold in the 1993
private placement; (b) options to purchase up to 441,394 shares of Common Stock,
at an exercise price of $2.25 per share, and options to purchase up to 64,232
shares of Common Stock, at an exercise price of $1.50 per share, issued to Sally
pursuant to a stock option agreement entered into with Sally in connection with
the distribution agreement described under "The Company"; and (c) incentive
stock options to purchase up to 399,000 shares of Common Stock, at exercise
prices ranging from $2.125 to $3.30 per share, and nonqualified stock options to
purchase up to 446,000 shares of Common Stock, at exercise prices ranging from
$1.75 to $4.00 per share. The exercise of the foregoing warrants and options
may result in the issuance of up to approximately 2,110,000 additional shares of
Common Stock and may result in a dilution of the interests of then existing
shareholders of the Company.
The issuance of the shares of Common Stock issuable upon the exercise of
the Public Warrants and the Underwriters' Warrants, including the Public
Warrants issuable as part of the Units underlying the Underwriters' Warrants,
and upon the exercise of the warrants issued as part of the 1993 private
placement (an aggregate of approximately 781,000 shares of Common Stock) has
been registered by the Company under the Securities Act pursuant to currently
effective registration statements. The Company intends to file in the near
future a registration statement under the Securities Act with respect to the
shares of Common Stock issuable pursuant to the stock options granted and to be
granted under the Company's
-8-
<PAGE>
stock option plan, and the Company has granted to Sally certain registration
rights with respect to its options. The availability for sale, as well as
actual sales, of currently outstanding shares of Common Stock, and shares of
Common Stock issuable upon the exercise of outstanding options and warrants, may
have a depressive effect upon the prevailing market price for the Common Stock
and might adversely affect the terms upon which the Company may be able to
obtain additional equity financing.
DIVIDENDS
The Company has no present intention to pay any cash dividends in the
foreseeable future. In addition, the Company's credit agreement with one of its
lenders contains a covenant which prohibits the payment of dividends on the
Common Stock.
SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION
The 1,374,732 shares of Common Stock covered by this Prospectus are being
offered for the account of the Selling Shareholders. The shares of Common Stock
offered by the Selling Shareholders consist of 600,000 shares of Common Stock
included in the units issued by the Company in the October Placement and 774,732
shares of Common Stock issuable by the Company upon the exercise of the
Warrants. The shares of Common Stock included in this Prospectus that are
issuable upon the exercise of the Warrants consist of: (a) 600,000 shares of
Common Stock issuable at an exercise price of $3.75 per share at any time prior
to September 30, 1997 upon the exercise of the October Placement Warrants
included in the units issued in the October Placement; (b) 60,000 shares of
Common Stock included in the units issuable upon the exercise of the Unit
Warrants at an exercise price of $2.70 per unit at any time from September 25,
1996 to September 30, 1998; (c) 60,000 shares of Common Stock issuable at an
exercise price of $3.75 per share at any time prior to September 30, 1997 upon
the exercise of the October Placement Warrants included in the Unit Warrants;
(d) 44,732 shares of Common Stock issuable at an exercise price of $1.95 per
share at any time from August 16, 1996 to August 14, 2000 upon the exercise of
the August Placement Warrants; and (e) 10,000 shares of Common Stock issuable at
any time until July 5, 1999 upon the exercise of the Consultant Warrants. The
exercise prices of, and the number of shares subject to, the Warrants are
subject to adjustment in certain circumstances. The Company will not receive
any of the proceeds from the sale of shares by the Selling Shareholders.
The August Placement Warrants were issued as part of the commissions
payable by the Company to placement agents in connection with the August
Placement. The August Placement Warrants were issued to the Selling
Shareholders as follows: Schneider Securities, Inc. ("Schneider")--32,348
warrants; Thomas W. Schneider--5,422 warrants; Siegfried P. Duray-Bito--904
warrants; Thomas J. O'Rourke--904 warrants; Roger P. May--904 warrants; Ben
Lechtenberg--1,875 warrants; Michael Golden--1,875 warrants; and Steven
Schwartz--500 warrants. In addition, the Company paid commissions of
approximately $94,000 to Schneider and approximately $6,375 to First Colonial
Securities Group Inc., in connection with the August Placement. The Unit
Warrants were issued to Schneider as part of the commissions and finder's fees
payable by the Company in connection with the October Placement. In addition,
the Company paid commissions of approximately $66,000 to Schneider in connection
with the October Placement. For further information regarding these private
placements, see "Risk Factors - Liquidity; Recent Cash Flow Deficiencies". The
Consultant Warrants were issued to Schneider in July 1995 as partial
compensation for financial consulting services to be provided by Schneider under
the terms of a consulting agreement, which continues in effect until July 1997.
Under the terms of the consulting agreement, the Company also is required to pay
Schneider the sum of $48,000, at the rate of $2,000 per month, for such
consulting services. Schneider also received the sum of $56,000 in 1993 as
commissions in connection with its services as placement agent in the 1993
private placement.
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<PAGE>
The shares of Common Stock offered hereby by the Selling Shareholders may
be sold from time to time by the Selling Shareholders or by pledgees, donees,
transferees or other successors-in-interest of the Selling Shareholders. Such
sales may be made on one or more exchanges (the Common Stock is listed on the
Boston Stock Exchange, and the Company currently has no intention to list the
Common Stock on any other exchange), in the over-the-counter market or
otherwise, at prices and at terms then prevailing, at prices related to the then
current market price or in negotiated transactions. The shares of Common Stock
offered by the Selling Shareholders may be sold by any one or more of the
following methods: (a) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; (b) purchases by a broker or dealer as principal
and resales by such broker or dealer for its account pursuant to this
Prospectus; and (c) block trades or exchange distributions in accordance with
the rules of such exchange. In addition, any such shares which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than pursuant to this Prospectus. In effecting sales, brokers or dealers engaged
by the Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Shareholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act, and the compensation
received by them may be deemed to be underwriting commissions or discounts.
Upon the Company being notified by a Selling Shareholder that any material
arrangement has been entered into with a broker or dealer for the sale of any
shares covered by this Prospectus, a prospectus supplement, if required, will be
distributed which will set forth the name of each such Selling Shareholder and
of the participating brokers or dealers, the number of shares involved, the
price at which such shares were sold and the commissions paid or discounts or
concessions allowed to such brokers or dealers. In certain jurisdictions, the
shares of Common Stock offered by the Selling Shareholders may be offered or
sold in such jurisdictions only through registered or licensed brokers or
dealers.
Under the Exchange Act, any person engaged in a distribution of shares of
Common Stock offered by this Prospectus may not simultaneously engage in market
making activities with respect to the Common Stock during the applicable
"cooling off" period prior to the commencement of such distribution. In
addition, and without limiting the foregoing, each Selling Shareholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of Common Stock by
the Selling Shareholders. The Company will inform each Selling Shareholder in
writing that he or she is subject to the applicable provisions of the Exchange
Act and the rules and regulations thereunder. The Company will inform Nasdaq,
the Boston Stock Exchange and each of the Selling Shareholders when the
distribution of shares in this offering is completed.
On June 18, 1996, Eric Nickerson, who is the general partner of Third
Century II and Z Fund, two of the Selling Shareholders, and who has
discretionary authority with respect to the shares of Common Stock owned by
such entities, loaned the Company the sum of $150,000, which loan bears
interest at the rate of 10% per annum and is due and payable on August 19,
1996. As additional incentive for making the loan, the Company issued to Mr.
Nickerson 7,500 shares of Common Stock without additional consideration. In
the event of default by the Company, Mr. Nickerson may convert the loan into
shares of Common Stock at the rate of $2.50 per share. Mr. Nickerson has been
nominated for election as a director of the Company at the Company's Annual
Meeting of Shareholders to be held on July 16, 1996.
The following table sets forth certain information, as of June 17, 1996,
with respect to each of the Selling Shareholders. Other than Eric Nickerson,
who has been nominated for election as a director of the Company, none of the
Selling Shareholders is an executive officer or director of the Company.
Third Century II purchased 11,817 shares of Common Stock in a 1993 private
Placement, purchased 160,000 shares of Common Stock in the August Placement
and acquired 22,222 shares of Common Stock upon the conversion of convertible
promissory notes in 1995. Z Fund acquired 12,000 shares of Common Stock in
the August Placement. Kennedy Capital Management, an investment advisor that
his discretionary authority with respect to the voting and disposition of
shares being sold by certain of the Selling Shareholders, also has acted as
investment advisor on behalf of purchasers in previous offerings made by the
Company and may be deemed to be the beneficial owner of the shares owned by
such purchasers.
-10-
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING (1)
------------------------- ---------------------
NUMBER
NUMBER PERCENT OF SHARES NUMBER PERCENT
NAME OF SHARES OF CLASS TO BE SOLD OF SHARES OF CLASS
- ---- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Siegfried P. Duray-Bito(2) . . . 904 * 904 -- --
Boston Safe Deposit Trust Co.
FBO Fairfax County Public
School(3) . . . . . . . . . . . 256,000 4.94% 256,000 -- --
Michael Golden(2). . . . . . . . 1,875 * 1,875 -- --
Ben Lechtenberg(2) . . . . . . . 1,875 * 1,875 -- --
Marion Bradley Glass
Trust(3). . . . . . . . . . . . 60,000 1.18% 60,000 -- --
Marion Bradley Glass Via
Part Trust(3) . . . . . . . . . 60,000 1.18% 60,000 -- --
Roger P. May(2). . . . . . . . . 904 * 904 -- --
Newell Company(3). . . . . . . . 200,000 3.88% 200,000 -- --
Thomas J. O'Rourke(2). . . . . . 904 * 904 -- --
Pension Reserves Investment
Management Board(3) . . . . . . 150,000 2.92% 150,000 -- --
Steven Schwartz(2) . . . . . . . 500 * 500 -- --
Thomas W. Schneider(2) . . . . . 5,422 * 5,422 -- --
Schneider Securities, Inc.(4). . 162,348 3.11% 162,348 -- --
State Street Bank & Trust
Co. FBO Montgomery
County Employee
Retirement System(3). . . . . . 274,000 5.28% 274,000 -- --
Third Century II(5). . . . . . . 389,817 7.56% 176,000 213,817 4.22%
Z Fund(5). . . . . . . . . . . . 36,000 * 24,000 12,000 *
</TABLE>
______________________
* Indicates ownership of less than one percent.
(1) Based on an aggregate of 5,056,256 shares of Common Stock outstanding and,
with respect to particular persons, shares underlying options and warrants
currently exercisable or exercisable within 60 days. Information set forth
under the heading "Beneficial ownership prior to offering" assumes that all
of the Warrants have been exercised, including any such Warrants that are
not currently exercisable or are not exercisable within 60 days.
Information set forth under the heading "Beneficial ownership after
offering" assumes that all shares registered hereby on behalf of the
Selling Shareholders are sold by the Selling Shareholders, including all of
the shares issuable upon the exercise of the Warrants. Except as otherwise
indicated in the table and the footnotes thereto, no effect has been given
to shares issuable upon the exercise of outstanding options or warrants.
(2) Consists of shares issuable upon the exercise of the August Placement
Warrants. Messrs. Duray-Bito, May, O'Rourke and Schneider are employees of
Schneider, and Messrs. Golden, Lechtenberg and Schwartz are employees of
First Colonial Securities Group, Inc.
(3) Includes 128,000 shares, 30,000 shares, 30,000 shares, 100,000 shares,
75,000 shares and 137,000 shares which may be acquired by Boston Safe
Deposit Trust Co. FBO Fairfax County Public School, Marian Bradley Glass
Trust, Marion Bradley Glass Via Part Trust, Newell Company, Pension
Reserves Investment Management Board and State Street Bank & Trust Co. FBO
Montgomery County Employee Retirement System, as the case may be, upon the
exercise of the October Placement Warrants. Kennedy Capital Management,
Inc., a registered investment advisor, has full discretionary authority
with respect to the voting and disposition of the shares of Common Stock
owned by each of the foregoing persons and may be deemed the beneficial
owner of the shares owned by such entities.
(4) Includes 32,348 shares which may be acquired by Schneider upon the exercise
of the August Placement Warrants, 120,000 shares which may be acquired by
Schneider upon the exercise of the Unit Warrants (including an aggregate of
60,000 shares which may be acquired by Schneider upon the exercise of the
October Placement Warrants included in the Unit Warrants) and 10,000 shares
which may be acquired by Schneider upon the exercise of the Consultant
Warrants.
(5) Includes 88,000 shares and 12,000 shares which may be acquired by Third
Century II and Z Fund, respectively, upon the exercise of the October
Placement Warrants. For Third Century II, also includes 11,817 shares
which may be acquired upon the exercise of warrants issued in the 1993
private placement. Does not include 8,000 shares of Common Stock owned by
Eric Nickerson, who has discretionary authority with respect to the
voting and disposition of the shares of Common Stock owned by Third
Century II and Z Fund. Mr. Nickerson, who has been nominated for
election as a director of the Company, may be deemed the beneficial
owner of the shares owned by such entities.
-11-
<PAGE>
INDEMNIFICATION
The Company's Articles of Incorporation contain provisions limiting the
personal liability of directors to the Company and its shareholders, and the
Company's Bylaws contain provisions indemnifying directors, officers, employees
and agents of the Company for actions, in their capacity as such, to the fullest
extent permitted by law. The Company also has entered into indemnification
agreements with its directors and executive officers. Each of the foregoing may
include indemnification for liabilities under the Securities Act. Insofar as
indemnification for liabilities under the Securities Act may be permitted to
directors, officers and controlling persons of the Company, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
LEGAL MATTERS
Certain matters with respect to the validity of the issuance of the Common
Stock offered hereby are being passed upon for the Company by William B.
Barnett, Esq., Sherman Oaks, California.
EXPERTS
The consolidated financial statements of Cosmetic Group U.S.A., Inc.
incorporated by reference from the Company's Annual Report (Form 10-KSB) for the
year ended December 31, 1995 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
-12-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE SELLING SHAREHOLDERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES COVERED HEREBY IN ANY JURISDICTION OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, IN
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------------------------
TABLE OF CONTENTS
PAGE
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selling Shareholders and
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
COSMETIC GROUP
U.S.A., INC.
1,374,732 SHARES
COMMON STOCK
PROSPECTUS
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by the
registrant in connection with the filing of this Registration Statement on Form
S-3:
Securities and Exchange Commission registration fee . . . . . $1,362.88
Blue Sky fees and expenses (including legal fees) . . . . . . *
Printing costs. . . . . . . . . . . . . . . . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . . . . . . . *
Accounting fees and expenses. . . . . . . . . . . . . . . . . *
Miscellaneous expenses. . . . . . . . . . . . . . . . . . . . *
---------
Total . . . . . . . . . . . . . . . . . . . . . . . $ *
---------
---------
__________
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 317 of the California General Corporation Law (the "CGCL"),
the registrant is in certain circumstances permitted to indemnify its directors
and officers against certain expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with threatened, pending or completed civil, criminal, administrative
or investigative actions, suits or proceedings (other than an action by or in
the right of the registrant), in which such persons were or are parties, or are
threatened to be made parties, by reason of the fact that they were or are
directors or officers of the registrant, if such persons acted in good faith and
in a manner they reasonably believed to be in the best interests of the
registrant, and with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. In addition, the
registrant is in certain circumstances permitted to indemnify its directors and
officers against certain expenses incurred in connection with the defense or
settlement of a threatened, pending or completed action by or in the right of
the registrant, and against amounts paid in settlement of any such action, if
such persons acted in good faith and in a manner they believed to be in the best
interests of the registrant and its shareholders, provided that the specified
court approval is obtained.
As permitted by Section 317 of the CGCL, the Articles of Incorporation and
By-Laws of the registrant provide that the registrant is authorized to provide
indemnification for its directors and officers for breach of their duty to the
registrant and its shareholders through bylaw provisions or through agreements
with the directors and officers, or both, in excess of the indemnification
otherwise permitted by Section 317 of the CGCL. The registrant's Bylaws provide
for indemnification of its directors and officers to the maximum extent
permitted by Section 317 of the CGCL. In addition, agreements entered into by
the registrant with its directors and its executive officers require the
registrant to indemnify such persons against expenses, judgments, fines,
settlements and other amounts reasonably incurred in connection with any
proceeding to which any such person may be made a party by reason of the fact
that such person was an agent of the registrant or by reason of any action or
inaction on the part of such person while serving as an agent of the registrant
(including judgments, fines and settlements in or of a derivative action, unless
indemnification is otherwise prohibited by law), provided such person acted in
good faith and in a manner he reasonably believed to be in the best interests of
the registrant and, in the case of a criminal proceeding, had no reason to
believe his conduct was unlawful. The indemnification agreements also set forth
certain procedures that will apply in the event of a claim for indemnification
thereunder.
II-1
<PAGE>
The Articles of Incorporation of the registrant provide that the personal
liability of the directors of the registrant for monetary damages shall be
eliminated to the fullest extent permissible under California law. Under
Section 204(a)(10) of the CGCL, the personal liability of a director for
monetary damages in an action brought by or in the right of the corporation for
breach of the director's duty to the corporation may be eliminated, except for
the liability of a director resulting from (i) acts or omissions involving
intentional misconduct or the absence of good faith, (ii) any transaction from
which a director derived an improper personal benefit, (iii) acts or omissions
showing a reckless disregard for the director's duty, (iv) acts or omissions
constituting an unexcused pattern of inattention to the director's duty, or
(v) the making of an illegal distribution to shareholders or an illegal loan or
guaranty.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
4.1 Form of certificate representing shares of the registrant's Common
Stock.*
5.1 Opinion of William B. Barnett, Esq.**
23.1 Consent of Ernst & Young LLP (set forth on Page II-4).
23.2 Consent of William B. Barnett, Esq. (included in Exhibit 5.1).**
24.1 Powers of Attorney (set forth on Page II-5).
__________
* Incorporated by reference to the registrant's Registration Statement on
Form SB-2 (No. 33-78936) filed May 13, 1994 and amended on June 23, 1994,
July 12, 1994 and July 14, 1994.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more that a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and
II-2
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (A)(1)(i) and (A)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination 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 foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by 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 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-3
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Cosmetic Group
U.S.A., Inc. for the registration of 1,374,732 shares of its common stock and to
the incorporation by reference therein of our report dated March 8, 1996 with
respect to the consolidated financial statements of Cosmetic Group U.S.A., Inc.
incorporated by reference in its Annual Report (Form 10-KSB) for the year ended
December 31, 1995, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Los Angeles, California
June 13, 1996
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sun Valley, State of California, on June 18, 1996.
COSMETIC GROUP U.S.A., INC.
By: /s/ ALFRED E. BOOTH, JR.
-------------------------------------------
Alfred E. Booth, Jr. Chairman of the Board
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alfred E. Booth, Jr., Frank X. McGarvey and Jack
Brehm, and each of them, as his or her true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for such person and
in such person's name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ ALFRED E. BOOTH, JR. Chairman of the Board, President June 18, 1996
- ---------------------- and Chief Executive Officer
Alfred E. Booth, Jr.
/s/ FRANK X. MCGARVEY Chief Financial Officer, Vice President June 18, 1996
- ---------------------- Sales, Secretary and Director
Frank X. McGarvey
/s/ JENNIFER EGGERS Chief Accounting Officer June 18, 1996
- ---------------------
Jennifer Eggers
Vice President, New Product Development June __, 1996
- --------------------- and Infomercial Sales and Director
Judith E. Zegarelli
Director June __, 1996
- --------------------
William B. Barnett
II-5
<PAGE>
/s/ JACK BREHM Director June 18, 1996
- ----------------------
Jack Brehm
/s/ STUART S. GREENBERG Director June 18, 1996
- ----------------------
Stuart S. Greenberg
II-6
