<PAGE>
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended, September 30, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1933
Commission File No. 1-12848
CROWN LABORATORIES, INC.
(Name of small business issuer in its charter)
Delaware 75-2300995
(State of Incorporation) (I.R.S. Employer I.D. No.)
6780 Caballo Street
Las Vegas, Nevada 89119
(Address of Principal Executive Office)
(702) 696-9300
(Registrant's Telephone Number, Including Area Code)
Indicate by a check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The number of outstanding shares of the registrant's only class of common stock
as of September 30, 1997
Common Stock, $.001 par value: 22,513,412
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "Safe Harbor"
for forward looking statements. Except for the historical information contained
in this Quarterly Report on Form 10-QSB for the quarter ended, September 30,
1997, the matters discussed herein include forward-looking statements.
Such forward-looking statements, in addition to information contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this Quarterly Report, are based on the Company's
current expectations and are subject to a number of risks and uncertainties that
could cause actual results to differ materially from those projected or implied
in any forward-looking statements made by, or on behalf of, the Company. These
risks and uncertainties, include, but are not limited to (i) the anticipated
growth in demand for the Company's products, (ii) the anticipated growth of the
Company's revenues from development, manufacture and sale of the Company's
products, (iii) the anticipated expansion of the Company's international
activities, (iv) the impact of competitive products and pricing and, (v) other
risks which are included from time to time in the Company's other SEC reports
and press releases, copies of which are available from the Company upon request.
When used in this Quarterly Report, the words "intend", "estimated", "believe",
expect", and similar expressions which are not historical are intended to
identify forward-looking statements. The Company assumes no obligation to
update any forward-looking statements contained herein or that may be made from
time to time by, or on behalf of, the Company.
The Company has continued in the pre-marketing phase of operation and has
shipped $131,935 to Russia in export sales of dry mix products for the three
month period ended September 1997. As of September 19, 1997, the Company has
shipped its liquid nutrition products to 12 of 36 McKesson Distribution Centers.
These shipments represent introductory product as the initial rollout by the
Company. As a result of the rollout, purchase orders are now being sent to the
Company.
For the three month period ended September 30, 1997 the company incurred losses
of $(1,460,486) vs. $(1,231,552) for the same period in 1996. The company has
incurred losses associated with salary expense with additions to staff, other
operating expenses and start-up costs in the engineering, design, and
modifications to its facility, processes and formulations associated with the
company's entry into the market. The Company has incurred $(431,911) in research
and development and start-up expenses in the quarter ended September 30, 1997.
The Company has capitalized $211,912 of startup expenses and will amortize these
expenses over the next four quarters. The accumulated consolidated deficit at
September 30, 1997, was $(15,957,883) while shareholder's equity was $7,395,352.
Effective during the third quarter, the Company entered into an agreement
regarding a reorganization of its corporate structure, under which the Company
transferred ownership of 100% of the common stock of Crown Russia OOO, its
wholly-owned subsidiary ("Crown Russia"), to Yelena Nash in exchange for payment
of $15,000 by Yelena Nash. At the same time, the Company and Crown Russia
entered into a ten-year distribution and sales agreement (the "Distribution
Agreement"), under which Crown Russia will become the exclusive distribution,
marketing and sales company for the Company's nutritional products in Russia and
other Central and Eastern European countries. Yelena Nash is a Russian citizen
and the wife of Craig E. Nash, the Company's Chairman of the Board of Directors
and Chief Executive Officer. Mrs. Nash is also a significant shareholder of the
Company.
Under the terms of the Distribution Agreement, Yelena Nash will receive a 10%
commission on sales of the Company's products to Crown Russia, exclusive of
promotional or marketing costs, after the Company has received
1
<PAGE>
payment for such sales. The Distribution Agreement contains certain provisions
restricting the right of Yelena Nash to transfer her interest in Crown Russia to
a third party. The Distribution Agreement is subject to automatic renewal for
ten-year periods under certain circumstances.
The Company has shipped $213,712 worth of its products to Crown Russia for
distribution and resale. The Company has recognized sales of $131,935 to Crown
Russia during the third quarter. Management of the Company believes that the
terms and condition of these sales are no less favorable to the Company than
could be obtained from unaffiliated third party purchasers. As described
herein, and as circumstances permit, the Company intends to make other sales of
its products, on similar terms and conditions, to Crown Russia for distribution
and resale to customers.
The Board of Directors formed a special committee of outside directors (the
"Crown Russia" committee) to oversee the Company's relationship with Crown
Russia. The special committee is responsible for reviewing, authorizing and
approving all transaction between the Company and Crown Russia. The members of
the special committee are Arthur M. Berkowitz, Lee A. Hooker and Dr. Linda
Carrick.
On August 21, 1997, the Board of Directors approved the grant of 48,000 shares
of the Company's Common Stock to Joseph K. Furst, as compensation for certain
services rendered to the Company in its fund raising activities.
On August 25, 1997 the Company signed a two year marketing agreement with the
U.S. Foodservice arm of Rykoff-Sexton, Inc. (RFK) to distribute Crown's liquid
nutritional and dietary products to nursing homes and other institutional
clients. The new agreement with U.S. Foodservice calls for a best efforts
marketing and distribution program through the Company's nationwide distribution
system. Rykoff-Sexton and J.P. Foodservice, Inc. announced a merger before the
end of the year to become the second largest foodservice distribution company in
the United States. The newly merged company will be know as U.S. Foodservice.
FINANCIAL CONDITION
The working capital deficit at September 30, 1997 was $(532,956) with
approximately $181,519 in accounts payable attributable to capital expenditures,
leasehold improvements and raw materials. Cash and equivalents balances were
$356,523 as of September 30, 1997.
Since December 31, 1996 the Company raised an additional $3 million from the
sale of Series E Preferred stock on March 7, 1997, as outlined below in the
Funding section. Based upon the above cash proceeds provided by the sale of
preferred stock offset by the required and intended use of proceeds, losses
incurred since December 31, 1996, anticipated results of operations expected to
be incurred during the remainder of 1997, and the continuing fund raising
efforts of the company, the management of the Company believes that sufficient
cash resources are available to enable the Company to continue in existence
through at least December 31, 1997.
The Company is presently exploring its alternatives for raising additional
funds. 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. While the Company recently raised
additional funds believed to be on favorable terms, there can be no assurances
that the Company will be able to secure additional financing, or, if additional
financing is obtained, that it will be on terms and conditions that are
acceptable to the Company.
FUNDING
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 (These Dividend Dates have been waived). The Series E Preferred Stock is
convertible into common shares at a rate equal to 10,000 divided by the market
value of the Common Stock adjusted by a discount factor which ranges from 15% to
31% depending on the time the shares are held from the issuance date (the longer
the stock is held, the deeper the discount, unless the Common Stock price falls
below $0.75, in which case the discount no longer applies). Under this
conversion formula, as the Common Stock price drops, the number of Common Shares
into which Series E Preferred Stock is
2
<PAGE>
convertible grow. The number is not subject to a ceiling. As of December 31,
1996, there was $1,000,000 in Series E Preferred Stock outstanding. On March 3,
1997, the Regulation S investor notified the Company of its intention to convert
its Series E Preferred Stock into shares of the Company's Common Stock. Under
the conversion formula for the Series E Preferred Stock, the Regulation S
investor was issued 1,018,424 shares of the Company's Common Stock on March 7,
1997.
On March 7, 1997, the Company raised an additional $3 million through the sale
pursuant to Regulation S under the Securities Act of 1933, as amended, of its
Series E Preferred Stock. 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"(These Dividend Dates have been waived). The
Series E Preferred Stock is convertible into common shares at a rate equal to
10,000 divided by the market value of the Common Stock adjusted by a discount
factor which ranges from 15% to 31% depending on the time the shares are held
from the issuance date (the longer the stock is held, the deeper the discount,
unless the Common Stock price falls below $0.75, in which case the discount no
longer applies). Under this conversion formula, as the Common Stock price
drops, the number of Common Shares into which Series E Preferred Stock is
convertible continues to grow. The number is not subject to a ceiling. A total
of 200,000 five year options to purchase the Company's Common Stock at $2.50 per
share were issued to two finders for their role in raising these funds.
On April 9, 1997, the Company announced that its Board of Directors authorized
the expenditure of up to $500,000 for purchases of its common stock. The Company
will make purchases from time to time as market conditions permit and in such
amounts as its deems advisable. Any Common Stock reacquired would be retained by
the Company as treasury stock. The authorization to make these purchases, which
may be discontinued at any time, does not constitute a commitment on the part of
the Company to buy any specific amount of its shares.
On May 5, 1997, the Company's Board of Directors adopted a Shareholder Rights
Plan designed to protect shareholders from various abusive takeover tactics,
including attempts to acquire control of the Company at an inadequate price.
The plan is designed to assure that any acquisition of the company and/or any
acquisition of control of the Company would take place under circumstances in
which the Board of Directors can secure the best available transaction for all
of the Company's stockholders. Under the plan, each stockholder will receive a
dividend of one right for each share of the Company's outstanding common stock.
The rights are designed to protect the Company and its shareholders against
market accumulation programs and other abusive takeover tactics. They are not
aimed at preventing a takeover but rather are intended to encourage a potential
buyer to negotiate appropriately with the board prior to attempting a takeover.
Initially, the rights are attached to the Company's common stock and are not
exercisable. They become detached from the common stock and become immediately
exercisable after any person or group that is not a "granfathered stockholder"
becomes the beneficial owner of 15% or more of the Company's common stock or 10
days after any person or group announces a tender or exchange offer that would
result in that same beneficial ownership level, subject only to certain
"permitted offers."
If a buyer who is not a "grandfathered stockholder" becomes a 15% owner in the
Company, all rights holders, except the buyer, will be entitled to purchase
preferred stock in the Company at a price discounted from the then market price.
In addition, if the Company is acquired in a merger after such an acquisition,
all rights holders except the buyer will also be entitled to purchase stock in
the buyer at a discount in accordance with the plan. The distribution of rights
was made to common stockholders of record on May 16, 1997. Shares of common
stock that are newly-issued after that date will also carry rights until the
rights become detached from the common stock. The rights will expire on May 15,
2007. The Company may redeem the rights for $0.01 each at any time before a
buyer acquires a 15% position in the Company and under certain other
circumstances. The rights distribution is not taxable to stockholders. A
complete description of the Shareholder Rights Agreement and Series F Preferred
Stock may be found in the Company's Form 8A filed with the SEC on May 13, 1997.
3
<PAGE>
On July 24, 1997, the Company swapped with one of its creditors 18,000 shares of
restricted Common Stock for canceling $15,800 in short term debt. The Company
agreed to register the shares in the Company's next registration statement.
On July 25, 1997, the Company entered into an operating lease for equipment to
be used for the manufacturing of other nutritional products at its production
facility in Las Vegas, Nevada. Under the terms of the operating lease,
$550,800, together with interest thereon, is payable monthly over a 60-month
term. The remaining portion under the lease, $367,200, is payable at the end of
the 60-month term. The Company has an option to prepay the financed amount in
full or in part without penalty, and has an option to purchase the equipment at
the end of the 60-month term, at a price equal to the then fair market value of
the equipment.
In connection with the financing of the equipment, the Company granted 734,000
options to the lessor of the equipment exercisable at an exercise price of $1.25
per share, subject to adjustments. These options may be exercised in whole, but
not in part, at any time by the lessor, and are subject to mandatory exercise
under certain circumstances.
On August 7, 1997, the Company commenced a private offering of up to 5,000,000
shares of its common stock at a price of $.70 per share. The offering was made
pursuant to the exemption for a private placement under Section 4(2) of the
Securities Act of 1933, as amended. During August - October 31, 1997, the
Company sold a total of 1,021,500 shares of Common Stock, for an aggregate
purchase price of $715,000. The Common Stock was sold to 14 accredited
investors. The Company's private offering concluded on October 31, 1997.
On September 29, 1997, the holder of the Company's Series E Preferred Stock
converted 90 shares of this series into 1,600,000 shares of Common Stock. In
turn, the holder sold these shares of Common Stock privately and then acquired,
in a Regulation S offering, 1,285,715 shares of Common Stock from the Company.
The shares of Common Stock were sold by the Company at $.70 per share for an
aggregate of $900,000. There are currently outstanding 210 shares of Series E
Preferred Stock.
On September 29, 1997, the Company raised $500,000 in a Regulation S sale of
prepaid, mandatory exercisable warrants to purchase Common Stock to a new
investor. The warrants may be exercised in whole or in part in amounts over
$10,000 of the principal amount of the warrants, at any time, until expiration
on September 28, 1999. The exercise price for each share of Common Stock shall
be equal to the lower of (x) 80% of the average closing price of the Common
Stock for the one (1) business day immediately preceding the issue date of the
warrant or (y) 80% of the average closing price of the Common Stock for the one
(1) business day immediately preceding the date of receipt by the Company of the
notice of exercise, as reported on the principal stock exchange on which the
Company's Common Stock is traded. At the present time no shares of Common Stock
have been issued under this arrangement.
4
<PAGE>
CROWN LABORATORIES, INC.
Consolidated Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
NET SALES $ 131,935 $ - $ 213,712 $ -
Cost of Sales (59,371) $ - (92,124) -
GROSS PROFIT 72,564 - 121,588 -
Research & Development Start Up Costs 431,911 399,570 924,454 853,731
General and Administrative Expenses 981,058 751,567 2,388,431 2,210,182
------------ ------------- ----------- -------------
LOSS FROM OPERATIONS (1,340,405) (1,151,137) (3,191,297) (3,063,913)
Other Income/(Expense)
Other Income 25,200 0 75,600
Other Expense (35,403) (53,983) (77,206) (53,983)
Interest expense (85,560) (64,998) (261,975) (154,541)
Interest income 882 13,366 24,467 23,415
LOSS BEFORE INCOME TAXES (1,460,486) (1,231,552) (3,506,011) (3,173,421)
Income Tax Provision - - - -
------------ ------------- ----------- -------------
NET LOSS $ (1,460,486) $ (1,231,552) $(3,506,011) $ (3,173,421)
============ ============= =========== =============
NET LOSS PER SHARE $ (0.07) $ (0.07) $ (0.17) $ (0.18)
============ ============= =========== =============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 20,821,680 17,833,920 20,821,680 17,833,920
============ ============= =========== =============
</TABLE>
The Accompanying Notes to the Consolidated Financial Statements are
an Integral Part of these Financial Statements
5
<PAGE>
CROWN LABORATORIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS UNAUDITED AUDITED
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $356,523 $579,488
Accounts Receivable 167,113 11,882
Inventory
Raw & Packaging Materials 414,872 243,686
Work in Process 12,305 5,800
Finished Goods 102,768 33,418
Prepaid expenses & employee and
officer advances 318,921 155,806
----------- -----------
Total current assets 1,372,502 1,030,080
PROPERTY AND EQUIPMENT
Leasehold improvements 1,330,661 1,300,043
Machinery & Equipment 9,053,133 8,410,629
----------- -----------
10,383,794 9,710,672
Accumulated Depreciation & Amortization (586,247) (423,674)
----------- -----------
Net Property and Equipment 9,797,547 9,286,998
MACHINERY RIGHTS & BLUEPRINTS 272,382 242,917
DEPOSITS & DEFERRED ASSETS 608,615 490,700
----------- -----------
Total assets $12,051,046 $11,050,695
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilitie $178,051 $480,810
Accounts payable and accrued expenses 1,727,407 1,285,019
----------- -----------
Total current liabilities 1,905,458 1,765,829
ACCRUED SALES TAX PAYABLE 229,397 288,289
LONG-TERM DEBT & CAPITAL LEASE LIABILITIES 2,520,839 2,558,191
SHAREHOLDERS' EQUITY
Preferred stock -- $0.001 par value; 1,400,000 1,024,997
5,000,000 shares authorized;
210 shares outstanding in 1997 and 100 in 1996
Common Stock -- $0.001 par value;
50,000,000 shares authorized;
22,513,412 and 18,795,488 shares outstanding
in 1997 and 1996, respectively 22,513 18,795
Additional paid-in-capital 21,930,722 17,846,466
Accumulated deficit (15,957,883) (12,451,872)
----------- -----------
Total shareholders' equity 7,395,352 6,438,386
Total liabilities and shareholders' equity $12,051,046 $11,050,695
=========== ===========
</TABLE>
The Accompanying Notes to the Consolidated Financial Statements are
an Integral Part of these Financial Statements
6
<PAGE>
CROWN LABORATORIES, INC.
Statement of Shareholders Equity
For the nine months ended September 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Shares of Common Additional Accumulated Preferred Total
Common Stock Paid-in Capital Deficit Stock
----------- --------- --------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DEC. 31, 1996 18,795,488 $18,795 $17,846,466 ($12,451,872) $1,025,000 $6,438,389
Compensationn expense for options 298,000 298 94,060 - - 94,358
granted to be employees and consultants
Series E Preferred Stock Issued $3,000,000 3,000,000
Shares issued on the conversion 2,618,424 2,618 3,522,382 - (2,625,000) 899,199
of Series E Preferred Stock
Shares sold in private placement 801,500 802 560,249 561,852
Fund raising expenses (592,435) (592,435)
Prepaid Warrants 500,000 500,000
Imputed interest for Series C/Series
E Preferred - - -
Net loss for the period ended - - - (3,506,011) - (3,506,011)
September 30, 1997
----------- --------- --------------- ------------ ----------- ----------
BALANCE AS OF SEPTEMBER 30, 1997 22,513,412 $22,513 $21,930,722 ($15,957,883) $1,400,000 $7,395,352
=========== ========= =============== ============ =========== ==========
</TABLE>
The Accompanying Notes to the Consolidated Financial Statements are
an Integral Part of these Financial Statements
7
<PAGE>
CROWN LABORATORIES, INC.
Consolidated Statements of Cash Flow
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS ($3,506,011) ($3,173,422)
ADD/(DEDUCT) ITEMS NOT IMPACTING CASH:
Depreciation and amortization 162,573 160,804
Issuance of shares to employees 298,000 497,509
and consultants
CHANGES IN ASSETS AND LIABILITIES:
(Increase)/Decrease in receivables (155,231) 48,239
(Increase)/Decrease in inventories (247,041) (60,460)
(Increase)/Decrease in prepaid expenses
and employee advances (163,115) (161,518)
(Increase)/Decrease in accounts payable
and accured expenses 442,388 (487,492)
------------------ ------------------
TOTAL CASH GENERATED FROM/(USED FOR) OPERATIONS ($3,168,437) (3,176,340)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures and leasehold improvements (673,122) (402,151)
(Increase)/Decrease in rights and blueprints (29,465) (58,440)
(Increase)/Decrease in deposits and deferred assets (117,915) (270,529)
Increase/(Decrease) in accrued sales taxes payable (58,892) (74,129)
TOTAL CASH (USED IN)/GENERATED FROM INVESTING ACTIVITIES (879,393) (805,249)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans 100,000 3,000,000
Repayment of loans payable (266,133) (1,636,452)
Proceeds from issuance of common and
preferred stock and the exercise of warrants 4,583,432 4,256,322
Cost of Financing (273,049)
Fundraising costs (592,435) (104,573)
------------------ ------------------
TOTAL CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES 3,824,864 5,242,248
------------------ ------------------
Net increase/(decrease) in cash and cash equivalents (222,966) 1,260,658
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 579,488 677,431
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $356,523 $1,938,090
================== ==================
</TABLE>
The Accompanying Notes to the Consolidated Financial Statements are
an Integral Part of these Financial Statements
8
<PAGE>
CROWN LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30 , 1997
(UNAUDITED)
1. BACKGROUND OF ORGANIZATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month periods and nine month
periods ended September 30, 1997, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Crown Laboratories, Inc. Annual Report on Form 10-KSB.
2. MANUFACTURING FACILITY
The Company presently occupies a 62,000 square foot manufacturing facility in
Las Vegas, Nevada for the purpose of manufacturing its line of nutritional
products. The Company selected its Las Vegas location based on a number of
factors. The State of Nevada does not assess either corporate or personal
income taxes and is a "right to work" state. It has favorable freight rates
resulting from the large volume of shipments into the casino trade with Las
Vegas' limited manufacturing providing little outbound trucking demand and the
climate is also very favorable for shipping on a year round basis. The Company
has obtained a twelve month option to purchase its current manufacturing
facility for $3,185,000. The Company sub-leased 20,000 square feet of space in
its Las Vegas facility under a one year lease signed in October of 1995 with
two, one month renewal options. The Company collected $75,600 in lease revenue
for full year 1996 which is reflected in the financial statements of the
Company.
3. FINANCING
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" (These Dividend Dates have
been waived). The Series E Preferred Stock is convertible into common shares at
a rate equal to 10,000 divided by the market value of the Common Stock
adjusted by a discount factor which ranges from 15% to 31% depending on the time
the shares are held from the issuance date (the longer the stock is held, the
deeper the discount, unless the Common Stock price falls below $0.75, in which
case the discount no longer applies). Under this conversion formula, as the
Common Stock price drops, the number of Common Shares into which Series E
Preferred Stock is convertible grows. The number is not subject to a ceiling. As
of December 31, 1996, there was $1,000,000 in Series E Preferred Stock
outstanding. On March 3, 1997, the Regulation S investor notified the Company of
its intention to convert its Series E Preferred Stock into shares of the
Company's Common Stock. Under the conversion formula for the Series E Preferred
Stock, the Regulation S investor was issued 1,018,424 shares of the Company's
Common Stock on March 7, 1997.
On March 7, 1997, the Company raised $3 million through the sale pursuant to
Regulation S under the Securities Act of 1933, as amended, of its Series E
Preferred Stock. 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", (These Dividend Dates have been waived). The Series E
Preferred Stock is convertible into common shares at a rate equal to 10,000
divided by the market value of the Common Stock adjusted by a discount factor
which ranges from 15% to 31% depending on the time the shares are held from the
issuance date (the longer the stock is held, the deeper the discount, unless the
Common Stock price falls below $0.75, in which case the discount no longer
applies). Under this conversion formula, as the Common Stock price drops, the
number of common shares into which Series E
9
<PAGE>
Preferred Stock is convertible continues to grow. The number is not subject to
a ceiling. A total of 200,000 five year options to purchase the Company's
Common Stock at $2.50 per share were issued to two finders for their role in
raising these funds.
On August 7, 1997, the Company commenced a private offering of up to 5,000,000
shares of its common stock at a price of $.70 per share. The Offering was made
pursuant to the exemption for a private placement under Section 4(2) of the
Securities Act of 1933, as amended. During August - October 31, 1997, the
Company sold a total of 1,021,500 shares of common stock, for an aggregate
purchase price of $715,000. The Common Stock was sold to 14 accredited
investors. The Company's private offering concluded on October 31, 1997.
On September 29, 1997, the holder of the Company's Series E Preferred Stock
converted 90 shares of this series into 1,600,000 shares of Common Stock. In
turn, the holder sold these shares of Common Stock privately and then acquired,
in a Regulation S offering, 1,285,715 shares of Common Stock from the Company.
The shares of Common Stock were sold by the Company at $.70 per share for an
aggregate of $900,000. There are currently outstanding 210 shares of Series E
Preferred Stock.
On September 29, 1997, the Company raised $500,000 in a Regulation S sale of
prepaid, mandatory exercisable warrants to purchase Common Stock to a new
investor. The warrants may be exercised in whole or in part in amounts over
$10,000 of the principal amount of the warrants, at any time, until expiration
on September 28, 1999. The exercise price for each share of Common Stock shall
be equal to the lower of (x) 80% of the average closing price of the Common
Stock for the one (1) business day immediately preceding the issue date of the
warrant or (y) 80% of the average closing price of the Common Stock for the one
(1) business day immediately preceding the date of receipt by the Company of the
notice of exercise, as reported on the principal stock exchange on which the
Company's Common Stock is traded. At the present time no shares of Common Stock
have been issued under this arrangement.
On April 9, 1997, the Company announced the authorization of expenditures up to
$500,000 for purchases of its Common Stock to be retained as treasury stock. The
authorization to make these purchases may be discontinued at any time and does
not constitute a commitment by the Company to buy a specific amount of its
shares.
During the third quarter ended September 30, 1997 a total of 1,933,849 shares,
options or warrants were repurchased or expired.
Based upon the above cash proceeds provided by the sale of preferred stock
offset by the required and intended use of proceeds, losses incurred since
December 31, 1996, anticipated results of operations expected to be incurred
during the remainder of 1997, and the continuing fund raising efforts of the
Company, the management of the Company believes that sufficient cash resources
are available to enable the Company to continue in existence through at least
December 31, 1997.
4. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Crown
Laboratories, Inc. and its wholly-owned subsidiaries, which include through its
date of sale Crown Russia OOO.
10
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
The Company has entered into a five year lease for its Las Vegas manufacturing
facility, (with an option to renew the lease for an additional five year
period), which requires monthly payments of $26,576 subject to annual inflation
escalations which commenced in September 1996. During 1997, the Company paid
$239,184 in lease payments for the building. Minimum payments due under the
building lease are as follows:
Year Ending
December 31,
------------
1997 $318,912
1998 $318,912
1999 $159,456
2000 -0-
The Company has obtained a twelve month option to purchase its current
manufacturing facility for $3,185,000. The Company sub-leased 20,000 square
feet of space in its Las Vegas facility under a one year lease signed in October
of 1995 with two, one month renewal options. The Company collected $75,600 in
lease revenue during the year 1996 which is reflected in the financial
statements of the Company.
The Company is also negotiating with other various parties to enter into
consulting arrangements. The Company will compensate consultants either in
cash, shares of Common Stock, or a combination thereof. To the extent the fair
market value of options issued for services rendered exceeds exercise prices,
the Company is required to recognize compensation expense.
On July 25, 1997, the Company entered into an operating lease for equipment to
be used for the manufacturing of other nutritional products at its production
facility in Las Vegas, Nevada. Under the terms of the operating lease, $550,
800, together with interest thereon, is payable monthly over a 60-month term.
The remaining portion under the lease, $367,200, is payable at the end of the
60-month term. The Company has an option to prepay the financed amount in full
or in part without penalty, and has an option to purchase the equipment at the
end of the 60-month term, at a price equal to the then fair market value of the
equipment.
In connection with the financing of the equipment, the Company granted 734,000
options to the lessor of the equipment exercisable at an exercise price of $1.25
per share, subject to adjustments. These options may be exercised in whole but
not in part at any time by the lessor, and are subject to mandatory exercise
under certain circumstances.
6. LITIGATION
The Company is subject to normal business litigation and claims concerning
products and services rendered to the Company.
In addition to normal business litigation, the Company has the following
material litigation:
CROWN V. ROLFENADE ET AL., was filed by the Company, in March 1995, and
--------------------------
subsequently amended to incorporate all of the defendants "alter egos" in
September 1995. The action is for breach of contract, misrepresentation,
fraud, and alter ego. Rolfenade warranted that the packaging machine would
be in compliance with F.D.A. requirements. The packaging machine was not
in compliance with the applicable regulations and the Company has made
substantial modifications to the filler to bring it into compliance. The
Company has served all defendants under the Hague Convention. Other
defendants named in the suit filed a Motion to Quash Service which was
lost. They appealed to the Nevada Supreme Court. Their appeal was denied.
They have since filed an answer. The Company cannot predict the outcome of
its claims.
On September 8, 1997 the Company was awarded a partial summary judgment
against Karl Fabricius, International Processing and Packaging, Inc. and
various other Fabricius entities. The Company and its legal counsel are
currently evaluating the ultimate collectability of the judgment. The
Company cannot predict the outcome of its collection efforts at this time.
CROWN V. STATCO ET AL., was a lawsuit filed by Statco Engineering &
-----------------------
Fabrication Inc. in July 1997 in California Superior Court seeking payment
for certain pipe fittings, pumps and miscellaneous materials and labor in
the amount of $68,452.50, as well as recovery of costs, disbursements and
attorneys fees. The Company has engaged legal counsel and asserts improper
billings from defective workmanship and seeks to have the suit dismissed.
The Company believes it will prevail on its merits, however, the Company
cannot predict the outcome of its claims.
11
<PAGE>
7. SUBSEQUENT EVENTS
A total of 2,870,732 shares, options or warrants were either canceled, expired
or repurchased from January 1, 1997 through September 30, 1997 including the
1,933,849 shares, options or warrants referenced above in Footnote 3.
On July 24, 1997, the Company swapped, with one of its creditors, 18,000 shares
of restricted Common Stock for canceling $15,800 in short term debt. The
Company agreed to register the shares in the Company's next registration
statement.
12
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on September 16, 1997 at the Monte
Carlo Resort & Casino in Las Vegas, Nevada. At the meeting an election of
members of the Board of Directors of the Company was held and the following
individuals (comprising the entire membership of the Board) were elected to one
year terms. *Mr. Herbert G. Altman is a new member of the Board. Mr. Vincent
J. Casella did not stand for reelection.
<TABLE>
<CAPTION>
Member of the Board Votes For Votes Against Abstention
------------------- ---------- ------------- ----------
<S> <C> <C> <C>
Craig E. Nash 14,611,495 35,500 57,067
Scott O. Nash 14,611,495 35,500 57,067
Herbert G. Altman* 14,557,495 89,500 57,067
Arthur M. Berkowitz 14,559,495 87,500 57,067
Linda Carrick, Ph.D. 14,559,495 87,500 57,067
Christopher Demetree 14,559,495 87,500 57,067
Lee Allen Hooker 14,556,495 90,500 57,067
</TABLE>
Shareholders also approved amendments to the Certificate of Incorporation to
remove the designations of the Company's Series A and Series B Preferred Stock,
Proposal Three.
To approve Proposal Three:
Shares For 14,610,533 Shares Against 65,200 Shares Abstaining 28,328
---------- ------ ------
Two other proxy items were adjourned for 20 days pending receipt of additional
votes by proxy. These were a proposal to approve amendments to the Certificate
of Incorporation which creates a classified board of directors and a second item
to approve the Crown Laboratories 1997 Incentive Plan.
On October 7, 1997 the Company concluded its adjourned Annual Meeting of
Shareholders, previously held on September 16, 1997. As previously disclosed,
the two proxy items addressed at the meeting were a proposal to approve
amendments to the Certificate of Incorporation which creates a classified board
of directors (Proposal One) and a proposal to approve the Company's 1997
Incentive Plan (Proposal Four).
Proposal Four, the Company's 1997 Incentive Plan was adopted by the
shareholders, receiving majority approval by voting shares.
To approve Proposal Four --- the Crown Laboratories, Inc. 1997 Incentive Plan:
Shares For 7,903,972 Shares Against 1,333,411 Shares Abstaining 16,457
--------- --------- ------
Although Proposal One, the classified board amendments, received approximately
7.6 million votes in favor, it did not receive the majority approval by the
shareholders of the Company's outstanding common stock and did not carry.
To approve Proposal One --- the Classified Board Amendments
Shares For 7,692,810 Shares Against 1,516,803 Shares Abstaining 44,227
--------- --------- ------
Item 6. Exhibits and Reports
(a) Exhibits
4(a) Form of Subscription Agreement.(1)
4(b) Form of Regulation S Warrant Agreement.(1)
(1) Filed herewith.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN LABORATORIES, INC.
Dated: November 14, 1997 By: /s/ Craig E. Nash
-----------------------------
Craig E. Nash
Chief Executive Officer
Chairman, Board of Directors
By: /s/ Calvin T. Mathews
-----------------------------
Calvin T. Mathews
Chief Financial Officer
14
<PAGE>
Exhibit 4(a)
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
NAME OF SUBSCRIBER______________________________
AMOUNT OF SUBSCRIPTION _________________________
SUBSCRIPTION AGREEMENT
SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE
_______________
Crown Laboratories, Inc.
6780 Caballo Street
Las Vegas, NV 89119
Ladies and Gentlemen:
This Subscription Agreement is made by and between Crown Laboratories, Inc.,
a corporation organized and existing under the laws of the State of Delaware
(the "Corporation"), and the undersigned prospective purchaser (the
"Subscriber") who is subscribing hereby for shares of the Corporation's common
stock, par value $.001 per share (the "Common Stock"), pursuant to the
accompanying Confidential Private Offering Memorandum of the Corporation (the
"Memorandum," which term includes all exhibits and any amendments thereof and
supplements thereto), distributed to a limited number of selected persons in
connection with the offering of such Common Stock.
In consideration of the Corporation's agreement to sell Shares to the
Subscriber upon the terms and conditions set forth herein, the undersigned
agrees and represents as follows:
Article 1
l.0l Subscription. The Subscriber irrevocably subscribes for and
agrees to purchase ___ Shares, in the amount indicated in Section 1.03 below, of
the Corporation, on the terms and conditions described herein and in the
Confidential Private Placement Memorandum, dated as of August 7, 1997 (the
"Memorandum"), copies of which have been received by the Subscriber.
<PAGE>
1.2 Delivery of Subscription Agreement. The Subscriber hereby
delivers two executed and notarized copies of this Subscription Agreement to
Crown Laboratories, Inc., 177 East 87th Street, Suite 503 New York, N.Y. 10128.
Delivery must be made prior to the close of business on such date as the
Corporation shall set.
1.03 Purchase Price. The subscription amount for __________ Shares of
Common Stock at $.70 per share, for a total investment of $____________ ($70,000
is the minimum absent a waiver) in cash in U.S. dollars.
1.04 Closing. The closing of the sale of the interest subscribed for
hereby shall occur on the date set by the Corporation (the "Closing Date"). The
Subscriber shall deliver the full amount of the purchase price of its
subscription by:
(a) delivering a certified check made payable to Crown
Laboratories, Inc., 177 East 87th Street, Suite 503, New York, NY 10128, by the
date set by the Corporation; or
(b) wire transfer of immediately available funds by bank
telegraphic transfer by 12:00 p.m. (New York time) on the date set by the
Corporation.
1.05 Acceptance. This Subscription Agreement is subject to the
acceptance of the Corporation. The Corporation reserves the right to accept or
reject any Subscription or any portion thereof. Upon acceptance and execution
of this Subscription Agreement by Craig E. Nash, Chairman and Chief Executive
Officer, on behalf of the Corporation, this Subscription Agreement shall become
a binding agreement between the Corporation and the Subscriber. The Corporation
shall deliver or mail an executed copy of the Subscription Agreement to the
Subscriber promptly after its acceptance.
In the event of rejection of this Subscription, or if, for any reason
whatsoever, the sale of the Common Stock is not consummated, the Corporation
promptly thereupon shall return to the Subscriber the purchase price paid by the
Subscriber, without interest, on the basis described in the Memorandum, along
with this Agreement, and the Investor Suitability Questionnaire. In such event,
this Subscription Agreement shall have no further force or effect thereafter.
Article 2
2.01 Subscriber Representations, Warranties and Covenants. The
Subscriber hereby acknowledges, represents and warrants to, and agrees with, the
Corporation for itself (and, if acting as nominee or custodian for another
person or entity in the purchase of Common Stock, also for such other person or
entity (and the term "Subscriber" below shall be deemed to apply to itself and
all such other persons and entities)) as follows:
(a) The Subscriber is acquiring the Common Stock for its own
account as principal (or, if the Subscriber is acting as a nominee or custodian
for another person or entity, the Interest is being acquired for that person or
entity) for investment and not with a view to resale, distribution or
fractionalization in whole or in part, and has no present agreement,
understanding or arrangement to subdivide, sell, assign or otherwise dispose of
all or any part of the Common Stock which are the subject of this Offering.
(b) The Subscriber acknowledges its understanding that the
offering and sale of the Common Stock is intended to be exempt from registration
under the Securities Act of l933, as amended (the "Securities Act"), by virtue
of Section 4(2) of the Securities Act and the provisions of Rule
2
<PAGE>
506 thereunder and that the Common Stock cannot be sold, pledged, assigned or
otherwise disposed of (the commission of any such act, or any such similar act
in relation to a person's beneficial interest in the Corporation being referred
to as a "Transfer") unless they subsequently are registered under the Securities
Act or an exemption from such registration is available. The Subscriber also
understands that the transfer of the Common Stock is restricted by the
provisions of applicable state securities laws.
(c) Immediately prior to its purchase of the Common Stock, the
Subscriber, (i) by itself or together with its adviser, has such knowledge and
experience in financial and business matters that it is and will be capable of
evaluating the merits and risks of the prospective investment in the
Corporation; and (ii) is and will be able to bear the economic risk of the
investment in the Corporation.
(d) If the Subscriber is an individual, the Subscriber has
adequate means of providing for his current needs and foreseeable personal
contingencies without considering the assets proposed to be invested in the
Corporation.
(e) (i) If the Subscriber is an individual, the Subscriber either
(1) has an individual net worth, or joint net worth with his or her spouse, of
at least $1,000,000 or (2) had an individual income in excess of $200,000 in
each of the two most recent years, or joint income with his or her spouse in
excess of $300,000 in each of those years, and reasonably expects to reach the
same income level in the current year; or
(ii) If the Subscriber is a corporation, Corporation,
Massachusetts or similar business trust, or tax-exempt
organization as described in Section 501(c)(3) of the
U.S. Internal Revenue Code, such entity (1) was not
formed for the specific purpose of purchasing an
Interest and (2) has total assets in excess of
$5,000,000; or
(iii) If the Subscriber is a trust, the Subscriber (1) was
not formed for the specific purpose of purchasing the
Common Stock, and (2) has total assets in excess of
$5,000,000, and (3) its purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii)
under the Securities Act; or
(iv) If the Subscriber is a corporation, partnership, trust
or other entity, it is either: a bank as defined in
Section 3(a)(2) of the Securities Act or any savings and
loan association or other institution as defined in
Section 3(a)(5)(A) thereof whether acting in its
individual or fiduciary capacity; any broker or dealer
registered pursuant to Section 15 of the Securities
Exchange Act of 1934; any insurance company as defined
in Section 2(13) of the Securities Act; any investment
company registered under the Investment Company Act of
1940 ("Investment Company Act") or a business
development company as defined in Section 2(a)(48) of
the Investment Company Act; any Small Business
Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established
and maintained by a state or its political subdivisions,
or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees,
if such plan has total assets in excess of $5,000,000;
3
<PAGE>
any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974
("ERISA") if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) thereof, which is
either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of
$5,000,000, or, if a self-directed plan, with investment
decisions made solely by persons that are accredited
investors; or any private business development company
as defined in Section 202(a)(22) of the Investment
Advisers Act of 1940; or
(v) If the Subscriber is a corporation, partnership, trust
or other entity formed for the purpose of purchasing an
Interest, each holder of an equity interest in such
entity satisfies (i), (ii), (iii), (iv) or (vi) of this
paragraph (e); or
(vi) The Subscriber is otherwise an "accredited investor" as
defined in Rule 501(a) under the Securities Act and has
specified in detail and submitted evidence in
verification thereof to the Corporation.
(f) The Subscriber and its adviser, if any, have been furnished
with and reviewed the Memorandum, including all exhibits thereto, and have read
and understand the risks of, and other considerations relating to a purchase of
the Common Stock.
(g) The Subscriber and its adviser, if any, have been given the
opportunity to ask questions of, and receive answers from, the Corporation or
its representatives concerning the terms and conditions of this offering and
other matters pertaining to this investment, and have been given the opportunity
to obtain any additional information, which the Corporation or its
representatives possess or can acquire without unreasonable effort or expense,
that is necessary to verify the accuracy of the information contained in the
Memorandum.
(h) Other than information, if any, given to the Subscriber as
described in paragraphs (f) and (g) above, no representations or warranties have
been made to the Subscriber by the Corporation or any its officers, employees,
agents, or affiliates, other than the representations of the Corporation set
forth herein and in the Memorandum. The Subscriber is not relying upon any
documents or information other than the written information described in such
paragraphs.
(i) The Subscriber and its adviser, if any, have determined that
the Common Stock is a suitable investment for it and that at this time it could
bear a complete loss of its investment in the Corporation. The Subscriber
acknowledges that it has made and is solely responsible for making its own
independent evaluation of the economic and other risks involved in investing in
the Common Stock.
(j) The Subscriber is not relying on the Corporation or its
representatives with respect to individual tax and other economic considerations
involved in this investment.
(k) If the Subscriber is a corporation, partnership, trust, or
other entity, it is authorized and qualified to make its capital contribution to
the Corporation, and the person signing this Subscription Agreement on behalf of
such entity has been duly authorized by such entity to do so.
4
<PAGE>
(l) Any information which the Subscriber has heretofore furnished
to the Corporation in the Investor Suitability Questionnaire and in this
Subscription Agreement, including information with respect to its financial
position, investment objectives, and business experience, is correct and
complete as of the date of this Subscription Agreement and if there should be
any material change in such information prior to the Subscriber's investment in
the Corporation, the Subscriber will furnish immediately such revised or
corrected information to the Corporation.
(m) If the Subscriber is an employee benefit plan or trust subject
to ERISA:
(i) in making the proposed investment, it is aware of and
has taken into consideration the diversification
requirements of Section 404(a)(l)(b) of ERISA;
(ii) it has concluded that the proposed investment in the
Corporation is prudent and is consistent with other
applicable fiduciary responsibilities under ERISA; and
(iii) the purchase price with respect to the Common Stock to
which this Subscription Agreement applies does not
constitute more than five percent (5%) of the fair
market value of the assets of the Subscriber.
(n) If the Subscriber is a "benefit plan investor" or is using
"plan assets" (as such terms are defined in Department of Labor regulations at
29 C.F.R. (S)510.3-101) in connection with the proposed investment in the
Corporation, the Subscriber has so advised the Corporation and shall supply the
Corporation with such additional information and documentation relating thereto
as may be requested by the Corporation.
(o) If the Subscriber is an individual retirement account or an
employee benefit plan not subject to Title I of ERISA, such as a governmental or
church plan, the owner of the individual retirement account or other fiduciary
directing the investment of the plan concluded that the proposed investment in
the Corporation is prudent and is consistent with its other fiduciary
responsibilities, if any.
(p) If the Subscriber makes any additional capital contributions
at any time, this Subscription Agreement will be deemed to be amended to include
such additional contributions and all representations and warranties made by the
Subscriber herein will be deemed repeated with respect to such additional
contribution as of the date such contribution is made.
(q) The foregoing representations, warranties and agreements shall
survive the investment by the Subscriber in the Corporation.
2.02 Subscriber Acknowledgments. The Subscriber acknowledges that it
is aware that:
(a) No federal or state agency has passed upon the Common Stock or
made any finding or determination as to the fairness of this investment;
(b) There are substantial risks incident to the purchase of the
Common Stock, including those described in the Memorandum;
5
<PAGE>
(c) The investment in the Corporation is an illiquid investment
and the Subscriber must bear the economic risk of investing in the Common Stock
for an indefinite period of time;
(d) Any transfer of the Common Stock may result in substantial
adverse tax consequences to the Subscriber;
(e) The foregoing acknowledgments shall survive the investment by
the Subscriber in the Corporation.
(f) The financial data set forth in Appendix C to the Memorandum
is confidential and may not be disclosed to any third parties by the Subscriber
without the Corporation's written consent.
Article 3
3.01. Indemnity. The Subscriber agrees to indemnify and hold harmless
the Corporation, its officers, directors and representatives and each other
person, if any, who controls any Person thereof within the meaning of Section 15
of the Securities Act against any and all loss, liability, cost, claim, damage,
and expense whatsoever (including, but not limited to, any and all expenses
whatsoever, including taxes, penalties and the fees and disbursements of counsel
reasonably incurred in investigating, preparing, or defending against any
litigation commenced or threatened or any claim whatsoever) arising out of or
based upon, directly or indirectly, any breach or failure by the Subscriber to
comply with any representation, warranty, covenant, condition or agreement made
by the Subscriber herein or in any other document furnished by the Subscriber to
any of the foregoing in connection with this transaction.
3.02. Modification. Neither this Subscription Agreement nor any
provisions hereof shall be modified, changed, discharged, or terminated except
by an instrument in writing signed by the party against whom any waiver, change,
discharge, or termination is sought.
3.03. Revocability. This Subscription Agreement may not be withdrawn
or revoked by the Subscriber in whole or in part without the consent of the
Corporation.
3.04. Notices. All notices, consents, requests, demands, offers,
reports, and other communications required or permitted to be given pursuant to
this Subscription Agreement shall be in writing and shall be considered properly
given or made when personally delivered to the party entitled thereto, or when
sent by United States mail in a sealed envelope, with postage prepaid, or when
transmitted by facsimile ((212) 828-1497), addressed, if to the Corporation, to
177 East 87th Street, Suite 503, New York, NY 10128, and, if to the Subscriber,
to the address set forth below the Subscriber's signature on the counterpart
signature page of this Subscription Agreement which the Subscriber originally
executed and delivered to the Corporation. The Corporation may change its
address by giving notice to the other.
3.05. Counterparts. This Subscription Agreement may be executed in
multiple counterpart copies, each of which shall be considered an original and
all of which constitute one and the same instrument binding on all the parties,
notwithstanding that all parties are not signatories to the same counterpart.
6
<PAGE>
3.06. Successors and Assigns. Except as otherwise provided herein,
this Subscription Agreement and all of the terms and provisions hereof shall be
binding upon and inure to the benefit of the parties and their respective heirs,
executors, administrators, successors, trustees, legal representatives, and, in
the case of the Corporation, its assigns. If the Subscriber is more than one
person, the obligation of the Subscriber shall be joint and several and the
agreements, representations, warranties, and acknowledgments contained herein
shall be deemed to be made by and be binding upon each such person and such
person's heirs, executors, administrators, successors, trustees, legal
representatives, and permitted assigns.
3.07. Assignability. This Subscription Agreement is not transferable
or assignable by the Subscriber.
3.08. Entire Agreement. This instrument contains the entire agreement
of the parties, and there are no representations, covenants, or other agreements
except as stated or referred to herein.
3.09. Applicable Law. This Subscription Agreement shall be governed
by and construed in accordance with the laws of the State of the New York,
without regard to its principles of conflicts laws.
3.10. Severability. Every provision of this Subscription Agreement is
intended to be severable. If any term or provision hereof is illegal or invalid
for any reason whatsoever, such illegality or invalidity shall not affect the
validity of the remainder of the Subscription Agreement.
3.11. Non-Waiver. No provision of this Subscription Agreement shall
be deemed to have been waived, unless such waiver is contained in a written
notice given to the party claiming such waiver has occurred, and no such waiver
shall be deemed to be a waiver of any other or further obligation or liability
of the party or parties in whose favor the waiver was given.
7
<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
SIGNATURE PAGE
--------------
The undersigned has executed this Agreement on this ____ day of August, 1997.
For Corporate, Corporation, Trust, For Individual Investors:
Employee Benefit Plan or Other
Entity Investors:
__________________________________ ________________________________________
(Print Name of Entity) (Signature)
By:_______________________________ Print Name:_____________________________
(Signature)
Print Name:_______________________ ________________________________________
(Signature of Joint Tenant, Joint Investor,
or Tenant in Common, if any)
Title:____________________________ Print Name of Joint Tenant, Joint
Investor, or Tenant in Common, if any:
_____________________________________
[Corporate Seal]
Name of Trustees or Other Fiduciaries Exercising Investment
-----------------------------------------------------------
Discretion with Respect to Benefit Plan or Trust
------------------------------------------------
<TABLE>
<CAPTION>
Signature Printed Name Title
--------- ------------ -----
<S> <C> <C>
- --------------------------- --------------------------- ---------------------------
- --------------------------- --------------------------- ---------------------------
- --------------------------- --------------------------- ---------------------------
- --------------------------- --------------------------- ---------------------------
</TABLE>
Agreement of Custodian of Individual Retirement Account
-------------------------------------------------------
The undersigned, being the custodian of the above named individual retirement
account, hereby accepts and agrees to this subscription.
By:_________________________________ _________________________________
Signature of Authorized Signatory Print Name of Custodian
____________________________________
Print Name of Authorized Signatory
8
<PAGE>
* * * *
DO NOT WRITE BELOW THIS POINT
THE SUBSCRIPTION IS HEREBY ACCEPTED AS OF __________________, 199__.
CROWN LABORATORIES, INC.:
By:_______________________________
Name: Craig E. Nash
Title: Chief Executive Officer
9
<PAGE>
State of )
)ss.:
County of )
On this ____ day of ______________, 1997, before me personally appeared
_____________, who proved to me on the basis of satisfactory evidence to be the
person whose name is subscribed to or who executed the foregoing instrument in
his/her personal or authorized capacity, and who duly acknowledged to me that
the execution of the same is his/her own free act and deed and is made with
appropriate authority.
____________________________ My Commission Expires:
Notary Public
[Seal]
Notary: Please complete state, county, date and names of all persons signing
and affix notarial seal.
<PAGE>
Exhibit 4(b)
THESE WARRANTS AND THE SHARES OF COMMON STOCK UNDERLYING THESE WARRANTS HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (the
"Act") AND IT WILL NOT BE SO REGISTERED UNTIL THE FORTY-FIRST (41ST) DAY AFTER
THE SALE OF THE WARRANTS, PURSUANT TO ALL WARRANT AGREEMENTS. NONE OF SUCH
WARRANTS MAY BE OFFERED, SOLD OR TRANSFERRED (INCLUDING ANY INTERESTS THEREIN)
IN THE UNITED STATES OR TO A "U.S. PERSON" (as defined in Registration S
promulgated under the Act) OR FOR THE ACCOUNT AND BENEFIT OF U.S. PERSON, EXCEPT
AS PROVIDED IN SAID REGULATION S. ANY RESALE THEREAFTER MUST BE PURSUANT TO
REGISTRATION UNDER THE ACT OR AN AVAILABLE EXEMPTION. FURTHER, THE WARRANTS MAY,
ABSENT REGISTRATION, ONLY BE EXERCISED BY NON U.S. PERSONS AND OUTSIDE OF THE
UNITED STATES OR UPON THE RECEPT OF AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED.
PREPAID, MANDATORILY EXERCISABLE STOCK PURCHASE WARRANT
-------------------------------------------------------
PREPAID, MANDATORILY EXERCISABLE WARRANT TO PURCHASE
$250,000 OF THE SHARES OF COMMON STOCK
OF CROWN LABORATORIES, INC.,
AS DESCRIBED HEREIN
Issue Date: September 29, 1997
Expiration Date: September 29, 1999
This certifies that, for value received, AUSTOST ANTALT SCHAAN, or its
permitted successors and assigns ("Holder") is entitled to exercise this Warrant
to obtain from Crown Laboratories, Inc., a Delaware corporation (the "Company")
$250,000 of the Company's fully paid and nonassessable shares (the "Warrant
Shares") of the Common Stock, $0.001 par value per share, of the Company (the
"Common Stock") on the terms set forth herein at a per share exercise price as
described herein (the "Exercise Price") in Paragraph 1.2.
1. Exercise.
--------
1.1 Time for Exercise. This Warrant may be exercised in whole, or in part
-----------------
in amounts over $10,000 of the principal amount of this Warrant, at
any time, and from time to time, during the period commencing on the
7th day of November, 1997 and expiring on September 28, 1999 (the
"Exercise Period"); provided, however, that if any part of this
Warrant shall remain unexercised as of the conclusion of the Exercise
Period, the Company shall cause the mandatory exercise of this Warrant
at an Exercise Price as determined below in Paragraph 1.2, and shall
cause the delivery of the appropriate number of Warrant Shares to the
Holder.
<PAGE>
1.2 Exercise Price. The Exercise Price for each share of Common Stock
--------------
shall be equal to the lower of (x) 80% of the average closing price of
the Common Stock for the one (1) business day immediately preceding
the issue date of the Warrant or (y) 80% of the average closing price
of the Common Stock for the one (1) business day immediately
preceding the date of receipt by the Company of the notice of
exercise, as reported on the principal stock exchange on which the
stock is traded, or if not so traded, on the Nasdaq Market System or
Electronic Bulletin Board, as the case may be, on which the Company's
Common Stock is then listed or quoted (the "Exercise Price"). The
closing price shall be the closing sale price, if available, or if not
available, the average between the closing bid and asked prices. The
Company represents and warrants that the Exercise Price has been fully
paid by the Holder.
1.3 Manner of Exercise. This Warrant shall be exercised by delivering it
------------------
to the Company with the exercise form duly completed and signed,
specifying the number of Warrant Shares to which the Warrant is being
exercised at that time; which shall be the product of (i) the
principal amount of the Warrant being exercised divided by (ii) the
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Exercise Price.
THIS WARRANT MAY ONLY BE EXERCISED (i) BY A PERSON WHO IS NOT A
U.S. PERSON (AS DEFINED IN REGULATION S PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED), (ii) IF NOT EXERCISED ON BEHALF
OF A U.S. PERSON, (iii) IF NO U.S. PERSON HAS ANY INTEREST IN THE
WARRANTS BEING EXERCISED OR THE UNDERLYING SECURITIES TO BE ISSUED
UPON EXERCISE AND (IV) OUTSIDE THE UNITED STATES AND THE WARRANT
SHARES UNDERLYING THE WARRANTS ARE TO BE DELIVERED OUTSIDE THE UNITED
STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANT CAN BE
EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND SUBSTANCE
OF WHICH IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE COMPANY
PRIOR TO EXERCISE OF THE WARRANTS BEING EXERCISED THAT REGISTRATION IS
NOT REQUIRED, OR THE UNDERLYING SECURITIES DELIVERED UPON EXERCISE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
1.4 Effect of Exercise. Within three (3) business days after the receipt
------------------
by the Company by a notice of exercise, the Company shall deliver to
the Holder (i) duly executed certificates in the name or names
specified in the exercise notice representing the aggregate number of
shares issuable upon such exercise; and (ii) if this Warrant is
exercised only in part, a new Warrant of like tenor representing the
balance of the principal amount of the Warrant. Such certificates
shall be (i) issued without any restrictive legend; and (ii) deemed to
have been issued, and the person receiving them shall be deemed to be
a holder of record of such shares, as of the close of business on the
date the actions required in Section 1.3 shall have
-2-
<PAGE>
been completed or, if on that date the stock transfer books of the
Company are closed, as of the next business day on which the stock
transfer books of the Company are open. In the event the Company fails
to honor an exercise notice and issue Warrant Shares pursuant thereto
within seven (7) business days after its receipt of a notice of
exercise, the Company shall pay to Holder, as liquidated damages, an
amount equal to one-half of one percent (0.50% ) of the unexercised
principal amount of the Warrant requested to be exercised for each day
that the Warrant Shares remain unissued from such request starting on
the eighth (8th) business day after its receipt of the notice of
exercise.
2. Transfer of Warrant and Stock.
-----------------------------
2.1 Transfer Restrictions. The Company shall not place a restrictive
---------------------
legend on either this Warrant (except under Regulation S promulgated
under the Securities Act of 1933) or the securities issuable upon its
exercise.
2.2 Loss, Destruction of Warrant Certificates. Upon receipt of (i)
-----------------------------------------
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Warrant and (ii) except in the case
of a mutilation, an indemnity or security reasonably satisfactory to
the Company, the Company will promptly execute and deliver a
replacement Warrant of like tenor representing the right to purchase
the same number of Warrant Shares.
2.3 Cost of Issuances. The Company shall pay all expenses, transfer taxes
-----------------
and other charges payable in connection with the preparation, issuance
and delivery of stock certificates or replacement Warrants, except for
any transfer tax or other charge imposed as a result of (a) any
issuance of certificates in any name other than the name of the
Holder, or (b) any transfer of the Warrant. The Company shall not be
required to issue or deliver any stock certificate or Warrant until it
receives reasonably satisfactory evidence that any such tax or other
charge has been paid by the Holder.
3. Representations; Access to Information; Independent Information; Independent
----------------------------------------------------------------------------
Investigation.
- -------------
3.1 Offshore Transaction. The Holder represents and warrants to the
--------------------
Company that (i) the Holder is not a "U.S. person" as that term is
defined in Rule 902(o) of Regulation S; (ii) the Warrants were not
offered to the Holder in the United States and at the same time of
execution of this Warrant and of any offer to buy the Warrants, the
Holder was physically outside the United States; (iii) the Holder is
purchasing the Warrants for its own account and not on behalf of or
for the benefit of any U.S. person and the sale of the Warrants has
not been prearranged with or on behalf of any buyer in the United
States; (iv) the Holder and to the best knowledge of the Holder each
distributor, if any, participating in the offering of the Warrants,
has agreed and the Holder hereby agrees that all offers and sales of
the Warrants prior to the expiration of a period commencing on the
closing of all Units offered by this and substantially similar
Warrants and ending forty days
-3-
<PAGE>
thereafter (the "Restricted Period") shall not be made to U.S. persons
or for the account or benefit of U.S. persons and shall otherwise be
made in compliance with the provisions of Regulation S. The Holder is
not a dealer with respect to this transaction.
3.2 Independent Investigation. The Holder, in offering to subscribe for
-------------------------
the Warrants hereunder, has relied upon an independent investigation
made by it and its representatives, if any, and has, prior to the date
hereof, been given access to and the opportunity to examine all books
and records of the Company, and all material contracts and documents
of the Company. The Holder has been given no oral or written
representations or assurances from the Company or any representation
of the Company other than as set forth in this Agreement, public
filings of the Company or in a document executed by a duly authorized
representative of the Company making reference to this Agreement. The
Holder has such experience in business and financial matters that it
is capable of evaluating the risk of its investment and determining
the suitability of its investment. The undersigned Holder is a
sophisticated investor, as defined in Rule 506 (b)(2)(ii) of
Regulations D, and an accredited investor as defined in Rule 501 of
Regulation D under the Securities Act of 1933 (the "Act").
3.3 No Government Recommendation or Approval. The Holder understands that
----------------------------------------
no United States federal or state agency or similar agency of any
other country has passed upon or made any recommendation or
endorsement of the Company, this transaction or the subscription of
the Warrants.
3.4 No Directed Selling Efforts in Regard to this Transaction. To the
---------------------------------------------------------
best of the knowledge of the Holder and Company neither the Company
nor any distributor, if any, participating in the offering of the
Warrants nor any person acting for the Company or any such distributor
has conducted any "directed selling efforts" as that terms is defined
in Rule 902 of Regulation S.
3.5 Reliance on Representation. This Agreement is made by the Company
--------------------------
with the Holder in reliance upon the Holder's representations and
covenants made in this Section 3, which by his execution of this
Warrant, the Holder hereby confirms.
3.6 No Registration. The Holder understands that the Warrants (and the
---------------
Warrant Shares issuable upon exercise of the Warrants) have not been
registered under the Act and are being offered and sold pursuant to a
"safe harbor" from registration contained in Regulation S promulgated
under the Act based in part upon the representations of the Holder
contained herein. The Holder has reviewed the terms of the Warrants
and is aware of the restrictions on exercise of the Warrant by U.S.
Persons.
3.7 No Public Solicitation. The Holder knows of no public solicitation or
----------------------
advertisement of an offer in connection with the proposed issuance and
sale of the Warrants.
-4-
<PAGE>
3.8 Investment Intent. The Holder is acquiring the Warrants to be issued
-----------------
and sold hereunder (and the Warrant Shares issuable upon exercisable
of the Warrants) for its own account (or a trust account if the Holder
is a trustee) for investment and not as a nominee and not with a view
to the distribution thereof. The Holder understands that it must bear
the economic risk of this investment indefinitely unless sale of such
Warrants or such Warrant Shares is registered pursuant to the Act, or
an exemption from such registration is available, and that the Company
has no present intention of registering any such sale of the Warrants
or such Warrant Shares. The Holder represents and warrants to the
Company that it has no present plan or intention to sell the Warrants
or the Warrant Shares in the United States pursuant to any
predetermined arrangements. The Holder covenants that neither the
Holder nor its affiliates nor any person acting on its or their behalf
has the intention of entering or will enter during the Restricted
Period, into any put option, short position, hedging transactions,
equity swaps or other similar instrument or position with respect to
the Common Stock of the Company and neither the Holder nor any of its
affiliates or any person acting on its or their behalf will use at any
time Common Stock acquired pursuant to this Warrant to settle any put
option, short position, hedging transactions, equity swaps or other
similar instrument or position that may have been entered into prior
to the execution of this Warrant.
3.9 No Sale in Violation of the Act. The Holder further covenants that he
-------------------------------
or she will not make any sale, transfer or other disposition of the
Warrants or the Warrant Shares in violation of the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or the rules and
regulations of the Securities Exchange Commission (the "Commission")
promulgated thereunder.
3.10 Authority. The Holder has the full power and authority to execute,
---------
deliver and perform this Agreement. This Warrant when executed and
delivered by the Holder will constitute a valid and legally binding
obligation of the Holder, enforceable in accordance with its terms.
3.11 No Reliance on Tax Advice. The Holder has reviewed with his, her or
-------------------------
its own tax advisors the foreign, federal, state and local tax
consequences of this investment, where applicable, and the
transactions contemplated by this Agreement. The Holder is relying
solely on such advisors and not on any statements or representations
of the Company or any of its agents and understands that the Holder
(and not the Company) shall be responsible for the Holder's own tax
liability that may arise as a result of this investment or the
transactions contemplated by this Warrant.
3.12 No Legal Advice From Company. The Holder acknowledges that he, she
----------------------------
or it has had the opportunity to review this Warrant and the
transactions contemplated by this Warrant with his or her own legal
counsel. The Holder is relying solely on such counsel and not on any
statements or representations of the Company or any
-5-
<PAGE>
of its agents for legal advice with respect to this investment or the
transactions contemplated by this Warrant.
3.13 Professionals. The Holder will send to any broker/dealer or other
-------------
person receiving a commission on the sale of the Warrants or Warrant
Shares, a confirmation or other notice stating that such person is
subject to the same restrictions on transfer to U.S. Persons or for
the account of or benefit of U.S. Persons during the Restrictive
Period as provided herein.
4. Covenants. The Company agrees that:
---------
4.1 Reservation of Stock. During the period in which this Warrant may be
--------------------
exercised, the Company will reserve sufficient authorized but unissued
securities to enable it to satisfy its obligations on exercise of this Warrant.
If at any time the Company's authorized securities shall not be sufficient to
allow the exercise of this Warrant, the Company shall take such corporate action
as may be necessary to increase its authorized but unissued securities to be
sufficient for such purpose.
4.2 No Liens, etc. All securities that may be issued upon exercise of
-------------
this Warrant will, upon issuance, be validly issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and shall be listed on any exchange on which that class of securities is listed.
4.3 No Diminution of Value. The Company will not take any action to
----------------------
terminate this Warrant or to diminish it in value.
4.4 Furnish Information. The Company will promptly deliver to the Holder
-------------------
upon request copies of all financial statements, reports and proxy statements
which the Company shall have sent to its stockholders generally, and has
furnished its latest Forms 10-KSB and 10-QSB and Proxy Statement to the Holder.
4.5 Stock and Warrant Transfer Books. Except upon dissolution,
--------------------------------
liquidation or winding up or for ordinary holidays and weekends, the Company
will not at any time close its stock or warrant transfer books so as to result
in preventing or delaying the exercise or transfer of this Warrant.
4.6 Current Public Information. The Company represents and warrants to
--------------------------
the Holder that the Company is a "reporting issuer" as defined in Rule 902(1) of
Regulation S and its Common Stock is registered under Section 12(b) of the
Exchange Act and it has filed all the material required to be filed as reports
pursuant to the Exchange Act for a period of at least twelve months preceding
the date hereof (or for such shorter period as the Company was required by law
to file such material). The Company undertakes to furnish the Holder with
copies of such other information as may be reasonably requested by the Holder.
-6-
<PAGE>
4.7 No U.S. Offering. The Company represents that it has not offered the
----------------
Warrants to the Holder in the U.S. or, to the best knowledge of the Company, to
any person in the United States or any U.S. person or engaged in any "directed
selling" efforts in the United States as defined in Regulation S.
4.8 Not Shareholder. Unless the Holder exercises this Warrant in writing,
---------------
the Holder shall not be entitled to any rights (i) as a stockholder of the
Company with respect to the shares as to which the Warrant is exercisable
including, without limitation, the right to vote or receive dividends or other
distributions, or (ii) to receive any notice of any proceedings of the Company
except as otherwise provided in this Warrant.
4.9 Limitation of Liability. Unless the Holder exercises this Warrant in
-----------------------
writing, the Holder's rights and privileges hereunder shall not give rise to any
liability for the Exercise Price or as a stockholder of the Company, whether to
the Company or its creditors.
4.10 Survival. All representations contained in this Agreement shall
--------
survive the closing to the transaction contemplated by this Agreement.
4.11 Delivery. The Warrant being purchased hereunder shall be delivered
--------
to the holder as such time and place as shall be mutually agreed upon by the
parties.
5. General Provisions.
------------------
5.1 Complete Agreement; Modifications. This Warrant and any documents
---------------------------------
referred to herein or executed contemporaneously herewith constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Warrant may not be amended, altered or modified except by a
writing signed by the parties hereto.
5.2 Additional Documents. Each party hereto agrees to execute any and all
--------------------
further documents and writings and to perform such other actions which may be or
become necessary or expedient to effectuate and carry out this Warrant.
5.3 Notices. Except as otherwise provided herein, all notices under this
-------
Warrant shall be in writing and shall be delivered by personal service or
telecopy or certified mail (if such service is not available, then by first
class mail), postage prepaid, to the Company's principal business address, and
the Holder's last address as set forth in the Warrant transfer records of the
Company. Any notice sent by certified mail shall be deemed to have been given
three (3) days after the date on which it is mailed. All other notices shall be
deemed given when received. No objection may be made to the manner of delivery
of any notice actually received in writing by an authorized agent of a party.
-7-
<PAGE>
5.4 No Third-Party Benefits; Successors and Assigns. None of the
-----------------------------------------------
provisions of this Warrant shall be for the benefit of, or enforceable by, any
third-party beneficiary. Except as provided herein to the contrary, this
Warrant shall be binding upon and inure to the benefit of the parties, their
respective successors and permitted assigns.
5.5. Governing Law. This Agreement will be governed by New York
-------------
substantive law, regardless of the choice of law provisions of any jurisdiction.
5.6 Waivers Strictly Construed. With regard to any power, provided herein
--------------------------
or otherwise available to any party hereunder (i) no waiver or extension of time
shall be effective unless expressly contained in a writing signed by the waiving
party; and (ii) no alteration, modification or impairment shall be implied by
reason of any previous waiver; extension of time, delay or omission in exercise,
or other indulgence.
5.7 Severability. The validity, legality or enforceability of the
------------
remainder of this Warrant shall not be affected even if one or more of its
provisions shall be held to be invalid, illegal or unenforceable in any respect.
5.8 Attorneys' Fees. Should any litigation or arbitration be commenced
---------------
(including any proceedings in a bankruptcy court) between the parties hereto or
their representatives concerning any provision of this Warrant or the rights and
duties of any person or entity hereunder, the party or parties prevailing in
such proceeding shall be entitled, in addition to such other relief as may be
granted, to the attorneys' fees and court costs incurred by reason of such
litigation.
5.9 Arbitration. The parties shall resolve any dispute arising hereunder
-----------
before a panel of three arbitrators selected pursuant to and run in accordance
with the rules of the American Arbitration Association. The arbitration shall
be held in New York, New York. The winning party shall be entitled to an award
of reasonable attorney's fees and costs. Disputes under this Agreement as well
as all of the terms and conditions of this Agreement shall be governed in
accordance with and by the laws of the State of New York.
6. Redemption.
----------
6.1 Right of Redemption. The Company may, on thirty (30) days prior
-------------------
written notice redeem all of the Warrants at a redemption price equal to 120% of
the remaining amount of prepayment not yet exercised for Warrant Shares if the
redemption notice provided for in Section 6.1 hereof is given on or before 60
days of the original date of this Warrant or if the redemption notice is given
after such 60 days, the redemption price shall be 125% of the remaining amount
of the prepayment not yet exercised for Warrant Shares.
6.2 Notice of Redemption. In case the Company shall exercise its right to
--------------------
redeem all of the Warrants, it shall give or cause to be given notice to the
registered Holders of the Warrants, by mailing to such registered Holders a
notice of redemption, first class, postage
-8-
<PAGE>
prepaid, at their last address as shall appear on the records of the Company.
Any notice mailed in the manner provided herein shall be conclusively presumed
to have been duly given whether or not the registered holder receives such
notice.
6.3 Contents of Notice of Redemption. The notice of redemption shall
--------------------------------
specify (i) the redemption price, including the Common Stock to be issued, (ii)
the date fixed for redemption, which shall in no event be less than ten (10)
days after the date of mailing of such notice, (iii) the place where the
Warrants shall be delivered and the redemption price that shall be paid, and
(iv) that the right to exercise the Warrants shall terminate at 5:00 p.m. (Las
Vegas, Nevada time) on the business day immediately preceding the date fixed for
redemption. The date fixed for the redemption of the Warrants shall be the
"Redemption Date" for purposes of the Warrants. The redemption price shall be
paid on the redemption date. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the proceedings
for such redemption except as to a Holder (A) to whom notice was not mailed or
(B) whose notice was defective. An affidavit of the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
6.4 Termination of Exercise Right. Any right to exercise a Warrant shall
-----------------------------
terminate at 5:00 p.m. (Las Vegas, Nevada time) on the business day immediately
preceding the Redemption Date. The redemption price payable to the registered
holders shall be mailed to such persons at their address of record.
7. Right of First Refusal.
----------------------
If the Holder proposes to engage in a bonafide sale, directly or
indirectly, to an unaffiliated, bonafide third party, any or all of this
Warrant, then prior to taking any such action, the Holder shall deliver to the
Company a statement in writing (the "Statement") setting forth (i) the date of
the Statement (the "Statement Date"), (ii) the manner in which the sale is
proposed to occur; (iii) the consideration for the sale, (iv) the purchaser's
name, address and telephone number, (v) the purchaser's willingness to supply
any additional information about himself as may be reasonably requested by the
Company, and (vi) a copy of a legally binding offer to purchase. The Company
shall thereupon have the irrevocable and exclusive option, but not the legal
obligation (the "Option") to purchase all of the Warrants subject to the Option
upon the same terms and conditions set forth in the Statement. The Option shall
be exercisable by giving written notice by facsimile or e-mail or overnight
delivery service (the "Option Notice") to the Holder within two business days
following the date of the Statement, that the Company elects to exercise the
Option. Upon exercise of the Option, the Holder shall have the obligation to
consummate the sale on the terms set forth in the Statement and subject to the
terms and conditions set forth in the Statement. Failure by the Company to (i)
exercise the Option, (ii) to give the Option Notice or (iii) to tender the
exercise price against the tender of the Warrant duly endorsed for transfer and
free and clear of any liens, claims or encumbrances, shall be deemed an election
by it not to exercise the Option. The Holder shall tender the Warrants to the
Company,
-9-
<PAGE>
duly endorsed and free and clear of any liens, claims or encumbrances within 10
days of receipt of the Option Notice against payment (as directed by the
Company) for the Common Stock, and give the Company two business days advance
written notice of the date of tender and the place of payment.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its authorized officer.
Dated: By:
-----------------------------------
Craig Nash, Chief Executive Officer
ATTEST:
- -------------------------------
Christopher Demetree, Secretary
-10-
<PAGE>
AGREED TO:
The undersigned Holder agrees to the terms of and makes the representations and
warranties contained in the above Warrant.
AUSTOST ANTALT SCHAAN
By:
------------------------------
------------------------------
The Holder is a citizen and resident of:
------------------------------
Address:
------------------------------
------------------------------
------------------------------
Telephone No.:
------------------------------
Facsimile No.:
------------------------------
-11-
<PAGE>
The undersigned Holder agrees to the terms of and makes the representations and
warranties contained in the above Warrant.
AUSTOST ANTALT SCHAAN
By:
------------------------------
------------------------------
The Holder is a citizen and resident of:
------------------------------
Address:
------------------------------
------------------------------
------------------------------
Telephone No.:
------------------------------
Facsimile No.:
------------------------------
-12-
<PAGE>
NOTICE OF EXERCISE
(To be executed if Holder desires
to exercise the Warrant Certificate)
THIS WARRANT MAY ONLY BE EXERCISED (i) BY A PERSON WHO IS NOT A U.S. PERSON (AS
DEFINED IN REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED), (ii) IF NOT EXERCISED ON BEHALF OF A U.S. PERSON, (iii) IF NO U.S.
PERSON HAS ANY INTEREST IN THE WARRANTS BEING EXERCISED OR THE UNDERLYING
SECURITIES TO BE ISSUED UPON EXERCISE, AND (iv) OUTSIDE THE UNITED STATES AND
THE WARRANT SHARES UNDERLYING THE WARRANTS ARE TO BE DELIVERED OUTSIDE THE
UNITED STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANT CAN BE
EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND SUBSTANCE OF WHICH
IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE COMPANY PRIOR TO EXERCISE OF
THE WARRANTS BEING EXERCISED THAT REGISTRATION IS NOT REQUIRED, OR THE
UNDERLYING SECURITIES DELIVERED UPON EXERCISE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
The undersigned hereby irrevocably elects to exercise $______ principal
amount of this Warrant at the applicable Exercise Price of $______ to acquire
____ shares of Common Stock (the aggregate exercise price of $______ having
already been paid to the Company) on the terms and conditions specified in this
Warrant Certificate, surrenders this Warrant Certificate and all right, title
and interest herein to the Company and directs that the Warrant Shares
deliverable upon the exercise of such Warrants be registered in the name and at
the address specified below and delivered thereto.
Name
-----------------------------
(Please Print or Type)
Address
-----------------------------
-----------------------------
City, State and Zip Code
-----------------------------
Taxpayer Identification or
Social Security Number (if a United States person)
-13-
<PAGE>
The undersigned represents and warrants to Crown Laboratories, Inc. that the
- ----------------------------------------------------------------------------
conditions for exercise of the within Warrant set forth in the first sentence of
- --------------------------------------------------------------------------------
the first paragraph above have been fully complied with and any non U.S. Person
- -------------------------------------------------------------------------------
has any interest in the Warrant or the Warrant Shares.
- ------------------------------------------------------
Dated:
--------------------------- ------------------------------
Signature of Registered Holder
NOTICE
The signature to the foregoing Subscription form must correspond to the
names as written upon the face of this Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
-14-
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED,
-------------------------------------
hereby sells, assigns and transfers unto
Name
----------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------------
Social Security or Federal Tax I.D. Number
--------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ____________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Date:
------------------------
Signature:
------------------------
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPANY'S
CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 356,523
<SECURITIES> 0
<RECEIVABLES> 167,113
<ALLOWANCES> 0
<INVENTORY> 529,945
<CURRENT-ASSETS> 1,372,502
<PP&E> 10,383,794
<DEPRECIATION> (586,247)
<TOTAL-ASSETS> 12,051,046
<CURRENT-LIABILITIES> 1,905,458
<BONDS> 0
0
1,400,000
<COMMON> 22,513
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,051,046
<SALES> 131,935
<TOTAL-REVENUES> 0
<CGS> (59,371)
<TOTAL-COSTS> 1,412,969
<OTHER-EXPENSES> 35,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,560
<INCOME-PRETAX> (1,460,486)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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</TABLE>
