<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________________
Commission file number: 0-13649
COOPER LIFE SCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2563513
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 BROADWAY, NEW YORK, NEW YORK 10038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 791-5362
Indicate by check mark whether the registrant (1) has filed all 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 ___
As of March 10, 1995, there were 2,111,695 outstanding shares of the
issuers Common Stock, $.10 par value.
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
January 31, 1995 and October 31, 1994 3
Consolidated Statements of Operations
For The Three Months Ended
January 31, 1995 and 1994 4
Condensed Statements of Consolidated
Cash Flows For The Three Months Ended
January 31, 1995 and 1994 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
</TABLE>
2
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 636 $ 444
Marketable Securities - The Cooper
Companies, Inc. Common Stock 18,669 19,602
Prepaid expenses and other 107 53
Property and equipment, net 42 45
Net assets of discontinued operations 5,081 22,438
-------- --------
$ 24,535 $ 42,582
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank borrowings - warehouse lines of credit $ -- $ 18,034
other 1,500 1,500
Notes payable - affiliates -- 2,300
Accounts payable and other accrued liabilities 1,254 1,329
-------- --------
2,754 23,163
Minority interest -- --
Stockholders' Equity
Preferred stock - $.10 par value: 6,000,000
shares authorized: none issued -- --
Common stock - $.10 par value: 6,000,000
shares authorized: 2,516,095 shares issued:
2,111,695 shares and 2,109,695 shares
outstanding at January 31, 1995 and
October 31, 1994, respectively 251 251
Additional paid-in capital 78,283 78,283
Unrealized gain on marketable securities 4,851 5,783
Accumulated deficit (59,025) (62,293)
Less: Common stock in treasury - at cost;
404,400 shares and 406,400 shares
at January 31, 1995 and
October 31, 1994, respectively (2,104) (2,130)
Minimum pension liability adjustment (475) (475)
-------- --------
Total Stockholders' Equity 21,781 19,419
-------- --------
$ 24,535 $ 42,582
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JANUARY 31,
--------------------------
1995 1994
---------- ---------
<S> <C> <C>
Revenues
Interest income $ 8 --
Unrealized loss on marketable securities -- (606)
Other income 4 --
-------- --------
12 (606)
-------- --------
Expenses
General and administrative 356 276
Interest 38 72
-------- --------
Total expenses 394 348
-------- --------
(Loss) from continuing
operations before income taxes (382) (954)
Provision for income taxes -- 2
-------- --------
(Loss) from continuing operations (382) (956)
Gain on sale of and results from
discontinued operations before
income taxes 3,650 (651)
Provision for income taxes -- --
-------- --------
Results from discontinued operations 3,650 (651)
-------- --------
Net income (loss) $ 3,268 $ (1,607)
======== ========
Net income (loss) per share
Continuing operations $ (.17) $ (.48)
Discontinued operations 1.64 (.33)
-------- --------
Net income (loss) per share $ 1.47 $ (.81)
======== ========
Average number of shares outstanding 2,222 1,989
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
---------------------
1995 1994
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,268 $ (1,607)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
(Income) loss on discontinued operations (3,650) 651
Unrealized loss on marketable securities -- 606
Depreciation and amortization 3 25
Changes in assets and liabilities:
(Increase) in prepaid expenses and other (53) (14)
(Increase) in accounts payable and other
accrued liabilities (75) (239)
-------- --------
Net (used in) operating activities (507) (578)
-------- --------
Cash flows from investing activities:
Cash from sale of discontinued operations 21,006 --
Issuance of common stock from treasury 26 --
-------- --------
Net cash provided by investing activities 21,032 --
-------- --------
Cash flows from financing activities:
(Decrease) in notes payable - affiliate (2,300) --
Payment of warehouse borrowing (18,033) --
Increase in bank borrowing -- 500
-------- --------
Net cash provided by (used in) financing activities (20,333) 500
-------- --------
Net increase (decrease) in cash and cash equivalents 192 (78)
Cash and cash equivalents - Beginning of period 444 150
-------- --------
Cash and cash equivalents - End of period $ 636 $ 72
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash used to pay interest $ 38 $ 72
Cash used to pay taxes -- --
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1995 AND 1994
NOTE 1. - BUSINESS OF THE COMPANY
ACQUISITIONS
On February 28, 1995, Unistar Gaming Corp. ("UGC") acquired Unistar
Entertainment, Inc., a privately held Colorado corporation ("Unistar"). Unistar
holds an exclusive contract with the Coeur d'Alene Indian Tribe in Idaho to
develop and manage what would be the first national lottery in the United
States. As a result of the acquisition, approximately 27.5 percent of the
outstanding Common Stock of UGC is now owned by Cooper Life Sciences, Inc. (the
"Company"), and approximately 72.5 percent of the outstanding Common Stock of
UGC is now owned by the former stockholders of Unistar. The shares of Common
Stock which are owned by the Company were purchased by it for $5 million.
Upon the completion of the Securities and Exchange Commission approval
process, substantially all of the shares of Common Stock of UGC which are owned
by the Company will be distributed, on a one for one basis, to the Company's
stockholders of record on the record date for the distribution (which has not
yet been determined). The distribution will be in the form of a taxable
spin-off. At that time, the shares of UGC which had been owned by the Company
will be owned by its individual stockholders. Thereafter, UGC (which owns all of
Unistar) will carry on its business as an independent public corporation. The
Company has been granted the right, for a six year period, to designate
one-third of the members of the Board of Directors of UGC.
DISPOSITIONS
On November 30, 1994, the Company sold substantially all of the assets of
its mortgage banking business. As a result of this sale the Company is not
presently engaged in any business operations (other than certain mortgage
servicing activities which it still retains, but which it plans to dispose of).
The Company is currently investigating new business opportunities (other
than the transaction described above.)
The consolidated financial statements include the accounts of Cooper Life
Sciences, Inc. and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Certain amounts in the 1994
financial statements have been reclassified to conform to the current year's
presentation.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary to present fairly the Company's consolidated financial
position as of January 31, 1995 and October 31, 1994 and the consolidated
results of its operations for the three month periods ended January 31, 1995 and
1994, and its consolidated cash flows for the three month periods ended January
31, 1995 and 1994.
NOTE 2. - SIGNIFICANT ACCOUNTING POLICIES
Net income per share is determined using the weighted average number of
common and common equivalent shares outstanding during the respective periods,
including the incremental shares from the dilutive effects of warrants and stock
options. Common stock equivalents have not been included in the determination of
net loss per share as they are antidilutive.
6
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1995 AND 1994
On October 31, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). In accordance with SFAS No. 115, Company
management determines the appropriate classification of securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Marketable equity securities not held as trading assets in anticipation of
short-term market movements are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of shareholders'
equity. The cost of securities sold is based on the average cost method. At
January 31, 1995, the Company considers all of its holdings of The Cooper
Companies, Inc. common stock (the "TCC Common Stock") to be available-for-sale
securities and, as such, are carried at fair value, with the unrealized gains
and losses, net of tax, reported in a separate component of shareholders'
equity. Changes in the valuation allowance resulting from unrealized gains or
losses on the TCC Common Stock have been recorded in the statement of operations
prior to the adoption of SFAS No. 115 on October 31, 1994. At January 31, 1995,
the Company owned 7,467,600 shares of TCC Common Stock.
The Company owns approximately 22% of the outstanding TCC Common Stock and
intends to liquidate its holdings of TCC Common Stock in an orderly fashion
which should result in a holding of less than 20% of the outstanding TCC Common
Stock. Accordingly, management believes that fair value is the most meaningful
method of valuing this investment.
NOTE 3. - DISCONTINUED OPERATIONS
On October 31, 1994, management of the Company formulated a plan to
discontinue its mortgage banking business. Accordingly the entire mortgage
banking operations of the Company's majority owned subsidiary, Entrust Financial
Corporation ("Entrust"), have been considered a discontinued operation as of
October 31, 1994.
On November 30, 1994, pursuant to an Asset Purchase Agreement dated as of
November 23, 1994 by and between The Long Island Savings Bank, FSB ("LISB") and
Entrust (the "Asset Purchase Agreement"), Entrust sold to LISB its entire
origination business, including mortgage loans held for sale and mortgage loans
in process, a substantial portion of its rights to service loans for others, and
a substantial portion of its fixed assets. Pursuant to the Asset Purchase
Agreement, LISB assumed the prospective obligations and duties of Entrust under
certain contracts and leases relating to the assets acquired by it. Most of the
liabilities and prospective obligations relating to Entrust's administrative and
servicing operations have been retained by Entrust. Since November 30, 1994,
Entrust has and will continue to act as a subservicer of mortgage loans for LISB
for an interim period.
The gross purchase price realized by Entrust in the transaction was
approximately $31 million in cash, which after repayment of indebtedness related
to the business (including repayment to two officers and directors of Second
Advantage of approximately $1.0 million principal amount of indebtedness for
borrowed money and approximately $17.8 million to its principal lender to retire
its warehouse and credit facility secured indebtedness) will result in net sale
proceeds to Entrust of approximately $11.0 million. The Company estimates that
the gain on such sale will amount to approximately $3.9 million. As of January
31, 1995, approximately $30 million of the purchase price proceeds had been
received by Entrust, $18.8 million of which has been used to retire
indebtedness. The balance of the purchase price (excluding $750,000 which will
be retained in
7
<PAGE>
COOPER LIFE SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1995 AND 1994
escrow as security for the performance or payment of indemnification obligations
of Entrust to LISB, if any) is expected to be paid to Entrust in March 1995.
Management of the Company plans to dispose of the Ohio Housing Finance
Agency backed mortgage portfolio, of approximately $282 million principal
amount, which has a book value of approximately $4.7 million at January 31,
1995, as market conditions permit.
The results of the discontinued operations for the quarter ended January
31, 1995 and January 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
January 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenue $ 230,000 $ 3,820,000
Net loss (393,000) (1,277,000)
Gain on sale to LISB,
net of income taxes 7,743,000 --
----------- -----------
Net income (loss) 7,350,000 (1,277,000)
Gain (loss) allocable
to the Company 3,748,000 (651,000)
Amortization of goodwill (98,000) --
----------- -----------
3,650,000 (651,000)
Gain (loss) per share $ 1.77 $ (.33)
</TABLE>
NOTE 3. - BORROWINGS
In August 1993, the Company borrowed $1,500,000 from a bank the proceeds of
which were utilized in connection with the acquisition of the mortgage banking
business which was payable on January 31, 1995. In January 1995, the Company
renewed the loan which is currently payable on May 1, 1995. In November 1993,
the Company arranged a $500,000 revolving line of credit facility with the bank
which expires on May 1, 1995. At January 31, 1995, there were no borrowings
against the revolving line of credit facility. The loan and line of credit
facility bear interest at the bank's prime rate (8.5% at January 31, 1995) plus
1.5%. Payment of the loan and revolving line of credit is secured by shares of
The Cooper Companies, Inc. Common Stock owned by the Company.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL
On October 31, 1994, management of the Company formulated a plan to
discontinue its mortgage origination and servicing business which was acquired
in August 1993 and on November 30, 1994 the Company sold the majority of such
business (see Note 3 of Notes to Consolidated Condensed Financial Statements).
Accordingly, the results of the entire mortgage banking operations of Entrust
have been considered a discontinued operation for the three months ended January
31, 1995. References to the "Company" herein shall be deemed to refer to the
Company and its consolidated subsidiaries unless the context otherwise requires.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 1995 COMPARED TO
THE THREE MONTHS ENDED JANUARY 31, 1994
DISCONTINUED OPERATIONS. For the three months ended January 31, 1995, net
income from discontinued operations was approximately $3,650,000 and includes
the gain on the sale of the business to LISB in November 1994.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - CONTINUED
COSTS AND EXPENSES. Total expense for the three months ended January 31,
1995 was $394,000 as compared to $348,000 for the three months ended January 31,
1994.
The Company's general and administrative expenses for the three months
ended January 31, 1995 increased by $80,000, or 29%, to $356,000 from $276,000
in the year ago period. The increase was due primarily to an increase in
professional fees of approximately $99,000 which was partially offset by a
decrease in insurance expense of approximately $13,000.
Interest expense decreased by $34,000 to $38,000 from $72,000 due to the
repayment of a note payable to an affiliate. The unrealized loss on marketable
securities of $606,000 in 1994 represents a decline in the market price of the
TCC Common Stock owned by the Company. As of October 31, 1994 with the adoption
of SFAS No. 115, such unrealized losses (or unrealized gains, if any) are
reported in a separate component of shareholders' equity (see Note 2 and Note 4
of Notes to Consolidated Condensed Financial Statements).
CAPITAL RESOURCES AND LIQUIDITY:
During the fiscal year ended October 31, 1993 the Company used cash
primarily to acquire its majority interest in the mortgage banking business and
in the fiscal year ended October 31, 1992, cash was used primarily to fund the
Company's general and administrative expenses. Due to the sale of its mortgage
banking business in November 1994, the Company anticipates that its principal
financing needs in fiscal 1995 will consist primarily of funding its general and
administrative expenses and, possibly, the acquisition price of one or more new
business activities (see Note 1 of Notes to Consolidated Condensed Financial
Statements).
The Company believes that cash on hand, including the cash proceeds from
the sale of the majority of its mortgage banking business in November 1994, will
be sufficient to finance its general and administrative expenses during fiscal
1995. However, in order to provide the financing required to enable the Company
to acquire one or more new business activities during fiscal 1995, the Company
will need to utilize shares of TCC Common Stock which are owned by it through
sales of such shares from time to time in the open market (depending upon
prevailing market conditions) and/or as all or part of the acquisition price of
a business that the Company may seek to acquire.
The Company did not have any material capital commitments at January 31,
1995.
INFLATION AND CHANGING PRICES:
The Company has not been materially affected by inflation.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.22 Promissory Note of the Company in the principal amount of
$1.5 million, payable to the order of Commercial Bank of New
York, dated January 31, 1995.
10.23 Corporate Governance Agreement, dated as of February 28,
1995, by and among the Company, Unistar Gaming Corp.,
Watermark Investments Limited, and James W. Spencer.
27 Financial Data Schedule
</TABLE>
b. A Form 8-K, dated December 13, 1994 and a Form 8-K/A, dated February 10, 1995
were filed by the Company during the quarter for which this report on Form 10-Q
is filed. Reported on said Forms were Disposition of Assets and Pro Forma
Financial Information.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COOPER LIFE SCIENCES, INC.
--------------------------
(REGISTRANT)
Date: March 14, 1995 By: /s/ Steven Rosenberg
-------------- ------------------------
STEVEN ROSENBERG
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Sequential
-------- ----------- Page Number
-----------
<S> <C> <C>
10.22 Promissory Note of the Company in the
principal amount of $1.5 million, payable
to the order of Commercial Bank of New York,
dated January 31, 1995.
10.23 Corporate Governance Agreement, dated as of
February 28, 1995, by and among the Company,
Unistar Gaming Corp., Watermark Investments
Limited, and James W. Spencer.
27 Financial Data Schedule
</TABLE>
12
<PAGE>
[Logo] Commercial Bank COLLATERAL NOTE
of New York (Single Payment -- Demand or Time)
(Variable Rate of Interest)
New York, NY January 31, 1995
$1,500,000
On May 1, 1995 , for value received, the undersigned promise(s) to pay to
Commercial Bank of New York (hereinafter called the 'Bank') or order, at its 404
5th Ave. office, in New York, NY 10018 in lawful money of the United States the
principal amount of ONE MILLION FIVE HUNDRED THOUSAND AND 00/100 Dollars,
($1,500,000.00) with interest from the date of this note to maturity (whether as
stated above or by acceleration) or demand (if this note is payable on demand)
at a rate per annum equal to 1.5 percent above the prime loan rate of the Bank
from time to time in effect calculated on the basis of a 360-day year and actual
number of days elapsed (but in no event in excess of the maximum rate permitted
by applicable law), such interest to be payable monthly commencing FEBRUARY 1995
and continuing on the same day of each calendar month thereafter and at
maturity. If the space in the preceding sentence is incomplete or completed by
the insertion of a '0' or a mark other than a number, then the interest rate
hereunder shall be equal to the prime loan rate of the Bank in effect from time
to time. Any change in such rate of interest shall be effective on the date a
change i the prime loan rate of the Bank occurs, without notice to the
undersigned. Interest from and after maturity (whether as stated or by
acceleration) or demand (if this note is payable on demand) shall be at the rate
of 24% per annum or if such rate shall not be lawful with respect to the
undersigned, at the highest lawful rate then in effect. The prime loan rate of
the Bank in effect on the date of this note is 8.5% per annum.
The undersigned has pledged, granted a security interest or deposited with or
delivered to the Bank as security for the payment of this note and of all
Liabilities of the undersigned to the Bank the following property,
COOPER COMPANIES COMMON STOCK -- 1,500,000 SHARES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The term 'Liabilities' shall include this note and all other indebtedness,
obligations and liabilities of any kind of the undersigned to the Bank and also
to others to the extent of their participations granted to or interests therein
created or acquired for them by the Bank, now or hereafter existing, arising
directly between the undersigned and the Bank or acquired outright,
conditionally or as collateral security from another by the Bank, absolute or
contingent, joint and/or several, secured or unsecured, due contractual or
tortious, liquidated, arising by operation of law or otherwise, or direct or
indirect, including liabilities to the Bank of the undersigned as a member of
any partnership, syndicate, association or other group, and whether incurred by
the undersigned as principal, surety, endorser, guarantor, accommodation party
or otherwise. The term 'Security' shall include the property described or
referred to above and the balance of every deposit account of the undersigned
with the Bank and any other claim of the undersigned against the Bank, now or
hereafter existing, and all money, instruments, securities, documents, chattel
paper, credits, claims, demands and any other property, rights and interests of
the undersigned which at any time shall come into the possession or custody or
under the control of the Bank or any of its agents, associates or
correspondents, for any purpose, and shall include the proceeds of any thereof.
The Bank shall be deemed to have possession of any of the Security in transit to
or set apart for it or any of its agents, associates or correspondents.
As security for the payment of all the Liabilities, the undersigned hereby
grant(s) to the Bank a security interest in, and a general lien upon and/or
right of set-off of, the Security.
The right is expressly granted to the Bank, at its discretion, to transfer to
or register in the name of itself or its nominee any of the Security, and
whether or not so transferred or registered to receive the income and dividends
thereon, including stock dividends and rights to subscribe, and to hold the same
as a part of the Security and/or apply the same as hereinafter provided; to
exchange any of the Security for other property upon reorganization,
recapitalization or other readjustment and in connection therewith to deposit
any of the Security with any committee or depository upon such terms as it may
determine; to vote the Security so transferred or registered and to exercise or
cause its nominee to exercise all or any powers with respect thereto with the
same force and effect as an absolute owner thereof; all without notice and
without liability except to account for property actually received by it. The
right is expressly granted to the Bank, at its discretion and without notice to
or containing the signature of the undersigned to file one or more financing
statements under the Uniform Commercial Code naming the undersigned as debtor
and the Bank as secured party and indicating therein the types or describing the
items of the Security herein specified. Without the prior written consent of the
Bank the undersigned will not file or authorize or permit to be filed in any
jurisdiction any such financing or like statement in which the Bank is not named
as the sole secured party.
The Bank, at its discretion may, whether any of the Liabilities be due, in
its name or in the name of the undersigned or otherwise, demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of or in exchange for, or make any compromise or settlement deemed
desirable with respect to, any of the Security, but shall be under no obligation
so to do, or the Bank may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the Security,
without thereby incurring responsibility to, or discharging or otherwise
affecting any liability of the undersigned. The Bank shall not be required to
take any steps necessary to preserve any rights against prior parties to any of
the Security. Upon default hereunder or in connection with any of the
Liabilities (whether such default be that of the undersigned or of any other
party obligated thereof), the Bank shall have the rights and remedies provided
by law; and the Bank may sell or cause to be sold in the Borough of Manhattan,
New York City, or elsewhere, in one or more sales or parcels, at such price as
the Bank may deem best, and for cash or on credit or future delivery, without
assumption of any credit risk all or any of the Security, at any brokers' board
or at public or private sale, without demand of performance or notice of
intention to sell or of time or place of sale (except such notice as is required
by applicable statute and cannot be waived), and the Bank or anyone else may be
the purchaser of any or all of the Security so sold and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including any
equity of redemption, of the undersigned, any such demand, notice or right and
equity being hereby waived and released. The undersigned will pay to the Bank
all expenses (including expense for legal services of every kind) of, or
incidental to, the enforcement of any of the provisions hereof or of any of the
Liabilities, or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement of any of the Security or receipt of the
proceeds thereof, and for the care of the Security and defending or asserting
the rights and claims of the Bank in respect thereof, by litigation or
otherwise, including expense of insurance, and all such expenses shall be
indebtedness within the terms of the this note. The Bank, at any time, at its
option, may apply the net cash receipts from the Security to the payment of
principal of and/or interests on any of the Liabilities, whether or not then
due, making proper rebate of interest or discount. Notwithstanding that the
Bank, whether in its own behalf and/or in behalf of another and/or of others,
may continue to hold Security and regardless of the value thereof, the
undersigned shall be and remain liable of the payment in full, principal and
interest, of any balance of the Liabilities and expenses at any time unpaid.
<PAGE>
If at any time the Security shall be unsatisfactory to the Bank, upon demand
of the Bank the undersigned will furnish such further security or make such
payment on account of any of the Liabilities as will be satisfactory to the
Bank, and if the undersigned fail(s) forthwith to furnish such security or to
make such payment; or if any sum payable upon any of the Liabilities be not paid
when due; or if the undersigned, or any maker, drawer, acceptor, endorser,
guarantor, surety, accommodation party or other person liable upon or for any of
the liabilities or Security (each hereinafter called an 'other liable party')
shall die, become insolvent (however such insolvency may be evidenced), fail to
pay any debt as such debts become due or make a general assignment for the
benefit of creditors; or if the undersigned or any copartnership or which the
undersigned is (are) a member or members shall suspend the transaction of his,
its or their usual business, or be expelled from or suspended by any stock or
securities exchange or other exchange, or any proceeding, procedure or remedy
supplementary to or in enforcement of judgement shall be resorted to or
commenced against, or with respect to any property of, the undersigned or any
such copartnership or other liable party; or if a petition in bankruptcy or for
any relief under any law relating to the relief of debtors, readjustment of
indebtedness, reorganization, composition or extension shall be filed, or any
proceeding shall be instituted under any such law, by or against the undersigned
or any such copartnership or other liable party; or if any governmental
authority or any court at the instance thereof shall take possession of any
substantial part of the property of, or assume control over the affairs or
operations of, or a receiver shall be appointed of, or of a substantial part of
the property of, or a writ or order of attachment or garnishment shall be issued
or made against any of the property of, the undersigned or other liable partner;
or if there shall be such a change in the financial condition or affairs
(personal or otherwise) which in the opinion of the Bank impairs the
collectability of this note or increases its risk; or if any indebtedness of the
undersigned or any such copartnership or other liable party for borrowed money
shall become due and payable by acceleration of maturity thereof; or if the
undersigned conceals, removes or permits to be concealed or removed any part of
the undersigned's property with intent to hinder, delay or defraud any of its
creditors; or the making or suffering by the undersigned of a transfer of any
property, which is fraudulent under the law of any applicable jurisdiction;
thereupon, unless and to the extent that the Bank shall otherwise elect, all of
the Liabilities shall become and be due and payable forthwith.
The Bank may assign, transfer and/or deliver to any transferee of any of the
Liabilities any or all of the Security, and thereafter shall be fully discharged
from all responsibility with respect to such Security. Such transferee shall be
vested with all the powers and rights of the Bank hereunder with respect to such
Security, but the Bank shall retain all rights and powers hereby given with
respect to any of the Security not so assigned, transferred and/or delivered. No
delay on the part of the Bank in exercising any power or rights hereunder shall
operate as a waive thereof; nor shall any single or partial exercise of any
power or right hereunder preclude other or further exercise thereof or the
exercise of any other power or right. The rights, remedies and benefits herein
expressly specified are cumulative and not exclusive of any rights, remedies or
benefits which the Bank may otherwise have. The undersigned hereby waive(s)
presentment, notice of dishonor and protest of all instruments included in or
evidencing the Liabilities or the Security and any and all other notices and
demands whatsoever, whether or not relating to any such instrument.
In the event any payment provided for herein shall become overdue for a
period in excess of five (5) days, a late charge of six (6) cents for each
dollar so overdue shall become immediately due to Bank as liquidated damages for
failure to make prompt payment, and the same shall be part of the Liabilities.
Late charge shall be payable with the next installment of principal and/or
interest due hereunder.
Each of the undersigned and any endorser hereof agree that if an attorney is
sued to enforce or collect this note a reasonable attorney's fee and legal
expenses shall be added thereto.
The Bank may apply any payments received hereunder to the payment, in whole
or in part, of all amounts due hereunder including interest, principal and all
costs and fees, including attorney's fees, in such order as Bank may elect, and
the undersigned waives the right to direct or object to any such application of
payments.
The Bank shall have the right to sell a participation in or assign this note
without the consent of the undersigned and the undersigned hereby consents that
the Bank may disclose any credit or financial information within the Bank's
possession to any prospective participant or assignee of this note.
Each of the undersigned in any litigation (whether or not arising out of or
relating to this note or any other obligations or liability of the undersigned
to the Bank) in which the Bank and any of them shall be adverse parties, waives
trial by jury and the right to interpose any defense, set-off or counterclaim of
any nature or description.
No provision hereof shall be modified or limited except by a written
instrument expressly referring hereto and to the provision so modified or
limited. The undersigned, if more than one, shall be jointly and severally
liable hereunder and all provisions hereof regarding the Liabilities or Security
of the undersigned shall apply to any Liability or any Security of any or all of
them. This note and the provisions hereof are to be binding upon the heirs,
executors, administrators, assigns or successors of the undersigned; they shall
continue in force notwithstanding any change in any partnership party hereto,
whether such change occurs through death, retirement or otherwise; and they are
to be construed according to and governed by the laws of the State of New York.
By: STEVEN ROSENBERG, Vice President
--------------------------------
COOPER LIFE SCIENCES, INC.
--------------------------------
NO. DUE Address 160 Broadway
------------- ------------- --------------------------------
New York, NY 10038
Member F.D.I.C.
LN6 (5/91)
<PAGE>
CORPORATE GOVERNANCE AGREEMENT
AGREEMENT, dated as of the 28th day of February, 1995, by and among Cooper
Life Sciences, Inc., a Delaware corporation ('CLS'), Unistar Gaming Corp., a
Delaware corporation ('UGC'), Watermark Investments Limited, a corporation
organized under the laws of the Commonwealth of the Bahamas ('Watermark'), and
James W. Spencer ('Spencer').
W I T N E S S E T H :
WHEREAS, pursuant to the terms of the Agreement and Plan of Reorganization,
dated as of the 28th day of February, 1995, by and among UGC, Watermark,
Spencer, Unistar Entertainment, Inc., a Colorado corporation ('Unistar'), and
UEI Acquisitionco, Inc., a Colorado corporation ('Acquisitionco'), at the
effective time of the merger of Acquisitionco with and into Unistar (the
'Merger'), all of the issued and outstanding shares of Common Stock of Unistar
will be automatically converted into shares of Common Stock of UGC; and
<PAGE>
WHEREAS, as the stockholders of Unistar, Watermark and Spencer will acquire, as
a result of said Merger, an aggregate of 6,178,130 newly issued and outstanding
shares of UGC representing approximately 72.5% of the outstanding Common Stock
of UGC; and
WHEREAS, at the effective time of the Merger, CLS will be the owner of 2,343,695
shares of Common Stock of UGC, representing approximately 27.5% of the
outstanding Common Stock of UGC; and
WHEREAS, in connection with the implementation of the Merger, CLS has
transferred cash and property to UGC having an aggregate value of approximately
$5 million; and
WHEREAS, it is CLS' intention to distribute substantially all of the shares of
UGC Common Stock which are owned by CLS to its stockholders, on a pro rata
basis; and
WHEREAS, subparagraph 6.4 of the Agreement and Plan of Reorganization provides
for the execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of and in reliance upon the representations,
warranties and covenants herein and in the Reorganization Agreement contained,
the parties hereto hereby agree as follows:
1. UGC Board Representation.
1.1 CLS Designees. During the period commencing on the date hereof
and terminating on the sixth anniversary of the date hereof, UGC, Watermark and
Spencer shall, if requested by CLS, each use his or its reasonable best efforts
to cause the nomination and election to UGC's Board of Directors of a number of
persons who are designated by CLS which shall be equal to one-third (rounded up
to the nearest whole number) of UGC's entire Board of Directors (i.e., one-third
of the number of members of the Board of Directors if there were no vacancies on
the Board).
1.2 Election of Designees. In connection with the rights of CLS which
are described in subparagraph 1.1 above:
(i) UGC shall only be obligated to nominate designees of CLS who
are reasonably acceptable to UGC;
(ii) Watermark and Spencer shall each vote or cause to be voted all
shares of UGC Common Stock which (a) are owned by them, beneficially or
of record, or (b) either of them otherwise has the power or authority to
vote, for the election of CLS' designees for election to UGC's Board of
Directors;
(iii) In the event that any Director who is a designee of CLS
ceases to be a member of UGC's Board of Directors, by reason of death,
resignation, retirement, disqualification, removal from office or
otherwise, then in such event, the vacancy created thereby shall be, as
soon as is practicable, filled by a person who is a designee of CLS;
(iv) Whenever necessary to maintain the proportionality required by
subparagraph 1.1 above: (A) CLS shall cause one or more of the Directors
who are designated by it to resign from the Board of Directors of UGC;
and (B) UGC shall cause the Board of Directors to be increased or
decreased in size, as appropriate;
2
<PAGE>
(v) The respective obligations of Watermark and Spencer to vote their shares of
UGC Common Stock as provided in clause (ii) above shall automatically terminate
with respect to any of such shares of UGC Common Stock which are, after the date
hereof, sold by either of them to an unrelated third party in an arm's-length
transaction or in a public offering pursuant to a Registration Statement under
the Securities Act of 1933, as amended (unless they retain the right to vote or
reacquire such shares). Subject to the foregoing, neither Watermark nor Spencer
shall sell or otherwise transfer any of their shares of UGC Common Stock unless
the transferee shall have first executed and delivered a written agreement, in
form and substance satisfactory to CLS, to the effect that said transferee
agrees to be bound by the terms hereof; and
(vi) Watermark and Spencer each hereby agrees that the certificates representing
their shares of UGC Common Stock shall bear a legend to the effect that the
right to vote the shares represented thereby are subject to the provisions of
this Agreement.
2. Certain Covenants. UGC, Watermark and Spencer each hereby agrees (i)
not to take any action, direct or indirect, which would be inconsistent with the
provisions hereof, and (ii) to take all such actions, and to execute and deliver
all such documents and instruments (including, in the case of Spencer and
Watermark, but not limited to, written consents as stockholders of UGC), which
CLS may at any time and from time to time after the date hereof reasonably
request in order to more fully perfect or protect the rights intended to be
granted to CLS pursuant to this Agreement.
3. General Provisions. 3.1 Notices. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given or made as of the date delivered, transmitted or mailed if
delivered personally, transmitted by telecopier (with confirmation of receipt),
or mailed by registered or certified mail, postage prepaid, return receipt
requested, as follows:
If to UGC, to:
Unistar Gaming Corp.
160 Broadway
New York, New York 10038
Telecopier No.: (212) 791-5367
3
<PAGE>
Copy to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Telecopier No.: (212) 573-4313
Attention: Harold L. Schneider, Esq.
If to Watermark, to:
Watermark Investments Limited
Bahamas International Trust Co.
Bank Lane
Nassau, Bahamas
Telecopier No.: (809) 326-5020
Attention: Ms. Veronica Moncur
Copy to:
Varner, Stephens, Humphries & White
Suite 1700 Riverwood
3350 Cumberland Circle
Atlanta, Georgia 30339
Telecopier No.: (404) 850-7070
Attention: William W. Hopson, Esq.
If to Spencer, to:
Mr. James W. Spencer
8446 Bronze Lane
Highlands Ranch, Colorado 80126
Copy to:
Kreutz & Associates, P.C.
5655 South Yosemite Street
Suite 200
Englewood, Colorado 80111
Telecopier No.: (303) 793-0923
Attention: James K. Kreutz, Esq.
3.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
4
<PAGE>
3.3 Entire Aqreement. This Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements with respect thereto.
3.4 Amendments. This Agreement may only be amended by a written
instrument executed by all of the parties hereto.
3.5 Waivers. No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
3.6 Specific Performance. Each of UGC, Watermark and Spencer hereby
acknowledges and agrees that CLS' remedies at law for a breach or threatened
breach of any of the provisions of this Agreement would be inadequate and, in
recognition of that fact, agrees that, in the event of a breach or threatened
breach by any of them of the provisions of this Agreement, in addition to any
remedies at law, CLS, without posting any bond, shall be entitled to obtain
equitable relief in the form of specific performance, a temporary restraining
order, a temporary or permanent injunction or any other remedy which may then be
available.
3.7 Assignment. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and CLS and their respective heirs, legal
representatives, successors and assigns.
3.8 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or effect the meaning
or interpretation of any of the terms or provisions of this Agreement.
3.9 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which shall be deemed to be an original but all of which taken together shall
constitute one and
5
<PAGE>
the same agreement and shall become effective when one or more counterparts has
been signed by each of the parties hereto, and delivered to each of the other
parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
parties hereto as of the date first above written.
UNISTAR GAMING CORP.
By: MEL SCHNELL
------------------------------------
Name: Mel Schnell
Title: Chairman and Chief
Executive Officer
WATERMARKS INVESTMENTS LIMITED
By: ROBERT A. BERMAN
--------------------------------------
Name: ROBERT A. BERMAN
Title: Managing Director
JAMES W. SPENCER
--------------------------------------
James W. Spencer
AGREED TO AND ACCEPTED AS OF THE DATE ABOVE WRITTEN:
COOPER LIFE SCIENCES, INC.
By: MEL SCHNELL
-------------------------------------------------------------
President
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COOPER
LIFE SCIENCES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JANUARY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> JAN-31-1995
<CASH> 636
<SECURITIES> 18,669
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 42
<DEPRECIATION> 3
<TOTAL-ASSETS> 24,532
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 251
0
0
<OTHER-SE> 21,530
<TOTAL-LIABILITY-AND-EQUITY> 24,535
<SALES> 0
<TOTAL-REVENUES> 12
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 356
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 3,268
<INCOME-TAX> 0
<INCOME-CONTINUING> (382)
<DISCONTINUED> 3,650
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,268
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.47
<FN>
See the financial statements for an unclassified balance sheet.
</TABLE>
