<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.20549
FORM 1O-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
Commission File No. 0-27160
CALL NOW, INC.
----------------------------------------------------
(Exact name of small business issuer in its charter)
FLORIDA 65-0337175
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
P.O. BOX 531399, MIAMI SHORES, FL 33153
----------------------------------------
(Address of principal executive offices)
(305) 751-5115
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,318,944 shares as of November 04,
1997.
Transitional Small Business Format: NO
----
<PAGE> 2
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS
Registrant's Financial Statements filed herewith begin after the
signature page.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES
Results of Operations For the Three month and Six Month Periods
Ended September 30, 1997
a. REVENUES
The Company's revenues for the three months ended September 30, 1997
were $193,346 as compared to $2,534,031 for three months ended September 30,
1996. For the nine month period ended September 30, 1997 revenues were
$4,454,796 compared to $6,368,400 for the nine month period ended September 30,
1996. Revenues for both periods were attributable to the Company's sale of
marketable securities and interest income. For the nine months ended September
30, 1997 the gain on sale of marketable securities was $3,955,341 compared to
$6,147,027 for the nine months ended September 30, 1996.
b. EXPENSES
(1) GENERAL AND ADMINISTRATIVE expense for the quarter ended September
30, 1997 was $432,393 compared to $130,558 for the quarter ended
September 30, 1996. For the nine month period ended September 30, 1997
expense was $1,324,148 compared to $792,390 for the nine month period
ended September 30, 1996. These increased expenses were attributable to
additional salary and travel expense required to purchase the Retama
Park Bonds and manage operations at the Retama Park Track.
(2) INTEREST expense for the quarter ended September 30, 1997 was
$39,825 compared to $25,252 for the quarter ended September 30, 1996.
For the nine month period ended September 30, 1997 expense was $112,587
compared to $58,438 for the nine months ended September 30, 1996.
Interest expense for 1997 increased as a result of debt service
payments on the property acquired in Williamson County, Texas.
c. DISCONTINUED OPERATIONS:
Call Now, Inc. discontinued operation of ARN Communications, Corp., its
long distance resale subsidiary in August 1996. Loss for the September
30, 1996 quarter was $65,179. Gain for the nine month period ended
September 30, 1996 was $27,533.
d. EARNINGS PER SHARE
For the three month period ended September 30, 1997 the company record
a $.02 per share loss compared to a $.20 per share gain for the
September 30, 1996 quarter. For the nine month period ended September
30, 1997 earnings per share was $.25 compared to $.47 per share for the
nine month period ended September 30, 1996.
2
<PAGE> 3
Liquidity and Capital Resources
Through September 30, 1997 the Company sold marketable securities for
net proceeds of $3,955,341 compared to $3,701,893 for the nine month period
ended September 30, 1996. For the period ended September 30, 1997, the Company's
operating activities used cash of $3,689,049 compared to cash provided of
$202,087 for the nine month period ended September 30, 1996. Investing
activities for the nine month period ended September 30, 1997 provided cash of
$2,234,207 compared to cash provided by investing activities of $7,175,596 for
the nine month period ended September 30, 1996. Cash provided by financing
activities was $137,579 for the nine month period ended September 30, 1997
compared to cash used by financing activities of $1,330,444 for the nine month
period ended September 30, 1996.
The Company has investments in the common stock of Compressent, Inc.
and Retama Development Corporation tax free municipal bonds. Such bonds are
secured by the Retama Park Race Track Facility which will be managed by Retama
Entertainment Group, Inc., a subsidiary of the Company (see Part II.B. -
Management of Retama Park Racetrack). In addition, the Company has entered into
an agreement with Barron Chase Securities, Inc. whereby the Company executed a
secured demand note payable to Barron Chase in the amount of $1,155,000. Under
the terms of the agreement Barron Chase has purchased $1,298,000 in U.S.
Treasury Bills as security for the demand note. The note pays the Company
$11,550 per month which the Company utilizes as working capital. Such
arrangement terminates on March 31, 1998. In addition, the Company is accruing
interest on its holdings of Retama Development Corporations 7% 1997A Bonds.
Income from the above described investments currently generates revenues
sufficient to cover approximately one-third of the Company's annual operating
expenses. To meet its additional working capital requirements the Company has
sold a portion of its marketable securities. In October 1977 the Company
established a margin account with a commercial lender pledging 281,596 shares of
Compressent Common Stock (CSNT) as collateral for the account. During the month
of October 1997 the Company drew advances against the margin account totaling
$800,000. The Company has sufficient marketable securities and borrowing power
if necessary to meet its working capital requirements for the foreseeable
future.
PART II -
Item 5. Other Information
A. POTENTIAL INVESTMENT COMPANY CLASSIFICATION
The Company has been advised by the Securities and Exchange Commission
that it may be considered an investment company and therefore subject to certain
provisions of the Investment Company Act of 1940. The Company does not believe
it is an investment company and has taken the following actions:
1. On July 15, 1996, the Company acquired 118 acres of land for
development for at a purchase price of $2,360,000. Such land
is located in Williamson County, Texas. The
3
<PAGE> 4
Company executed a purchase money mortgage in connection with
the purchase of the property which is payable in semi-annual
installments of $85,721.39 commencing January 15, 1997. The
mortgage bear interest at the rate of 9% annually with the
entire unpaid balance due on July 15, 2003.
2. The Company disposed of its shares of Intermedia
Communications, Inc. which it received in December 1994 in
connection with its disposition of Phone One, Inc. The Company
currently holds less than 150 of such shares.
3. In November 1996, the Company acquired certain secured bonds
issued by the Retama Development Corporation of Selma, Texas.
The bonds are secured by a lien on real estate which includes
the Retama Park Racetrack located in suburban San Antonio,
Texas.
4. The Company distributed a dividend of shares of Compressent
Corporation to the Company's shareholders on March 27, 1997.
The balance of the Company's holdings in Compressent
Corporation were registered by the Company in Compressent
Corporation's recent registration statement on Form S-1. By
agreement with the underwriter, such shares could not be sold
until September 25,1997.
5. As of June 30, 1997 the Company had liquidated all of its
money market holdings.
6. On October 27, 1997 the Retama Development Corporation Board
of Directors approved a management contract granting Retama
Entertainment Group, Inc., an 80% owned subsidiary of Call
Now, Inc., the right to manage the operations of the Retama
Park Horse Racing Facility (see item B below).
In the event the Company is deemed to be an investment company, the Company may
become subject to certain restrictions relating to the Company's activities,
including restrictions on the nature of its investments and the issuance of
securities. In addition, the Investment Company Act imposes certain requirements
on companies deemed to be within its regulatory scope, including registration as
an investment company, adoption of a specific form of corporate structure and
compliance with certain burdensome reporting, record keeping, voting, proxy,
disclosure and other rules and regulations. In the event of characterization of
the Company as an investment company, the failure of the Company to satisfy
regulatory requirements, whether on a timely basis or at all, would, under
certain circumstances have a materially adverse effect on the Company.
B. MANAGEMENT OF RETAMA PARK RACE TRACK
On October 27, 1997 the Retama Development Corporation Board of
Directors approved a management contract granting Retama Entertainment Group,
Inc., an 80% owned subsidiary of Call Now, Inc., the right to manage the
operations of the Retama Park Horse Racing Facility. The three year agreement
will provide Retama Entertainment with a monthly management fee of $15,000 plus
a variable fee equal to 25% of profits in excess of $1,000,000 annually. Said
contract is subject to final approval by the Texas Racing Commission in order to
become effective. A copy of the management agreement is annexed as Exhibit A.
hereto.
4
<PAGE> 5
C. RETAMA DEVELOPMENT CORPORATION SERIES A AND SERIES B BONDS
As a result of the confirmation of the Plan of Adjustment by the U.S.
Bankruptcy Court of Retama Development Corporation, (RDC), the RDC bonds held by
the Company were converted into a new series of bonds; 1997 Series A and 1997
Series B which are described as follows:
(1) Series A Bonds are secured by a senior lien on all revenues derived
from the Track as well as all other RDC assets. The debt service on $7,000,000
in Series A Bonds will be approximately $595,000 and will be payable from the
existing net operating revenues of the RDC. A portion of each year's debt
service will be delivered to a sinking fund. The Series A Bonds are repayable
without penalty on any interest payment date from any available source,
including future refunding bonds. The total principal amount of Series A Bonds
initially issued was $7,000,000. The principal amount of Series A Bonds can be
increased by the conversion of Series B Bonds to Series A Bonds pursuant to a
formula described below.
(2) The Series B Bonds in the principal amount of $86,925,000 are
payable solely from revenues derived from the Track secured by a subordinate, or
junior lien on all revenues derived from the Retama Park Race Track through
September 1, 2033. The interest on Series B Bonds will initially accrue, except
that portion paid by excess cash flow. Both principal and interest on the Series
B Bonds will only be payable from excess cash flow after meeting general and
administrative expenses of the track, regularly scheduled debt service, on the
Series A Bonds and paying the management fees. The Series B Bonds can be prepaid
semiannually from any available source, including excess cash flow or future
refunding bonds.
(3) The Series B Bonds will convert into senior lien Bonds on parity
with the Series A Bonds, but only when the following conditions are satisfied:
(a) No event of default has occurred and is continuing with regard
to the outstanding Series A Bonds.
(b) There has been delivered to the Trust a certificate from an
independent certified public accountant displaying that the revenues received by
the Track during any twelve (12) consecutive months, the lesser amount of each
12 month period of the twenty-four (24) months immediately preceding the date of
such conversion are sufficient to cover the original Series A Bonds as well as
the newly converted Bonds based on the following formula: Conversion of B Bonds
= (EBITDA/Coupon applicable to Series A Bonds)/Coverage Ratio (as defined in the
New Trust Indenture) of 1.25] - Amortization (as defined in the new Trust
Indenture) Face Value Outstanding on Series A.
(c) There has been delivered to New Indenture Trustee and the RDC
a certificate from an independent certified public accountant stating that upon
the conversion of any Series B Bonds to Series A Bonds, the RDC shall have the
ability to repay the stated interest and principal payments on the Series A
Bonds once converted.
5
<PAGE> 6
(d) Twenty percent (20%) of EBITDA, on an annual basis, will go
into the debt service reserve account ("DSR") until the account balance is
$1,000,000. At that point 10% of EBITDA, on an annual basis, will go into the
DSR until the account balance is at $9,775,000 at which point the percentage
deposited to the DSR will be zero (0%). If at any point the DSR balance drops
below $1,000,000, the percentage deposited will go back to 20% until $1,000,000
is in the account. If at any point the DSR balance drops below $9,775,000 after
its exceeded $9,775,000 until the account balance is at $9,775,000, at which
point the percentage to the DSR will be zero (0%), the percentage deposited will
go back to 10%
The DSR will be pledged as collateral to the New Indenture Trustee.
(4) The Series A Bonds will have a maturity date of January 1, 2027,
although the New Bonds may be prepaid, without penalty, at any time. In the
event any Series B bonds remain outstanding after the stated maturity and
September 01, 2033, the interest on these outstanding Series B Bonds will stop
accruing, and Revenues from the Track (after satisfying general and
administrative expenses and any management fee) will be applied to the repayment
of (1) any accrued but unpaid interest, and (2) the outstanding principal. The
RDC shall not, be obligated in any way to make payments on the outstanding
Series B Bonds beyond September 01, 2033.
(5) Call Now, Inc. irrevocably assign to the RDC the Licensing
Enhancement until the Bonds are paid in full by the RDC or September 01, 2033,
whichever comes first, the Licensing Enhancement and any revenues attributable
thereto shall be used by the RDC for the purpose of retiring the RDC's
obligations under the Bonds. Once the Bonds have been discharged, any interest
in the Licensing Enhancement assigned to the RDC will revert to Call Now, Inc.
or their respective successors or assigns.
License Enhancement includes 50% of any new rights granted to Retama
Partners, Ltd. as holder of the Retama Park race track racing license. Such new
rights could be related to off-track betting or gaming devices located at the
race track.
Item 6. EXHIBITS AND REPORTS IN FORM 8-K
A. EXHIBITS
10 MANAGEMENT AGREEMENT BETWEEN RETAMA DEVELOPMENT CORPORATION, RETAMA
PARTNERS, LTD., AND RETAMA ENTERTAINMENT GROUP, INC.
27 Financial Data Schedule (for SEC use only).
B. REPORTS ON FORM 8-K
None
6
<PAGE> 7
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.
CALL NOW, INC.
By: /s/ BRYAN P. BROWN
--------------------------
Bryan P. Brown
President
November 04, 1997 By: /s/ JAMES D. GRAINGER
--------------------------
Chief Financial Officer
7
<PAGE> 8
CALL NOW, INC AND SUBSIDIARY
Consolidated Balance Sheet as of September 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 352,857
Marketable securities, at market value
Unrestricted 11,539,765
Restricted 1,298,000
Notes and loans receivable 1,284,810
Other 261,550
-----------
TOTAL CURRENT ASSETS 14,736,982
Furniture and equipment (less accumulated depreciation of $15,522) 15,330
Land held for development 2,369,075
Long term notes and receivables 845,838
Other 91,738
-----------
TOTAL ASSETS $18,058,963
===========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE> 9
CALL NOW, INC AND SUBSIDIARY
Consolidated Balance Sheet as of September 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturity of mortgage payable $ 13,559
Accounts payable 77,275
Note payable 1,155,000
Accrued expenses 82,776
Deferred income taxes payable 777,128
Income taxes payable 1,634,203
------------
TOTAL CURRENT LIABILITIES 3,739,941
Mortgage payable, less current maturity 1,744,026
------------
TOTAL LIABILITIES 5,483,967
------------
CONTINGENCIES AND COMMITMENTS --
STOCKHOLDERS' EQUITY:
Preferred stock, no par, 800,000 shares authorized,
none outstanding --
Common stock, no par, 50,000,000 shares authorized,
8,408,944 shares issued, and 8,318,944 shares outstanding 5,134,965
Treasury stock (206,050)
Retained earnings 6,788,028
Less subscription notes receivable for 365,000 shares of common stock (430,000)
Unrealized holding gain on marketable securities
(net of $777,128 income taxes) 1,288,053
------------
TOTAL STOCKHOLDERS' EQUITY 12,574,996
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,058,963
============
</TABLE>
See notes to Consolidated Financial Statements
<PAGE> 10
CALL NOW, INC AND SUBSIDIARY
Consolidated Statements of Operations
For the Three Months and Nine Months ended September 30
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30 NINE MONTHS ENDED SEPT. 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of marketable securities -- $ 2,446,134 $ 3,955,341 $ 6,148,027
Interest 193,346 69,974 494,320 197,642
Other -- 17,923 5,135 22,731
----------- ----------- ----------- -----------
TOTAL REVENUES 193,346 2,534,031 4,454,796 6,368,400
----------- ----------- ----------- -----------
COST AND EXPENSES:
General, and administrative 432,393 130,558 1,324,148 792,390
Loss from unconsolidated entity -- 11,365 -- 105,332
Depreciation and amortization 4,200 2,180 12,524 18,991
Interest 39,825 25,252 112,587 58,438
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 476,418 169,355 1,449,259 975,151
----------- ----------- ----------- -----------
INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND DISCONTINUED OPERATIONS (283,072) 2,364,676 3,005,537 5,393,249
Income tax (expense)/benefit 106,520 (886,214) (965,377) (2,033,515)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (176,552) 1,478,462 2,040,160 3,359,734
Loss from operation of discontinued subsidiary
(net of tax benefit of $24,000 and tax expense
of $11,000 respectively) -- (41,179) -- 16,533
----------- ----------- ----------- -----------
NET INCOME (LOSS) (176,552) 1,437,283 2,040,160 3,376,267
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Continuing operations $ (0.02) $ 0.21 $ 0.25 $ 0.47
Operations of discontinued subsidiary -- (0.01) -- --
----------- ----------- ----------- -----------
Net income per share $ (0.02) $ 0.20 $ 0.25 $ 0.47
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - PRIMARY AND FULLY DILUTED 8,318,000 7,194,678 8,024,828 7,220,050
=========== =========== =========== ===========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE> 11
CALL NOW, INC AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30,1997
(UNAUDITED)
<TABLE>
<CAPTION>
SUBSCRIPTION
COMMON STOCK TREASURY STOCK NOTES RECEIVABLE
-------------------------- ------------------------ -----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 7,519,400 $3,259,965 250,000 ($200,000)
Unrealized holding gain, net of income taxes
Call Now common stock exchanged for
property 141,081 423,244
Call Now common stock exchanged for HSH
portion of Retama Park bonds 760,000 1,615,000
Call Now common stock bonus 14,544 30,000
Call Now property returned for Call Now
common stock (141,081) (423,244)
Purchase of treasury stock 90,000 (206,050)
Options exercised 115,000 230,000 115,000 (230,000)
Net income
-------------------------- ------------------------ -----------------------
BALANCE - SEPTEMBER 30, 1997 8,408,944 $5,134,965 90,000 ($206,050) 365,000 ($430,000)
========================== ======================== =======================
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Holding Retained
Gain Earnings Total
------------ ------------- -----------
<S> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 $593,897 $4,747,868 $8,401,730
Unrealized holding gain, net of income taxes 694,156 694,156
Call Now common stock exchanged for
property 423,244
Call Now common stock exchanged for HSH
portion of Retama Park bonds 1,615,000
Call Now common stock bonus 30,000
Call Now property returned for Call Now
common stock (423,244)
Purchase of treasury stock (206,050)
Options exercised
Net income 2,040,160 2,040,160
------------ ------------- ------------
BALANCE - SEPTEMBER 30, 1997 $1,288,053 $6,788,028 $12,574,996
============ ============= ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 12
CALL NOW, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Month Periods ended September 30
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,040,160 $ 3,376,267
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 12,329 18,991
Deferred income taxes -- (1,026,509)
Gain on sale of securities (3,955,341) (3,701,893)
Furniture and equipment charged off 21,960 --
Loss from unconsolidated entity -- 93,967
Cancellation of stock for services -- (8,000)
Issuance of stock for bonus 30,000 --
Changes in assets and liabilities net of business sold
(Increase) decrease in assets:
Accounts receivable -- (27,477)
Merchandise inventory -- (31,750)
Other current assets (239,594) (26,777)
Other assets (23,629) 3,703
Increase (decrease) in liabilities:
Accounts payable (411,265) (205,165)
Accrued expenses (30,140) 83,637
Income taxes payable (1,133,529) 1,710,805
----------- -----------
CASH (USED) BY OPERATING ACTIVITIES (3,689,049) 259,799
----------- -----------
INVESTING ACTIVITIES:
Capital (expenditures) returns 85 (5,456)
Purchase of short term securities -- (1,313,575)
Purchase of marketable securities (1,621,682) (270,433)
Purchase of treasury stock (206,050) --
Proceeds from sale of marketable securities -- 9,664,680
Proceeds from bond defeasance 3,853,087 --
Investment in land (6,015) --
Investment in Cable-Sat Systems, Inc. -- (546,000)
Deposits on bond and land purchases -- (77,470)
Notes and loans receivable:
Advances (882,810) (250,000)
Collections 1,097,592 --
Purchase of customer base -- (26,150)
----------- -----------
CASH PROVIDED BY INVESTING ACTIVITIES 2,234,207 7,175,596
----------- -----------
FINANCING ACTIVITIES:
Proceeds from loans 150,000 24,852
Payments on margin loan -- (1,329,117)
Payment on long term debt and capital lease obligations (12,421) (26,182)
----------- -----------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES 137,579 (1,330,447)
----------- -----------
NET (DECREASE) INCREASE IN CASH (1,317,263) 6,104,948
CASH, BEGINNING OF PERIOD 1,670,120 241,256
----------- -----------
CASH, END OF PERIOD $ 352,857 $ 6,346,204
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 13
CALL NOW, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
1. SHORT TERM &
MARKETABLE
SECURITIES
The carrying amounts of marketable securities as shown in the
accompanying balance sheet and their approximate market values
at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. government
obligations $ 1,298,000 $ -- $ -- $ 1,298,000
=========== =========== =========== ===========
AVAILABLE FOR SALE:
Municipal bonds
and notes $ 8,576,643 $ -- $ -- $ 8,576,643
Corporate securities 897,940 2,065,182 $ -- 2,963,122
----------- ----------- ----------- -----------
$ 9,474,583 $ 2,065,182 $ -- $11,539,765
=========== =========== =========== ===========
</TABLE>
The gross unrealized holding gain increased by $694,156 for
the period ended September 30, 1997. Unrealized gains on
securities available for sale at September 30, 1997 are shown
net of income taxes as a component of stockholders' equity.
At September 30, 1997, U.S. government obligations with a
carrying value of $1,298,000 were pledged to collateralize the
note payable to a broker dealer.
2. NOTES AND LOANS
RECEIVABLE
CURRENT NOTES AND LOANS RECEIVABLE WERE COMPOSED OF THE
FOLLOWING:
Broker-dealer note $1,155,000
Stockholders' notes 129,810
----------
Total $1,284,810
==========
3. INCOME TAXES
The components for the provision for income taxes are as
follows:
Current $965,377
Deferred ( -0-)
--------
Net income tax expense $965,377
========
<PAGE> 14
4. RELATED PARTY
TRANSACTIONS
In June 1997, the Company reversed the acquisition of its
office building from its chief executive officer. 141,081
shares of Call Now, Inc. common stock were returned to the
Company and the land and building accounts were reduced by
$210,000 and $213,244, respectively.
5. BOND
DEFEASANCE
On March 26, 1997, the Company participated in a defeasance of
its holdings of Retama Development Corporation Special
Facilities Revenue Bonds, Series 1993. Under the terms of the
defeasance Call Now, Inc. exchanged the Series 1993 bonds for
Retama Development Corporation Special Facilities Revenue
Bonds, 1997 Series A and B plus cash in the amount of
$3,853,087.
6. CONTINGENCIES
Under the terms of the bond defeasance, Call Now, Inc. agreed
to fund any operating deficit of the Retama Development
Corporation for a two year period in an amount up to
$1,075,000 and for a two-year period commencing on the date of
the defeasance. In addition, the company received $1,075,000
from the owner of the other portion of the bonds representing
their matching share of the two year deficit funding
agreement. The $1,075,000 held by the Company on behalf of the
Seller and recorded on the balance sheet as a current
liability was applied toward the purchase of the Seller's
portion of the bonds (see note 7). As a result the Company's
contingent liability increased to a total of $2,150,000 of
which amount $703,000 has been advanced.
7. BOND
ACQUISITION
On April 7, 1997, the Company acquired the balance of the
Retama Development Corp. Bonds in exchange for 760,000 shares
of Call Now, Inc. common stock, 15,000 shares of Compressent
common stock, and $2,150,000 in cash. In addition, it was
agreed between the parties that the funding obligation of
$1,075,000 held by the Company on behalf of the seller would
be applied to the purchase price. The net cost of the
remaining bonds purchased by the Company including legal fees
was $3,179,442. The Company's total holdings of Retama Bonds
after the acquisition are: (a) 1997 Series A, 7% bonds -
$7,000,000 (b) 1997 Series B, 8% bonds - $86,925,000.
8. STOCK OPTIONS
On April 25, 1997, the Company granted cash bonuses, stock
bonuses, and stock options to its directors, officers, and
employees as follows:
<TABLE>
<CAPTION>
CASH AND STOCK BONUSES
BONUS CASH
SHARES BONUS
<S> <C> <C>
Employees 14,544 18,250
</TABLE>
<TABLE>
<CAPTION>
STOCK OPTIONS
SHARES OPTION AGGREGATE
GRANTED PRICE PRICE
<S> <C> <C> <C>
Directors and officers 530,000 $2.00-$4.00 $1,731,400
</TABLE>
<PAGE> 15
In July 1997 three of the Company's Officers and employees
exercised 115,000 options at $2 per option in exchange for
notes totaling $230,000.
9. SUBSEQUENT
EVENTS
During October 1997 the Company entered into a margin account
agreement with a commercial lender. Under the terms of the
agreement the Company has pledged 281,596 shares of
Compressent Common stock (CSNT) as collateral. The Company
drew advances against the margin account totaling $800,000 in
October 1997.
On October 27, 1997 the Retama Development Corporation's Board
of Directors approved a management contract granting Retama
Entertainment, Inc., an 80% owned subsidiary of Call Now,
Inc., the right to manage the operations of the Retama Park
Horse Racing Facility. The three year agreement provides
Retama Entertainment, Inc., with a monthly management fee of
$15,000 plus a variable fee equal to 25% of profits in excess
of $1,000,000 annually.
<PAGE> 1
Exhibit 10
MANAGEMENT AGREEMENT
BETWEEN
RETAMA DEVELOPMENT CORPORATION,
RETAMA PARTNERS, LTD.
AND
RETAMA ENTERTAINMENT GROUP, INC.
DATED: DECEMBER 1, 1997
PREMISES: RETAMA PARK RACETRACK
SELMA, TEXAS
<PAGE> 2
EXHIBIT A.
----------
MANAGEMENT AGREEMENT
--------------------
THIS MANAGEMENT AGREEMENT dated as of December 1, 1997, between Retama
Development Corporation having an office at 1 Retama Parkway, Selma, Texas 78154
("Owner"), Retama Partners, Ltd. having an office at 1964 South Alamo, San
Antonio, Texas 78204 ("License Holder"), and Retama Entertainment Group, Inc., a
Texas Limited Liability Corporation, having an office at 1 Retama Parkway,
Selma, Texas 78154 ("Operator").
ARTICLE I
---------
LIMITATIONS ON AUTHORITY OF OPERATOR
------------------------------------
1.1 In addition to the other provisions of this Agreement which limit
the actions which Operator may take on its own behalf or on behalf of Owner,
Operator may not, without the prior written consent of Owner (which consent
shall not be unreasonably withheld or delayed), negotiate or execute any of the
following types of agreements on its behalf or on behalf of Owner for leasing,
licensing or granting of concessions for commercial space or services at the
Class I Horse Racetrack located in the City of Selma, Bexar County, Texas (the
"Racetrack") or for providing services with respect to the Racetrack:
(a) Agreements providing for the sale or acquisition of real
property or of personal property which is not to be used in the
ordinary course of the business of operating the Racetrack;
(b) Agreements which have a term or any commitment by Owner or
Operator in excess of one year, except agreements or purchases approved
and set forth in the annual Business Plan as hereinafter defined in
Section 4.4(a).
(c) Agreements which require aggregate expenditure by Owner in
excess of $250,000.00 except agreements or purchases approved and set
forth in the annual Business Plan.
ARTICLE II
----------
TERM
----
2.1 This agreement shall be effective upon the Effective Date (the
"Commencement Date"), and shall continue in force until 11:59 p.m., November 1,
2000.
<PAGE> 3
Notwithstanding the foregoing, the Owner may extend the Agreement, at its sole
option, to 11:59 p.m. on November 1, 2002, by giving to Operator not less than
ninety (90) days prior written notice of its intention to extend this Agreement.
Should Owner chose to extend this Agreement, Operator may, but is not required
to, agree to such extension.
ARTICLE III
-----------
OPERATION OF RACETRACK BY OPERATOR
----------------------------------
3.1 During the term of this Agreement, Operator shall operate the
Racetrack, considering the physical characteristics of the Racetrack and the
markets available to it, shall provide or cause to be provided all amenities in
connection therewith which are customary and usual to such an operation and
shall conduct regular horse race meetings with wagering on the results and
related activities as permitted by the Texas Racing Commission in a manner
calculated to optimize financial performance.
3.2 Owner and License Holder engage Operator, as an independent
contractor, to be the exclusive operator and manager of the Racetrack during the
term of this Agreement upon the terms and conditions of the Agreement. Subject
to the provisions of Article I and the other provisions of this Agreement,
Operator shall have absolute control and discretion in the operation, direction,
marketing, maintenance, and management of the Racetrack, including the authority
to enter into agreements and take such other actions, as an independent
contractor, but on behalf of Owner, as Operator shall reasonably deem
appropriate, in its name on behalf of the Owner or in Owner's name except as
expressly provided herein to the contrary.
3.3 Subject to the other terms and provisions of this Agreement,
Operator shall have the exclusive right to hire, discharge, supervise, promote,
train, determine salaries and benefits of, and establish personnel policies and
incentives for and otherwise handle relations with Racetrack personnel. All
Racetrack personnel shall be employees of Operator, other than contracted labor
and/or services such as Grandstand cleaning.
3.4 Notwithstanding the powers and rights granted to Operator pursuant
to this Article III, Operator must operate the Racetrack consistent with the
provisions of the Texas Racing Act and the rules of the Texas Racing Commission.
<PAGE> 4
ARTICLE IV
----------
REPORTING, OPERATING BUDGETS, AND CAPITAL BUDGETS
-------------------------------------------------
4.1 Within sixty (60) days after the end of each Fiscal Year of Owner
("Fiscal Year") that ends during the term of this Agreement, Operator shall
submit to Owner a balance sheet, a statement of operations and a statement of
net cash flow (the "Annual Financial Statements"), in comparative form with the
preceding Fiscal Year, all in reasonable detail, in accordance with generally
accepted accounting principles. Fiscal Year shall be defined as the calendar
year.
4.2 (a) Beginning on the Commencement Date, Operator shall keep or
cause to be kept, for the account of Owner, complete and accurate books of
account and other records reflecting the results of the operation of the
Racetrack, on an accrual basis in accordance with generally accepted accounting
principles.
(b) Owner and License Holder may through its duly appointed agents,
inspect all such operating reports, books and records during normal daytime
business hours at the racetrack or the offices of the Operator, at whichever
locations any such records are maintained from time to time.
(c) Operator shall obtain an audit of the financial statements
which shall be completed within 180 days of the fiscal year end. The auditor
shall be approved by Owner.
4.3 Within forty five (45) days after the end of each month during the
term of this Agreement, Operator shall submit to Owner, Trustee and License
Holder a financial statement showing the financial results of operation of the
Racetrack for such month, together with the financial results of the operation
for the period from the beginning of the Fiscal Year to the end of such month.
Such statement shall: (i) be in customary form, providing comparison with the
items contained in the current Business Plan (as defined in Section 4.4(a) which
has been approved by Owner or has otherwise been approved as provided in Section
4.4(c) and with the prior Fiscal Year's results; (ii) be taken from the books
and records with respect to the Racetrack maintained by the Operator; (iii) be
prepared on the accrual basis in accordance with generally acceptable accounting
principles; and (iv) include a statement of operations (with budget variances
including variances in admissions and handle), a balance sheet, a reconciliation
cash flow, and any other financial schedules reasonably requested by Owner or
License Holder.
4.4 (a) At least one hundred twenty (120) days before the end of each
Fiscal Year during the term of this Agreement, Operator shall submit to Owner
and License Holder, for written approval, an annual Business Plan (the "Business
Plan") for the operation of the Racetrack for the forthcoming Fiscal Year. The
Business Plan for each Fiscal Year shall consist of: (i) an operating budget
(the "Operating Budget") showing, in reasonable detail, the projected or
estimated revenue and expenses, including reconciliation of cash flow, in
<PAGE> 5
respect of the Racetrack for the Fiscal Year on a month-to-month basis; and (ii)
a capital budget (the "Capital Budget") showing in reasonable detail, the
projected or estimated capital expenditures to be made with respect to the
Racetrack for such Fiscal Year. Operating projections for the Fiscal Year shall
include a description of the methods to be employed and the practices, policies
and strategies to be adopted in order to achieve such projections. The form of
the Business Plan will be in the form attached hereto as EXHIBIT "A", as such
form may be modified hereafter with the consent of Owner and Operator. The
expenditures in any Capital Budget shall be shown by fiscal month or quarter for
each Fiscal Year (or portion thereof) covered by the Capital Budget. All
original and updated Capital Budgets shall cover a minimum of twelve (12) fiscal
months.
(b) Owner and Operator shall jointly review each Business Plan and
all of the items constituting the Business Plan and shall approve the Business
Plan and attempt to resolve any differences of opinion with respect to the
contents of the Business Plan.
(c) Owner shall give its written approval or disapproval of the
Business Plan not later than thirty (30) days after the delivery of the proposed
Business Plan to Owner by Operator. If Owner does not approve or disapprove any
portion of such Business Plan within such 30-day period, then Owner shall be
deemed to have approved the Business Plan as submitted by Operator. If Owner
objects to all or any portion of such Business Plan, then Owner shall notify
Operator of the reasons for its objections, and Owner and Operator shall use
their reasonable efforts to agree in respect to the items to which Owner
objects. Should Owner and Operator not reach agreement on all or any portion of
the Business Plan prior to the commencement of the Fiscal Year to which such
Business Plan relates, Operator shall be entitled to operate the Racetrack in
accordance with the immediately prior Fiscal Year's Business Plan (or those
portions of the current Business Plan which have been agreed upon by Owner and
Operator or that Owner has not disapproved), for the Fiscal Year covered by the
Business Plan, pending Owner's approval of a new Business Plan, or such disputed
portions thereof, for such Fiscal Year. With regard to the portions of the
Business Plan as to which agreement has not yet been reached, Operator shall
operate the Racetrack at rates or levels of expenditures comparable to those of
the preceding Fiscal Year with suitable adjustments of rates and expenses for
such items or portions thereof as reasonably dictated by inflationary factors
and for such other items included within the disputed portions of the Business
Plan which have been agreed upon by Owner and Operator. Any interim business
plan used pursuant to this Section 4.4(c) shall be referred to as the Interim
Business Plan.
(d) Once a Business Plan has been approved or deemed approved by
Owner (or portions thereof have been approved or an Interim Business Plan has
been deemed approved as proved for in Section 4.4[c]), Operator may incur
expenditures set forth in such Business Plan or Interim Business Plan.
<PAGE> 6
(e) For the purposes of reviewing the operation and management of
the Racetrack, including, but not limited to, Business Plans proposed by
Operator and such other matters as Owner may determine, Owner and Operator shall
meet as frequently and at such place, date, and time and among such persons, all
as Owner shall reasonably require. Without limiting the foregoing, Operator
agrees that at least four times each Fiscal Year (e.g., on or about January 10,
April 10, July 10, and October 10) Owner and Operator shall review in particular
the Business Plan for such Fiscal Year, and in the case of the last meeting
scheduled before the end of the Fiscal Year, the Business Plan proposed by
Operator for the next succeeding Fiscal Year. Amendments to the Businesses Plan
shall be made as agreed between Owner and Operator to reflect changes in
business activity or other factors affecting economic performance.
4.5 Subject to approval of Owner, which approval shall not be
unreasonably withheld or delayed, Operator shall have the right to "subcontract"
concessions or other service contracts when such action is in the best interest
of the Racetrack. Any such contract shall comply with the provisions of Rev.
Proc. 93-19, as amended by the Internal Revenue Service.
4.6 Owner shall not during the term of this agreement compete with the
duties reserved to Operator by this Agreement.
ARTICLE V
---------
BANK ACCOUNTS AND CASH DISBURSEMENTS
------------------------------------
5.1 The Owner shall establish one or more commercial banking accounts
as provided for in the Business Plan and the Indenture. Operator shall designate
at least two employees of Operator who will have signature authority on such
accounts. Operator shall take all necessary actions to make the daily transfers
from such accounts held by the Trustee under the Indenture as required thereby.
The accounts described in this Section 5.1 shall be referred to as the Agency
Accounts. Operator shall annually present to Owner a list of employees with
signature authority. Owner may request bonding of employees with signature
authority if adequate insurance is not in place covering the actions of such
persons.
5.2 Owner shall bear all losses resulting from any failure or
insolvency of the bank, trust company or other financial institution in which
the Agency Accounts or the investments authorized by Section 5.3 are maintained.
Operator shall maintain the Agency Accounts at either Frost National Bank, Banc
One or another financial institution acceptable to Owner. Upon the termination
of this Agreement, and the payment to Operator of all amounts due upon such
termination, all remaining amounts in the Agency Accounts shall be transferred
to Owner.
<PAGE> 7
5.3 After adequate working capital reserves have been provided in
accordance with the current approved Business Plan and the Indenture, Operator
shall pay to the Trustee from the Agency Accounts any fund not required for
current obligations per the terms of the Indenture. Surplus funds shall be
invested by Operator in bank certificates of deposit, repurchase agreements,
treasury bills or similar securities, or money market or other day-to-day
depository accounts, in accordance with the procedures proposed by Operator and
approved by Owner, and in accordance with the Indenture.
5.4 The Operator shall pay out of Agency Accounts all Racetrack Costs
incurred by the Owner or by the Operator on behalf of Owner.
ARTICLE VI
----------
OPERATOR'S FEES
---------------
6.1 As consideration for its services hereunder, Operator shall be
entitled to receive a monthly fixed management fee (the "Fixed Management Fee")
in the amount of $15,000.00 plus, subject to the limitations set forth in this
Section, a variable management fee (the "Variable Management Fee"), which
together with the Fixed Management Fee are collectively referred to as the
"Management Fees." The Fixed Management Fee shall be payable in arrears on or
before the first working day of each month during the term of this Agreement.
The Variable Management Fee shall be payable in arrears on the first day of
August for the preceding Fiscal Year. It is the intention of the Owner and the
Operator that the Management Fees comply with the terms and provisions of Rev.
Proc. 93-19. Until such time as all bonded indebtedness related to the project
is discharged in full, the Management Fees set forth in this Article VI shall
not be amended unless Owner first obtains an opinion of nationally recognized
bond counsel, to the effect that such changes shall not adversely affect the
exclusion from gross income under Section 103(a) of the Internal Revenue Code of
1986, as amended, of interest on the Bonds.
6.2 The Variable Management Fee is an amount equal to 25% of the profit
of the Racetrack in excess of $1 million before depreciation and amortization,
and before the payment of debt service on the Bonds computed in accordance with
the Business Plan. By way of example, if the profit before depreciation and
amortization and before the payment of debt service on the Bonds is $1,500,000,
the Variable Management Fee would equal $125,000 (i.e., $1,500,000 minus
$1,000,000 then multiplied by 25%). Notwithstanding the foregoing, the Variable
Management Fee will not be paid (but will accrue) until the accrued interest on
the Series A Bonds has been paid.
<PAGE> 8
6.3 All calculations shall be based upon the audited Annual Financial
Statements of the Racetrack.
ARTICLE VII
-----------
EXPENSES
--------
7.1 For the purposes of this Agreement, the term "Racetrack Expense"
shall mean all costs and other expenditures which are (a) paid by Operator or
are paid on behalf of Owner (and reimbursed by Owner or Trustee to Operator) or
are paid by Owner or Trustee to Operator or to any person for materials or
services provided and which directly relate to the operation of the Racetrack
and are included in the Business Plan for the Fiscal Year in question which has
been approved by Owner and Operator or has been approved as otherwise provided
in Section 4.4(c), as the case may be, or (b) otherwise expressly provided in
this Agreement to be a Racetrack Expense. Racetrack Expense shall not include
any costs or other expenditures which are paid or incurred by Operator or any
affiliated party and which relate only indirectly to the ownership,
construction, use, occupancy or operation of the Racetrack, such as, but not
limited to, overhead allowances or charges for Operator or any affiliated party
of any off-site personnel of Operator or any affiliated party who are not
providing services directly to the Racetrack. Only Racetrack Expense shall be
incurred by Operator in a proposed Business Plan.
7.2 Except as provided in Section 7.1, all costs and expenses incurred
by Operator in the performance of Operator's obligations under this Agreement
shall be for and on behalf of Owner and for its account, and such costs and
expenses shall be a Racetrack Expense. Subject to the provisions of Section 7.1
and this 7.2, Operator shall be reimbursed from total revenue for all such costs
and expenses incurred by Operator on behalf of Owner in performing the
obligations of Operator under this Agreement.
7.3 All debts and liabilities incurred by Operator on behalf of either
Owner or the Racetrack, in the normal course of business, and within the
authority granted to Operator herein, are and shall remain the sole obligation
of Owner.
7.4 If any claim, whether for taxes or otherwise, shall be asserted
against Owner or against the Racetrack, and such claim constitutes an immediate
threat to, or would otherwise immediately jeopardize or interfere with
Operator's operation of the Racetrack, Operator shall immediately notify Owner
in writing of such claim and shall have the right to pay such claim on behalf of
Owner, with rights to immediate reimbursement thereof, provided that Operator
shall not pay such claim if (a) Owner is contesting the claim
<PAGE> 9
diligently and in good faith, (b) Owner notifies Operator of such contest, and
(c) such contest stays or terminates such threat, jeopardy, or interference.
7.5 Racetrack Expenses shall include, and the Operator shall provide to
the Owner as needed, administrative support to the Owner's Board of Directors,
including assistance in taking minutes and in the preparation for the Board
meetings, including the preparation of Board materials. Operator shall provide
all relevant supporting documentation on matters before the Board no less than
seven (7) days prior to a scheduled Board meeting if Operator is given at least
14 days advance notice of a scheduled board meeting.
7.6 Racetrack expenses shall include the cost of defense of any claims
against the Operator and its employees, officers and directors to the extent
such costs are not covered by insurance.
ARTICLE VIII
------------
MAINTENANCE, REPAIRS AND CAPITAL IMPROVEMENTS
---------------------------------------------
8.1 Subject to the approved Business Plan in effect and from time to
time, and to the extent sufficient working capital is made available, Operator
shall make such expenditures for repairs and maintenance (excluding structural
or other extraordinary repairs or capital improvements) as are prudent and
necessary to keep the Racetrack in good long term operating condition.
8.2 (a) Operator shall prepare annually, for Owner's approval, a
capital expenditures plan (which will be submitted to Owner as part of the
Business Plan) outlining expenditures for replacements of Capital Improvements
as defined by the Indenture and other capital expenditures reasonably deemed
necessary or desirable by Operator during the ensuing Fiscal Year.
(b) Operator shall make such substitutions and replacements or
renewals to Capital Improvements as it reasonably deems necessary or desirable,
subject to the approved capital expenditures plan.
(c) If the Capital Improvements component of the capital
expenditures plan prepared by Operator exceeds the available funds, or if the
said plan includes contemplated expenditures for capital improvements other than
Capital Improvements, and Owner approves such amounts, Owner shall provide
Operator with either (i) monies sufficient to fund the contemplated
expenditures, or (ii) a financing arrangement reasonably satisfactory to
Operator for such purpose.
<PAGE> 10
8.3 Operator shall supervise and direct the Racetrack's programs for
capital expenditures authorized from time to time by the provisions of this
Article VIII.
ARTICLE IX
----------
INSURANCE
---------
9.1 In the name of Owner and License Holder (and Operator, should
Operator deem it appropriate), Operator shall, from and after the Commencement
Date:
(a) Keep the racetrack insured against damage or loss by fire and
other casualties covered by blanket, all risk replacement cost insurance
policies containing the standard "Extended Coverage" endorsement;
(b) Maintain a policy or policies satisfactory to Owner of
comprehensive general liability, officers and directors liability, auto and
garage liability and garage keepers liability insurance including all broad form
coverages, and advertising, medical payments, liquor law, personal injury,
contractual and products liability coverages, indemnifying Owner, License Holder
and Operator against all claims and demands, for any personal injuries to, or
death of, any persons and for damage to or destruction or loss of property or
animals which may have or claimed to have occurred in, on or in connection with
the operation of the Racetrack. Owner shall have the right to approve the
policies and policy amounts.
(c) Maintain the following types of insurance, at such times and in
such amounts as required by the Indenture and, if not specified therein, as
Operator shall reasonably deem necessary or advisable, if such insurance is
available on usual terms and at customary rates:
(i) Worker's compensation, employer's liability or similar
insurance in accordance with the laws of Texas;
(ii) Property insurance on the Racetrack equal to at least the
maximum insurable value of the Racetrack;
(iii) Loss of earnings or business interruption insurance
against loss or damage by fire and the hazards included in an
extended coverage endorsement, including riot and civil
commotion, sufficient to pay the scheduled debt service on the
Series 1997 A Bonds
<PAGE> 11
outstanding (as such terms are defined in that certain
indenture dated March 26, 1997) for one year; and
(iv) Insurance in respect of such other risks against which it
is now, or hereafter may be, customary to insure in the
operation of properties similar to the Racetrack, having
regard for the nature of the business and the geological and
climatic nature of the Racetrack's location.
9.2 Operator shall deliver certificates of all insurance, containing a
thirty day notice of cancellation clause, pertaining to the Racetrack to Owner,
License Holder, and to the holder of any deed of trust or mortgage encumbering
the racetrack (the "Mortgage") (provided Owner has previously delivered to
Operator the name and address of each such holder). Such policies shall be
written to insure Owner, Operator, Trustee, and the holder of the Mortgage, as
their respective interests may appear.
9.3 Any dispute between Owner and Operator as to the full insurable
value of the Racetrack shall be determined as a Racetrack Expense by an
appraiser selected by them jointly. The determination of the appraiser so
selected shall be binding upon Owner and Operator until changed by subsequent
appraisal, but neither Owner nor Operator shall have the right to require
another appraisal within one (1) year after an appraisal has been made in
accordance with this provision. If Owner and Operator are unable to agree upon
an appraiser within thirty (30) days after the request by one of them for such
agreement, the matter may be submitted to a court of competent jurisdiction.
9.4 All policies of insurance shall provide that the insurance company
shall have no right of subrogation against Owner or Operator, their agents or
employees. All policies of insurance shall be issued by an insurance company
authorized to transact business in the State of Texas and having the Bests
Insurance Reports (or any successor publication of comparable standing) rating
of B + VII (or the equivalent of such rating) or better or by any other
insurance company consented to by Owner.
9.5 All premiums required for the insurance policies described in this
Article IX shall be included in the Business Plan submitted to the Owner
pursuant to Section 4.4(a) hereof.
<PAGE> 12
ARTICLE X
---------
DAMAGE, DESTRUCTION OR CONDEMNATION
-----------------------------------
10.1 If the Racetrack, or any portion thereof, shall be damaged or
destroyed at any time during the term of this Agreement by fire, casualty or any
other cause, Owner shall, at its expense (up to, but not in the excess of, the
amount of insurance proceeds which are paid to Owner for the restoration of the
Racetrack) and with reasonable diligence, repair or replace the Racetrack,
subject to Operator's reasonable approval, so that the Racetrack shall be
restored to substantially the same condition as existed prior to such damage or
destruction. All repairs in excess of $100,000 shall be subject to a bid
process. If Owner fails to bid or authorize such work within thirty (30) days
after the fire or other casualty, or shall fail to complete the same diligently,
Operator may, at its option, terminate this Agreement by notice to Owner,
effective thirty (30) days after the date such notice is received. Following an
insured loss estimated to exceed $250,000.00, Operator may, at the request of
Owner, serve as consultant in the repair and restoration of the Racetrack
required pursuant to the foregoing, and Owner and Operator may enter into an
agreement, acceptable to both parties, providing for the payment to Operator of
a fee with respect to such services which is separate and apart from all fees
payable to Operator hereunder.
10.2 If the whole of the Racetrack shall be taken in any compulsory
purchase, expropriation or like proceedings, or if such a portion thereof shall
be taken as to make it unreasonable, in Operator's and Owner's opinion, to use
the remaining portion of the Racetrack as a race track of the type and class
preceding such taking, then this Agreement shall terminate as of the date of
such taking.
10.3 If only a part of the Racetrack shall be taken in any compulsory
purchase, expropriation or like proceedings, and the taking of such part does
not make it unreasonable, in Operators' and Owner's opinion, to operate the
remainder of the Racetrack as a track of the type and class preceding such
taking, then this Agreement shall not terminate, and proceeds from any award
shall be used to make alterations and improvements to the Racetrack, as
necessary to maintain the status of the Racetrack which existed immediately
prior to such taking. The balance of the award shall be paid to Owner.
10.4 If all or part of the Racetrack is damaged, destroyed or
condemned, Operator shall be paid by Owner, unless and until this Agreement is
terminated pursuant to the provisions of this Article X (only from and to the
extent of business interruption insurance required under Section 9.1 and
received by Owner), each month during such period of damage or destruction, an
amount equal to the average total monthly amounts earned by Operator hereunder
during the twelve (12) months preceding the damage or destruction. Such payments
shall continue until operations of the Racetrack are fully recommenced or until
the proceeds of business interruption insurance are fully paid, whichever first
occurs. If the Racetrack has been managed by Operator for less than twelve (12)
months, the amount to be paid to Operator shall be an amount equal to the
average total monthly amounts earned
<PAGE> 13
by Operator hereunder during the actual number of months that the Racetrack has
been managed by Operator.
10.5 If this Agreement is terminated as a result of the provisions of
Article X, Operator shall be paid the amount of $90,000 representing six months
of the fixed Management Fee.
ARTICLE XI
----------
ASSIGNMENT
----------
11.1 Operator shall not assign, transfer or otherwise dispose of,
whether voluntarily or involuntarily or by operation of law, all or any portion
of its interest in this Agreement to any person or entity, without the prior
written consent of Owner. Owner agrees that its consent shall not be
unreasonably withheld or delayed. Owner agrees that it will not use its right to
grant or withhold its consent as a means to extract economic concessions form
Operator. Owner agrees to make its decision based on its evaluation of whether
the proposed transferee or assignee has adequate net worth to timely discharge
and is otherwise capable of performing all of the obligations of Operator under
this Agreement, whether the persons identified with the proposed transferee or
assignee will be persons of high character and with a favorable reputation for
integrity, honesty and veracity. Accordingly, Owner shall grant or withhold
consent to any proposed transfer or assignment of all or any part of Operator's
interest in this Agreement on the basis of Owner's evaluations and
determinations of the factors enumerated in the preceding sentence. In the event
Owner consents to a transfer of the entire interest of Operator in this
Agreement, Operator's liability hereunder shall terminate upon such transfer.
Each transferee, by reason of any such transfer, shall assume and agree to
perform all of Operator's duties, obligations and liabilities herein contained
pursuant to a written instrument in form and substance reasonably satisfactory
to Owner. Any such transfer shall be made strictly in accordance with the terms,
covenants and conditions of this Article XI, and shall be subject to this
Agreement.
11.2 Owner may assign all or any portion of its interest in this
Agreement in its sole and absolute discretion subject to the terms of the
Indenture.
11.3 To the extent that any assignment pursuant to the foregoing is
subject to approval by the Texas Racing Commission and License Holder, such
approval shall be obtained prior to finalizing any such assignment.
<PAGE> 14
ARTICLE XII
-----------
TERMINATION BY OWNER
--------------------
12.1 The occurrence of any of the following events shall constitute a
default and be good cause for Owner to terminate this Agreement without
prejudice to any other rights or remedies Owner may have hereunder or otherwise
at law or in equity:
(a) Operator breaches or fails to comply with any material term,
covenant or condition of this Agreement and Operator fails to cure such default
within thirty (30) days after receipt of written notice from Owner specifying
the exact nature of such default provided, however, that if such default is not
reasonably susceptible of being cured within such thirty-day period, and
thereafter diligently pursues a cure thereof to completion within one hundred
twenty (120) days after receipt of the written notice of default by Operator.
(b) Operator makes any assignment of its property for the benefit
of creditors.
(c) Operator's interest under this Agreement is taken on execution
of a judgment.
(d) Operator files a petition for adjudication as bankrupt, for
reorganization or for an arrangement under any bankruptcy or insolvency law, or
if an involuntary petition under any such law is filed against Operator and not
dismissed within sixty (60) days thereafter.
(e) Operator engages in conduct constituting fraud as determined by
a court of competent jurisdiction pursuant to nonappealable judgment.
(f) Operator breaches or fails to discharge its fiduciary
obligation to Owner or License Holder or otherwise engages in one or more acts
or proven fraud or proven malfeasance.
(g) Operator fails, following consistent written notices from
Owner, to provide proposed budgets or other reports as specifically defined and
required by this Agreement.
(h) EBITDA, as defined in the Indenture, is less than budgeted
EBITDA by more than 15% for two consecutive fiscal years.
(i) The Texas Racing Commission issues an order demanding the
removal of the Operator in its position at Retama Park.
<PAGE> 15
(j) The Texas Racing Commission gives notice of grounds for
suspension or removal of the racing license held by License Holder and action is
not taken within a reasonable time period to remedy such notice.
12.2 If Owner elects to terminate this Agreement pursuant to Section
12.1, such termination shall be effective thirty (30) days from receipt of
written notice by Operator of Owner's termination of this Agreement, and
Operator shall not earn any fees from and after such termination.
ARTICLE XIII
------------
TERMINATION BY OPERATOR
-----------------------
13.1 The occurrence of any of the following events shall constitute a
default and be good cause for Operator to terminate this Agreement without
prejudice to any other rights or remedies Operator may have hereunder or
otherwise at law or in equity:
(a) Owner breaches or fails to comply with any material term,
covenant or condition of this Agreement and Owner fails to cure such default
within thirty (30) days after receipt of written notice from Operator specifying
the exact nature of such default; provided, however, that if such default is not
reasonably susceptible of being cured within such thirty-day period, Operator
shall not be entitled to terminate this Agreement if Owner commences curing such
default within the thirty-day period, and thereafter diligently pursues a cure
thereof to completion within one hundred twenty (120) days after receipt of the
written notice of default by Owner.
(b) Owner makes any general assignment of its property for the
benefit of creditors.
(c) Owner's interest under this Agreement is taken on execution of
a judgment.
(d) Owner files a petition for adjudication as bankrupt, for
reorganization or for an arrangement under any bankruptcy or insolvency law, or
if an involuntary petition under any such law is filed against Owner and not
dismissed within (60) days thereafter.
13.2 If Operator elects to terminate this Agreement pursuant to Section
13.1, such termination shall be effective thirty (30) days after receipt of
written notice by Owner of Operator's termination of this Agreement, and
Operator shall not earn any fees from after the effective date of such
termination.
<PAGE> 16
13.3 Nothing in this Article XIII shall affect the rights granted
Operator to terminate this agreement by certain specific provisions hereof.
ARTICLE XIV
-----------
OPERATOR'S RIGHT UPON TERMINATION
---------------------------------
Upon termination of this Agreement by Owner for any reason, Operator
shall be entitled to: (a) reimbursement of all Racetrack Expenses; any fees
payable under this Agreement to which Operator and/or any Affiliated Party would
be entitled to the date of termination (subject, however, to the provisions of
Article VI); and (b) payment of any other sums due Operator hereunder. Operator
shall render a final accounting with respect to such amounts within forty-five
(45) days after the end of the month in which this Agreement terminates. Any
amounts due to Operator shall be paid within twenty-five (25) days of submittal
of a final accounting.
ARTICLE XV
----------
INDEMNIFICATION
---------------
15.1 Operator shall indemnify, defend and hold harmless License Holder
and Owner, its parents, affiliates, subsidiaries, officers, directors, agents,
representatives and employees, to the fullest extent permitted by law, from any
and all liability, loss, damage, cost or expense (including, without limitation,
reasonable attorney's fees and expenses) arising from or relating to the proven
gross negligence, willful misconduct or fraud of Operator or any of its
employees, agents or representatives in connection with the use, management,
maintenance, operation of the Racetrack. No amounts paid by Operator pursuant to
this Section 15.1 shall be a Racetrack Expense.
15.2 Owner shall indemnify, defend and hold harmless License Holder and
Operator, their parents, affiliates, subsidiaries, officers, directors, agents,
representatives and employees, to the fullest extent permitted by law, from any
and all liability, loss, damage, cost or expense (including, without limitation,
reasonable attorney's fees and expenses) arising from or relating to the proven
gross negligence, willful misconduct or fraud of Owner or any of its employees,
agents or representatives (other than Operator or License Holder or parties
related to or affiliated with Operator or License Holder) in connection with the
use, management, maintenance, operation of the Racetrack. No amount paid by
Owner pursuant to this Section 15.2 shall be included as an expense in incentive
fee calculations.
<PAGE> 17
15.3 License Holder shall indemnify, defend and hold harmless Owner and
Operator, their parents, affiliates, subsidiaries, officers, directors, agents,
representatives and employees, to the fullest extent permitted by law, from any
and all liability, loss, damage, cost or expense (including, without limitation,
reasonable attorney's fees and expenses) arising from or relating to the proven
gross negligence, willful misconduct or fraud of License Holder or any of its
employees, agents or representatives in connection with the use, management,
maintenance, operation of the Racetrack. No amount paid by License Holder
pursuant to this Section 15.3 shall be a Racetrack Expense.
15.4 The indemnification by Owner in Section 15.2 solely shall be an
obligation of Owner. Operator shall have no recourse for any claim based herein
or otherwise in respect hereof against any past, present or future director,
trustee, officer or employee of Owner.
15.5 The indemnification by Operator in Section 15.1 solely shall be an
obligation of Operator. Owner and License Holder shall have no recourse for any
claim based herein or otherwise in respect hereof against any past, present or
future director, trustee, owner, officer or employee of Operator.
15.6 The indemnification by License Holder in Section 15.3 solely shall
be an obligation of License Holder. Owner and Operator shall have no recourse
for any claim based herein or otherwise in respect hereof against any past,
present or future director, trustee, owner, officer or employee of License
Holder.
15.7 The indemnities contained in this Article XV shall survive the
termination of this Agreement, and shall apply to any extent or occurrence
referred to in this Article XV and arising before or after the execution of this
Agreement and prior to the termination of this Agreement.
15.8 The cost of Operator's defense of any alleged gross negligence,
willful misconduct or fraud by Operator shall be considered a Racetrack Expense.
If the allegation of gross negligence is proven, then the cost shall not be
considered a Racetrack Expense and must be reimbursed to Owner by Operator.
15.9 Except as provided in paragraph 15.2, Operator shall indemnify,
defend and hold harmless Owner's directors to the fullest extent permitted by
law, from any and all liability, loss, damage, cost or expense (including,
without limitation, reasonable attorney's fees and expenses) arising from or
relating to the use, management, maintenance, organization, ownership,
operation, development or construction of the Racetrack, or any of the foregoing
acts or omissions and including, without limitation, any such liability, loss,
damage, cost or expense arising from the negligence of the indemnified party,
whether such
<PAGE> 18
negligence is, or is alleged to be, sole or concurrent with Operator or any
other person, including the Plaintiff.
ARTICLE XVI
-----------
TRADE NAMES AND TRADEMARKS
--------------------------
16.1 During the term of this Agreement, the Racetrack shall be known by
and operated under the name "Retama Park" or such other name as, from time to
time, may be selected by Owner and approved by Operator, which shall not be
unreasonably withheld.
16.2 Except as otherwise provided in the License and Agency Contract by
and between License Holder and Owner, Operator shall retain rights to trade
names or trademarks only during the term of this contract. The rights of
Operator shall expire upon the termination of this contract by any of the
parties to this contract.
ARTICLE XVII
------------
COVENANT OF NON DISTURBANCE
---------------------------
17.1 Subject to Section 2.1, Owner and License Holder covenant and
agree that so long as Operator is not in default in its obligations hereunder,
Operator shall have the right to operate and manage the Racetrack and perform
its other obligations hereunder free from molestation, eviction or disturbance,
and Owner and License Holder further agree to take such action as from time to
time may be necessary to preserve such rights in Operator for so long as this
Agreement is in effect and Operator is not in default under this Agreement.
17.2 Owner and License Holder may enter the Racetrack at any reasonable
time to examine the condition of the Racetrack, provided that Owner and License
Holder may not, by doing so, unreasonably interfere with the operation of the
Racetrack.
ARTICLE XVIII
-------------
COMPLIANCE WITH LAWS
--------------------
18.1 Operator shall comply with and abide by all laws, rules,
regulations, requirements, orders, notices, determinations and ordinances of any
federal, state or municipal authority and the requirements of insurance
companies covering any of the risks against which the Racetrack is insured.
<PAGE> 19
18.2 Owner or Operator shall have the right to contest any alleged
violation, and postpone compliance pending the determination of such contests,
as permitted by law. In such event, to the extent permitted by law, Owner shall
indemnify Operator and its employees from any resulting liability, loss, cost,
damage or expense to Operator (including all fees and expenses of attorneys
approved or selected by Operator) other than those resulting from violations
arising from any act or omission of Operator constituting proven gross
negligence or willful misconduct.
ARTICLE XIX
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
19.1 (a) Owner represents and warrants that it is a local government
corporation duly organized and in good standing pursuant to the laws of the
State of Texas, has all requisite power and authority to enter into this
Agreement, and that when executed, this Agreement will constitute the valid and
binding obligation of Owner, enforceable in accordance with its terms, subject,
as to enforceability, to principles of equity and applicable bankruptcy,
insolvency and other laws affecting the rights of creditors generally.
(b) Owner further represents and warrants that it has accepted and
holds all privileges and beneficial and pecuniary interests in and to the
license that relates to horse racing to be conducted at the Racetrack facility,
and simulcasting of horse racing meets to be conducted at the facility as
conveyed by License Holder. Owner further represents that it has entered into
that certain License and Agency Contract with License Holder and thereby
appointed License Holder as its exclusive agent for all race track matters.
(c) Owner further represents and warrants that the entering into of
this Agreement does not contravene, nor constitute a default (or any event
which, with the giving of notice and/or the passage of time, would constitute a
default) under any agreement to which Owner is a party.
19.2 (a) Operator represents and warrants that it is a Texas limited
liability company duly organized and in good standing pursuant to the laws of
the State of Texas, has all requisite power and authority to enter into this
Agreement, and that when executed this Agreement will constitute the valid and
binding obligation of Operator, enforceable in accordance with its terms,
subject, as to enforceability, to principles of equity and applicable
bankruptcy, insolvency and other laws affecting the rights of creditors
generally.
(b) Operator further represents and warrants that the entering into
of this Agreement does not contravene, nor constitute a default (or any event
which, with the giving
<PAGE> 20
of notice and/or the passage of time, would constitute a default) under any
agreement to which Operator is a party.
19.3 (a) License Holder represents and warrants that it is in a Texas
Limited Liability Partnership duly organized and in good standing pursuant to
the laws of the State of Texas, has all requisite power and authority to enter
into this Agreement, and that when executed this Agreement will constitute the
valid and binding obligation of License Holder, enforceable in accordance with
its terms, subject, as to enforceability, to principles of equity and applicable
bankruptcy, insolvency and other laws affecting the rights of creditors
generally.
(b) License Holder further represents that it has conveyed to Owner
all privileges and beneficial and pecuniary interests in and to the license that
relates to horse racing to be conducted at the Racetrack facility, and
simulcasting of horse racing meets to be conducted at the facility as conveyed
to Owner.
(c) License Holder further represents and warrants that the
entering into of this Agreement does not contravene, nor constitute a default
(or any event which, with the giving of notice and/or the passage of time, would
constitute a default) under any agreement to which License Holder is a party.
ARTICLE XX
----------
RELATIONSHIP BETWEEN OWNER AND OPERATOR
---------------------------------------
The relationship between Owner and Operator created hereby is that of
owner and independent contractor. The parties hereby agree that, notwithstanding
anything in this Agreement to the contrary, (a) except as provided for in
Articles I and III, Operator has no right or authority to execute or deliver any
contract or other agreement as agent for Owner; and (b) any contract or other
agreement executed by Operator relating to operation or management of the
Racetrack and which requires the approval of Owner under this Agreement shall
specifically provide that Operator, may not, on behalf of or as agent for Owner,
amend, modify or otherwise materially change such contract or agreement in any
manner whatsoever without the approval of Owner. Nothing herein contained shall
constitute or be construed to be or create a copartnership or joint venture
between Operator, License Holder and Owner with respect to the Racetrack. It is
understood and agreed that Operator has no authority to bind Owner or License
Holder to contractual obligations to third parties or to expenditures of any
kind except to the extent that Owner and/or License Holder shall specifically
authorize or as otherwise expressly provided in this Agreement.
<PAGE> 21
Owner is aware that Call Now, Inc. ("CNI"), the holder of the $93,925,000 in
bonds issued by the Owner, is also an owner of the Operator. Owner and CNI
recognize that there is a potential for a conflict in interest faced by CNI as a
result of its ownership position in the Bonds and in the Operator. Owner has
solicited bids for the management of the Racetrack and has selected Operator and
negotiated this Agreement.
ARTICLE XXI
-----------
MISCELLANEOUS
-------------
21.1 All notices required to be given under this Agreement shall be in
writing and shall either be (a) delivered by hand, (b) sent by certified or
registered mail, return receipt requested, postage prepaid, or (c) sent by an
overnight contract carrier, requiring a signed receipt of the consignee, as
follows:
If to Owner, to:
Retama Development Corporation
c/o City of Selma
9375 Corporate Drive
Selma, Texas 78154
With a copy to :
Phil. Steven Kosub
Soules & Wallace
Frost Bank Tower, Suite 1500
100 West Houston
San Antonio, Texas 78205
If to Operator, to:
Retama Entertainment Group
1 Retama Parkway
Selma, Texas 78154
With a copy to:
Steven R. Brook
Jeffers & Banack
745 E. Mulberry, Ninth Floor
San Antonio, Texas 78212-3166
<PAGE> 22
If to License Holder, to: With a copy to:
Retama Partners, Ltd. David Oppenheimer
Attention: Joseph R. Straus, Jr. 711 Navarro, Sixth Floor
Chief Executive Officer San Antonio, Texas 78205
1964 South Alamo
San Antonio, Texas 78204
or to such other person or place as may be designated by notice of one party to
the other. All notices shall be effective when received. Unless otherwise
notified in writing, each party shall direct all sums payable to the other party
at its address for notice purposes.
21.2 THIS AGREEMENT IS BEING EXECUTED AND DELIVERED IN THE STATE OF
TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF TEXAS.
21.3 Neither party shall be liable to the other in damages, nor shall
this Agreement be terminated, nor a default be deemed to have occurred because
of any failure to perform hereunder caused by Force Majeure. The term Force
Majeure shall mean fire, explosion, earthquake, flood, casualty, strike,
unavoidable accident, riot, insurrection, civil disturbance, act of public
enemy, embargo, war, act of God, inability to obtain labor, materials or
supplies, any governmental regulation, restriction or prohibition, or any other
similar cause beyond the parties' reasonable control.
21.4 The captions and headings throughout this Agreement and its index
are for convenience and reference only, and shall, in no way, be held or deemed
to define, modify or add to the meaning, scope of intent of any provision of
this Agreement.
21.5 Except as is otherwise expressly provided herein, whenever in this
Agreement the consent or approval of License Holder, Owner or Operator is
required, such consent or approval shall not be unreasonably withheld or delayed
and shall be in writing, signed by an officer, or agent thereunto duly
authorized, of the party granting such consent or giving such approval. Except
as is otherwise expressly provided herein, in cases when consent or approval is
required, the failure to respond within thirty (30) days after the receipt of
the request for such consent or approval shall be conclusively deemed to
constitute the requested consent or approval.
<PAGE> 23
21.6 No assent, expressed or implied, by Owner or Operator to any
breach of or default in any term, covenant or condition which this Agreement
requires to be performed or observed by the other party shall constitute a
waiver or assent to any succeeding breach of or default in the same or any other
term, covenant or condition thereof.
21.7 All Exhibits attached to this Agreement are an integral part of
this Agreement, and all terms defined in this Agreement and the Exhibits hereto
shall have the same meaning throughout this Agreement and the Exhibits hereto.
21.8 All references in this Agreement to "Fiscal Year(s)" shall be
deemed to include any and all full and partial Fiscal Years within the term of
this Agreement.
21.9 In the event that any one or more of the phrases, sentences,
clauses, or paragraphs contained in this Agreement shall be declared invalid by
a final and unappealable order, decree or judgment of any court, this Agreement
shall be construed as if it did not contain such phrases, sentences, clauses, or
paragraphs.
21.10 The covenants, terms and conditions herein contained shall bind
and inure to the benefit of Owner, License Holder and Operator, and their
respective authorized successors and permitted assigns.
21.11 Except as otherwise provided herein, nothing in this Agreement
shall confer upon any person or entity, other than Owner, License Holder and
Operator, any rights or remedies under or by reason of this Agreement.
21.12 All references to "Owner," "License Holder" and "Operator"
throughout this Agreement shall include and apply to their respective authorized
successors and permitted assigns.
21.13 Owner, License Holder and Operator shall execute and deliver all
other appropriate supplemental agreements and other instruments, and take any
other action necessary to make this Agreement fully and legally effective,
binding and enforceable as between them and as against third parties, including
Owner's filing of such certificates as are required to be filed by persons or
entities doing business in a name other than their own, indicating that Owner is
engaging in the horse racing business at the Racetrack under the name of the
Racetrack.
21.14 Owner has the right, at Owner's Expense, to hire consultants to
review the operation and management of the Racetrack. Operator agrees to
reasonably cooperate with Owner's consultants and to discuss with Owner the
recommendations of Owner's consultants.
<PAGE> 24
21.15 In the event Owner or Operator should bring any action for money
damages against the other as a result of any breach by either party of any of
its covenants, agreements or obligations contained in this Agreement,
Plaintiff's recourse in the event it shall prevail in any such action shall be
limited solely to all of the assets owned by Owner or Operator, and no officer,
employee, owner, director or parent of either party shall have any liability as
a result of such breach by the other.
21.16 If the governing body of the Operator numbers four (4) or fewer
members, no member of the governing body of the Owner shall be an employee or
member of the governing body of the Operator. Similarly, if the governing body
of the Owner numbers four (4) or fewer members, no member of the governing body
of Operator shall be an employee or member of the governing body of Owner. If
the governing body of Owner numbers five (5) or more members, one member of the
governing body of Owner may be an employee or member of the governing body of
Operator. Similarly, if the governing body of Operator numbers five (5) or more
members, one member of the governing body of Operator may be an employee or
member of the governing body of Owner. However, the employee or member of the
governing body of Operator shall not serve as the chief executive of the
governing body of Owner and the employee or member of the governing body of
Owner shall not serve as the chief executive of the governing body of Operator.
Members of the governing body of Owner shall not own a controlling interest in
Operator.
21.17 Any amendment to this Agreement shall comply with the
requirements of Rev. Pro. 93-19.
<PAGE> 25
ARTICLE XXII
------------
COMPLIANCE WITH INDENTURE
-------------------------
Operator acknowledges it has received a copy of the Indenture and
agrees to perform all of its duties and obligation set forth under this
Agreement, including the operation of the Racetrack, in accordance with the
terms of the Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year above written.
OWNER:
RETAMA DEVELOPMENT CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
OPERATOR:
RETAMA ENTERTAINMENT GROUP
By:
---------------------------
Name:
-------------------------
Title:
------------------------
LICENSE HOLDER:
RETAMA PARTNERS, LTD.
BY: RETAMA PARK ASSOCIATION, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
<PAGE> 26
EXHIBIT "A"
-----------
ANNUAL BUSINESS PLAN
--------------------
Section 4.4(a) of the Management Agreement provides that the Operator
shall submit to Owner for written approval, an Annual Business Plan for the
operation of the Racetrack for the immediately following Fiscal Year. This
Exhibit provides for the format for such Business Plan. The business planning
process is provided to give both Owner and Operator an opportunity, on a
regularly scheduled basis, to discuss, in detail, the operations, plans, and
goals for each department within the horse race track. Owner and Operator will
also be afforded the opportunity to discuss any particular issues or problems
encountered in the previous operating period as well as any anticipated changes
in strategic direction.
I. Product Description and Mission Statement
II. Overall Goals and Objectives:
Section 4.4(a)(iii) of the Management Agreement provides that
operating projections for the immediately following Fiscal
Year will be accompanied by a description or a narrative which
described the methods to be employed and the practices,
policies and strategies to be adopted in order to achieve such
projections. It is contemplated by the parties that this
Section of the Annual Business Plan will address this
requirement.
III. Financial Projections:
* Includes all anticipated revenues.
* Includes all anticipated cash requirements.
IV. Capital Budget:
* Capital requirements broken down by department with
justifications.
* Major capital expenditures for new attractions with
support showing justification for expenditures.
* Capital expenditure for Long Range Planning.
<PAGE> 27
V. Operating Projections:
* Attendance projections, including estimations of the
admissions per capita.
* Projected Wagering per capita.
* Projected Food and Beverage per capita.
* Projected Parking per capita.
* Projected Merchandising per capita.
* Projected Miscellaneous Income per capita.
VI. Operating Schedule:
* Total number of operating days
* Total number of operating hours for each day.
In addition to the items listed above, Operator shall include in the
Annual Business Plan such other information as is appropriate and is agreed upon
by Owner and Operator.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 352,857
<SECURITIES> 12,837,765
<RECEIVABLES> 1,284,810
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,736,982
<PP&E> 30,882
<DEPRECIATION> 15,552
<TOTAL-ASSETS> 18,058,963
<CURRENT-LIABILITIES> 3,739,941
<BONDS> 1,744,026
0
0
<COMMON> 5,134,965
<OTHER-SE> 7,440,031
<TOTAL-LIABILITY-AND-EQUITY> 18,058,963
<SALES> 0
<TOTAL-REVENUES> 4,454,796
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,336,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,587
<INCOME-PRETAX> 3,005,537
<INCOME-TAX> 965,377
<INCOME-CONTINUING> 2,040,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,040,160
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
