<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: June 30, 1998
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 Identification No.)
of incorporation or organization)
10803 Gulfdale, Suite 222, San Antonio, TX 78216
------------------------------------------------
(Address of principal executive offices)
(210) 349-4141
--------------
(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: 8,558,944 shares as of September 4,
1998.
Transitional Small Business Format: NO
----
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Registrant's Financial Statements filed herewith following the
signature page.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES - filed following the financial
statements.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 8.1 Termination and Mutual Release Agreement between
Registrant, Compressent Corporation and William M. Allen,
and letter terminating such agreement.
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CALL NOW, INC.
By: /s/ William M. Allen
-------------------------------------
William M. Allen
Chairman
By: /s/ James D. Grainger
--------------------------------------
James D. Grainger
Vice President-Finance
September 14, 1998 Principal Accounting Officer
2
<PAGE> 3
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 78,420
Accounts Receivable 15,000
Marketable Securities, at Market Value
Unrestricted 9,357,477
Notes and Loans Receivable 1,142,838
Other 370,695
-----------
TOTAL CURRENT ASSETS $10,964,430
FURNITURE AND EQUIPMENT (LESS ACCUMULATED
DEPRECIATION OF $21,399): 10,714
LAND: 2,369,075
LONG TERM NOTES AND RECEIVABLES: 703,000
DEFERRED TAX ASSETS: 1,195,067
OTHER: 162,252
-----------
TOTAL ASSETS $15,404,538
===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 4
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturity of Mortgage Payable $ 14,168
Accounts Payable 47,124
Accrued Expenses 399,149
Income Taxes Payable 1,000,844
------------
TOTAL CURRENT LIABILITIES $ 1,461,285
------------
LONG-TERM LIABILITIES:
Mortgage Payable, Less Current Maturity 1,736,787
Deferred Gain from Bond Defeasance Transaction 2,150,000
------------
TOTAL LONG-TERM LIABILITIES 3,886,787
------------
TOTAL LIABILITIES 5,348,072
------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 5,685
------------
STOCKHOLDERS' EQUITY:
Preferred Stock, No Par, 800,000 Shares
Authorized, None Outstanding
Common Stock, No Par, 50,000,000 Shares
Authorized, 8,435,444Shares Issued, and
8,435,444 Shares Outstanding 5,774,528
Retained Earnings 4,993,753
Less Subscription Notes Receivable for
115,000 Shares of Common Stock (230,000)
Accumulated Other Comprehensive (Loss) (281,450)
Treasury Stock, at Cost (206,050)
------------
TOTAL STOCKHOLDERS' EQUITY 10,050,781
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 15,404,538
============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 5
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
REVENUES 1998 1997 RESTATED
- -------- ------------------------------
<S> <C> <C>
Gain on Sale of Marketable Securities $ -- $ 1,805,341
Reimbursed Racetrack Operating Costs 2,420,642 --
Management Fees 90,000 --
Interest Income 259,033 300,974
Miscellaneous 1,186 5,135
----------- -----------
TOTAL REVENUES 2,770,861 2,111,450
COSTS AND EXPENSES:
Racetrack Operating Costs 686,430 --
General and Administrative 2,420,642 891,755
Interest 91,436 72,762
Depreciation and Amortization 1,606 8,324
----------- -----------
TOTAL COSTS AND EXPENSES 3,262,691 972,841
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (491,830) 1,138,609
INCOME TAX (EXPENSE) BENEFIT 223,310 (387,741)
INCOME (LOSS) BEFORE MINORITY INTEREST (268,520) 750,868
MINORITY INTEREST (5,485) --
NET INCOME (LOSS) (274,005) 750,868
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized Holding Gains (Loss) on Securities 550,009 626,971
COMPREHENSIVE INCOME (LOSS) $ (824,014) $ 1,377,839
=========== ===========
EARNINGS (LOSS) PER SHARE
Basic and Diluted
NET INCOME (LOSS) PER SHARE $ (.03) $ .09
=============================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 6
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
REVENUES 1998 1997
- -------- ------------------------------
<S> <C> <C>
Gain on Sale of Marketable Securities $ -- $ 102,254
Reimbursed Race Track Operating Costs 1,619,517 --
Management Fees 45,000 --
Interest Income 56,333 229,287
Miscellaneous -- --
----------- -----------
TOTAL REVENUES 1,720,850 331,541
----------- -----------
COSTS AND EXPENSES:
Race Track Operating Costs 1,649,086 --
General and Administrative 357,768 577,407
Interest 49,397 33,049
Depreciation and Amortization 803 4,612
----------- -----------
TOTAL COSTS AND EXPENSES 2,057,054 614,618
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (336,204) (283,077)
INCOME TAX (EXPENSE) BENEFIT 128,060 106,522
----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST (208,144) (176,555)
MINORITY INTEREST (3,087) --
----------- -----------
NET INCOME (LOSS) (211,231) (176,555)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized Holding Gains (Loss) on Securities (487,506) 642,401
----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (698,737) $ 465,846
=========== ===========
EARNINGS (LOSS) PER SHARE
BASIC AND DILUTED:
NET INCOME (LOSS) PER SHARE $ (0.03) $ (0.02)
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 7
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Subscription
Common Stock Treasury Stock Notes Receivable Accumulated
-------------------------------------------------------------- Unrealized Other
Number Number Number Holding Comprehensive Retained
Of Shares Amount Of Shares Amount Of Shares Amount Gain(Loss) Income(Loss) Earnings Total
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -
December 31, 1997 8,408,944 $5,704,965 90,000 $(206,050) 115,000 $(230,000) $ 268,560 $ $5,267,758 $10,805,233
-----------
Reclassification of
Unrealized Holding
Gain due to
Adoption of
FASB 13G (268,560) 268,560
Comprehensive Income:
Litigation
Settlement 26,500 69,563 69,563
Net(Loss) (274,005) (274,005)
Unrealized
(Loss) on
Securities (550,010) (550,010)
-----------
Total Comprehensive
Income (754,452)
---------------------------------------------------------------------------------------------------------------
BALANCE
JUNE 30, 1998 8,435,444 $5,774,528 90,000 $(206,050) 115,000 $(230,000) -- $(281,450) $4,993,753 $10,050,781
===============================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 8
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
OPERATING ACTIVITIES: 1998 1997(RESTATED)
- -------------------- ---------------------------
<S> <C> <C>
Net Income (Loss) $ (274,005) $ 750,868
Adjustments to Reconcile Net Income To
Net Cash Used in Operating Activities:
Depreciation and Amortization 1,606 8,129
Issue of Common Stock for Litigation
Settlement 69,563 --
Gain on Bond Defeasance -- (1,805,341)
Furniture and Equipment Charged Off -- 21,960
Issue of Common Stock for Bonuses -- 30,000
Changes in Assets and Liabilities:
(Increase) Decrease in Assets:
Accounts Receivable (15,000) --
Deferred Tax Asset (223,310) (801,950)
Other Current Assets 69,300 (122,093)
Other Assets (36,834) (12,962)
Increase (Decrease) in Liabilities:
Accounts Payable (6,453) (448,924)
Accrued Expense 70,729 15,012
Income Tax Payable -- (909,215)
Minority Interest $ 5,685 --
------------------------
Cash (Used) by Operating Activities (338,719) (3,274,516)
------------------------
INVESTING ACTIVITIES:
Proceeds from Treasury Bills 1,305,055
Capital (Expenditures) Refund (1,261) 2,335
Purchase of Short Term Securities -- (41,740)
Purchase of Marketable Securities -- (1,564,442)
Purchase of Treasury Stock -- (206,050)
Proceeds from Bond Defeasance -- 3,853,087
Investment in Equity Stock (60,000) --
Investment in Land -- (3,815)
Notes and Loans Receivable:
Advances (1,300,000) (603,000)
Collections 300,000 1,037,005
------------------------
Cash Provided by Investing Activities 243,794 2,473,380
------------------------
</TABLE>
<PAGE> 9
CALL NOW, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1998 1997 (RESTATED)
-----------------------------
<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds from Loans -- 150,000
Funding Obligation -- 1,075,000
Application of Funding Obligation To
Purchase of Marketable Securities -- (1,075,000)
Payment on Long Term Debt (6,629) (6,071)
-----------------------------
Cash Provided (Used) by Financing Activities (6,629) 143,929
-----------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (101,554) (657,207)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 179,974 1,670,120
-----------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 78,420 $ 1,012,913
=============================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 10
CALL NOW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. The six months ended June 30, 1998 reflect the operations of Retama
Entertainment Group, Inc., an 80% subsidiary for the first time. Total
revenues were $2,510,642 and operating expenses were $2,483,219.
2. Effective January 1, 1998, the Company adopted FASB Statement No. 130,
Reporting Comprehensive Income. Statement No. 130 requires the
reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the
calculation of net income.
At December 31, 1997, the Company had unrecognized holding gain from
marketable securities classified as available for sale in the amount of
$268,560 net of tax. During the quarter ended June 30, 1998, a decrease
of $487,506 has been recorded as other comprehensive income in the
statement of operations and the balance has been reclassified as
accumulated other comprehensive income in the Stockholders' Equity. The
before tax and after tax amount of other comprehensive income for the
three months ended June 30, 1998 is summarized below:
Before Tax After
Tax Benefit Tax
-------- -------- --------
Unrealized holding loss $781,634 $294,128 $487,506
-------- -------- --------
3. In July, 1998, the Company entered into an agreement to purchase, for
substantial amounts, three additional thoroughbred racetracks:
Louisiana Downs, Thistledown and Remington Park. In this connection,
the Company paid a $2,000,000 refundable deposit to the sellers. On
August 24, 1998, the Company declined to complete the transaction and
the deposit was returned with interest.
4. In July, 1998, the Company sold $3,500,000 face amount of its
investment in RDC Series A Bonds for $2,150,000. The Company has the
option to repurchase the bonds on or before January 1, 1999 for
$2,150,000, plus interest.
5. In August 1998, the Company entered into an agreement in which it
agrees to transfer all of the common stock that it owns in Compressent,
Inc. into a Voting Trust. In return, the Company will receive new
certificates of its beneficial interest in the Trust. Any dividends
received by the Trust will be distributed to the Trust certificate
holders in proportion to the number of shres represented by the Trust
certificate. The Trust will terminate in two years from the date the
first shares subject to the Trust are registered in the Trustee's name,
unless the Trustee exercises his right to terminate the Trust prior to
that date.
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND LIQUIDITY AND CAPITAL RESOURCES.
THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 1998 COMPARED TO 1997.
RESULTS OF OPERATIONS:
a. REVENUES
The Company's revenues for the three months ended
June 30, 1998 were $1,720,850 as compared to $331,541 for the
three months ended June 30, 1997. For the six month period
ended June 30, 1998 revenues were $2,770,861 compared to
$2,111,450 for the six months ended June 30, 1997. The
increase in revenues for both periods was attributable to the
inclusion of revenue from Retama Entertainment Group, Inc., an
80% owned subsidiary, which began operations on January 1,
1998. Interest income was $56,333 for the quarter ended June
30, 1998 and $229,287 for the quarter ended June 30, 1997. The
decrease in interest income was attributable to the redemption
of Treasury Bills and reduction in notes receivable. For the
six months ended June 30, 1998, interest income was $259,033
compared to $300,974 for the six months ended June 30, 1997.
b. EXPENSES
(1) RACE TRACK OPERATING COSTS
Race track operating costs for the quarter ended June
30, 1998 were $1,649,086 compared to $834,133 for the
quarter ended March 31, 1998. The increase is due
primarily to the increased seasonal activity of the
Race Track for the second quarter. There were no race
track operations in 1997.
(2) GENERAL AND ADMINISTRATIVE
Expense for the quarter ended June 30, 1998 was
$357,768 compared to $577,407 for the June 30, 1997
quarter. For the six months ended June 30, 1998
expense was $686,430 compared to $891,755 for the six
months ended June 30, 1997. The decrease was due to
the elimination of expenses associated with the
purchase of the Retama Bonds in 1997.
<PAGE> 12
(3) INTEREST
Interest expense for the quarter ended June 30, 1998
was $49,397 compared to $33,049 for the June 30, 1997
quarter. For the six months ended June 30, 1998
expense was $91,346 compared to $72,762 for the six
months ended June 30, 1997. Interest expense for 1998
increased as a result of debt service payments on the
property acquired in Williamson County, Texas and
other borrowings.
(4) INCOME TAX
For the quarter ended June 30, 1998 the Company
recorded income tax benefit of $128,060 compared to
$106,522 for the quarter ended June 30, 1997. The
increase was due to an increase in the operating
loss. For the six months ended June 30, 1998 there
was an income tax benefit of $223,310 compared to an
income tax expense of $387,741 for the six months
ended June 30, 1997. The reversal was due to an
operating loss for the six months ended June 30, 1998
compared to an operating profit for the six months
ended June 30, 1997.
c. NET LOSS VS. NET INCOME
The Company had net loss of $211,231 for the quarter
ended June 30, 1998 compared to net loss of $176,555
for the quarter ended June 30, 1997. The increase in
net loss of $34,676 resulted primarily from an
increase in costs and expenses. There was a net loss
of $274,005 for the six months ended June 30, 1998
compared to a net income of $750,868 for the six
months ended June 30, 1997.
d. OTHER COMPREHENSIVE INCOME
The Company has adopted FASB No. 130, Reporting
Comprehensive Income. At December 31, 1997, the
Company had unrecognized holding gain from marketable
securities classified as available for sale in the
amount of $268,560, net of tax. For the three months
ended June 30, 1998, a decrease of $487,506 was
recorded and an increase of $642,401 was recorded in
the statement of operations for the quarter ended
June 30, 1997. For the six months ended June 30, 1998
there was a loss of $550,009 compared to income of
$626,971 for the six months ended June 30, 1997. The
decrease is primarily the result of a decrease in
value and the disposal of
<PAGE> 13
Compressent Corp's common stock.
e. COMPREHENSIVE INCOME (LOSS)
As a result of the adoption of FASB No. 130,
Comprehensive income was a loss of $698,737 for the
three months ended June 30, 1998 and income of
$465,846 for the three months ended June 30, 1997.
For the six months ended June 30, 1998 there was a
comprehensive loss of $824,014 compared to
comprehensive income of $1,377,839 for the six months
ended June 30, 1997.
f. EARNINGS PER SHARE
For the three months ended June 30, 1998, the Company
recorded a net loss of $.03 per share compared to a
net loss of $.02 per share for the June 30, 1997
quarter. For the six months ended June 30, 1998 loss
per share was $.03 compared to earnings of $,09 per
share for the six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES:
For the six months ended June 30, 1998 the company
used $338,719 for operating activities compared to
$3,274,516 for the six months ended June 30, 1997.
The decrease is due primarily to the operating
activities of Retama Entertainment Group, Inc,
beginning January 1, 1998 and the reduction of
payments for accounts payable and income taxes. Cash
flow from investing activities was $243,794 compared
to $2,473,380 for the six months ended June 30, 1998.
The decrease was due to the proceeds from the
defeasance of the Retama Development Bonds, a
decrease in collections of notes and loans
receivable, and a decrease in the purchase of
marketable securities in the six months ended June
30, 1998.
For the six months ended June 30, 1998, cash flow
from financing activities decreased by approximately
$150,000 due to the collection loan proceeds during
the six months ended June 30, 1997.
The Company has investments in the common stock of
Compressent and Retama Development Corporation Bonds.
The fair market value of the securities at June 30,
1998 was $9,354,477.
In addition, the Company previously entered into an
agreement
<PAGE> 14
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 purchased US
Treasury Bills as security for the demand note, The
note paid the Company $11,550 per month which the
Company utilizes as working capital. Principal
collections of $250,000 have been received by the
Company through to June 30, 1998 and an additional
$300,000 in July 1998. Balance of $750,000 is due on
August 15, 1999.
Based on the above information, management of the
Company believes that it has adequate financial
resources to fund its operations for the current
fiscal year.
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 118.34
acres of land for development for
$2,363,060. Such land is located in
Williamson County, Texas. The company
executed a purchase money mortgage in
connection with the purchase which is
payable in semiannual installments of
$85,721 beginning in January 15, 1997,
including interest at 9% with the entire
unpaid balance of $1,655,056 due on July 15,
2003. The Company paid $593,060 at closing
from its working capital. The land is
currently vacant and a survey is in progress
to determine the best use of the property.
2. The Company disposed if most of its shares
of Intermedia Communications, Inc. in 1996,
which it received in December 1994 in
connection with disposition of Phone One,
Inc. It currently owns less than 200 of such
shares.
3. In August 1996 the Company disposed of its
remaining long distance telephone business
for
<PAGE> 15
100,000 shares of the Company's common
stock, plus assumption by Buyer of certain
liabilities of the Company. The business was
sold to a former employee and officer of the
Company.
4. In September and October 1996 the Company
acquired certain secured bonds issued by
Retama Development Corporation of Selma,
Texas. The bonds are secured by a lien on
real estate which included the Retama Park
Racetrack in suburban San Antonio,Texas.
5. The balance of the Company's holdings in
Compressent was registered by Compressent in
its registration statement on Form S-1. In
November 1997 the Company disposed of 76,000
of such shares.
6. On December 1, 1997, the Company's 80% owned
subsidiary, Retama Entertainment Group Inc.
was engaged as the manager of the Retama
Park Racetrack effective January 1, 1998.
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.
<PAGE> 1
EXHIBIT 8.1
TERMINATION AND MUTUAL RELEASE AGREEMENT
THIS AGREEMENT is entered into and dated as of August 4, 1998, by and
among Compressent Corporation, a Florida corporation ("Compressent"), Call Now,
Inc., a Florida corporation ("Call Now"), and William Allen, an individual
residing in the State of Florida ("Allen").
RECITALS
A. Call Now, an early stage venture capital investor in Compressent,
owns shares of the common stock of Compressent and has warrants or options for
the purchase of additional shares of the common stock of Compressent.
B. Except as set forth in Compressent's shareholder list maintained by
the stock transfer agent, Allen owns no shares of the common or preferred stock
of Compressent and has no warrants or options for the purchase of shares of the
common or preferred stock of Compressent.
C. Allen is now a member of the Board of Directors of Compressent.
D. On or about February 3, 1998, Compressent secured a $10,000,000.00
line of credit from Call Now in return for payment of a commitment fee of
$400,000 within thirty days of the first draw ("Line of Credit Agreement"). In
connection with the Line of Credit Agreement, Call Now received a stock purchase
warrant for 500,000 shares of Compressent common stock.
E. On or about February 3, 1998, Compressent entered into a Preferred
Stock and Warrant Purchase Agreement with Call Now whereby Compressent agreed to
sell 56,000 shares of its redeemable convertible Series A Preferred Stock
("Preferred Stock") and a warrant to purchase up to 500,000 shares of
Compressent common stock to Call Now ("Preferred Stock Agreement").
F. The purchase price for the Preferred Stock and warrant under the
Preferred Stock Agreement paid by Call Now was $3,500,000.00 and was paid in the
form of Retama Park Racetrack Project Special Facilities Series A Revenue Bonds
with a face value of $3,500,000.00 ("Retama Bonds").
G. On March 10, 1998, Compressent entered into a loan agreement with
Howe, Solomon & Hall, Inc., a New Jersey corporation ("HSH") to borrow
$2,000,000.00 principal at 10% per annum ("HSH Loan"). The loan was secured by
the Retama Bonds. In connection with the HSH Loan, Compressent and HSH entered
into a "Financial Advisory Agreement" whereby Compressent agreed to pay to HSH
warrants for 100,000 shares of Compressent common stock immediately exercisable
by HSH for $6.25 per share in exchange for financial advice.
H. On May 20, 1998, Compressent and Call Now entered into an agreement
which rescinded the February 3, 1998, Preferred Stock Agreement. Pursuant to
this rescission agreement, Call Now agreed to return to Compressent all issued
shares of Preferred Stock and the
1
<PAGE> 2
stock purchase warrant. Compressent, in turn, agreed to return or cause to be
returned the Retama Bonds to Call Now. Call Now agreed to assume all obligations
of Compressent under the terms of the HSH Loan, including the Financial Advisory
Agreements between Compressent and HSH made in connection with the HSH Loan.
Finally, Compressent agreed to issue 1,333,333 shares of its common stock to
Call Now.
I. On May 20, 1998, Compressent and Call Now entered into an agreement
which terminated the February 3, 1998, Line of Credit Agreement, canceled the
associated stock purchase warrant issued to Call Now, and released Compressent
from any commitment fee and all other payments due Call Now in connection with
that Line of Credit Agreement.
J. Compressent believes it has claims against either one or both of
Call Now and Allen arising from the actions of each of Call Now and Allen. Call
Now and Allen believe they have claims against Compressent.
K. The parties desire to modify their existing relationship as set
forth below to resolve all disputes between them and to allow Compressent to
pursue additional financing.
THEREFORE, in consideration of the mutual promises and other
consideration stated in this Agreement, the parties agree as follows:
1. TERMINATED UNDERTAKINGS. Except for this Agreement, and any other
agreement attached hereto or referred to herein as an exhibit to this
Agreement, the parties hereby terminate all written and oral
agreements, representations and undertakings between, on the one hand,
either one or both of Call Now and Allen, and on the other hand,
Compressent to the extent not already rescinded, terminated or
canceled, including, without limitation, the following "Terminated
Agreements":
a) The February 3, 1998, Line of Credit agreement by and between Call
Now and Compressent and its connected stock purchase warrant for the
purchase of 500,000 shares of common stock of Compressent
Corporation,
b) The February 3, 1998, Preferred Stock Agreement for the purchase of
56,000 shares of Compressent Convertible Preferred Stock and its
connected stock purchase warrant for purchase 500,000 shares of
Compressent common stock in return for Retama Bonds with a face
value of $3,500,000.00.
2. RETURN OF PREFERRED STOCK. Call Now hereby confirms that it does not
own, possess, or control any Compressent Preferred Stock and all such
Compressent Preferred Stock to be issued to Call Now pursuant to the
February 3, 1998 Preferred Stock Agreement was never issued and
delivered to Call Now.
3. NO PREVIOUS ASSIGNMENT. Except as set forth in paragraph 5(e) below
with respect to HSH, Call Now and Allen, jointly and severally, hereby
represent and warrant that no agreement, representation or undertaking
between Call Now or Allen and Compressent, including any agreement
referred to in this Agreement, has been transferred, assigned,
2
<PAGE> 3
pledged or encumbered in any way whatsoever, directly or indirectly, by
absolute or partial conveyance, option, warrant or otherwise.
4. MUTUAL RELEASE. Except for the rights and obligations of the parties
under this Agreement and all other agreements incorporated herein by
reference and not terminated under paragraph 1 above,
a) Compressent hereby forever releases, remises, acquits and
discharges Call Now and Allen, and
b) Call Now and Allen hereby jointly and severally release, remise,
acquit and discharge Compressent,
of and from any and all obligations, liens, claims, demands, damages,
liabilities, suits, actions and causes of action of whatsoever kind, nature or
description, present and future, now known or hereafter discovered, whether
arising in law or equity, upon contract, tort or warranty, or under state or
federal law or laws or under common law, or otherwise, which the respective
releasor has had, now has, or hereafter may have, or claim to have, against any
one or more of the respective releases for or by reason of any act, omission,
matter, cause, or thing whatsoever, from the beginning of time to the date of
this Agreement, whether the lien, claim, demand, damage, liability, suit, action
or cause of action is known or unknown and whether the same may hereafter arise,
develop, be discovered, accrue or mature, relating to, but not limited to the
following:
c) any one or more of the Terminated Agreements or any breach or
nonperformance thereof by any party thereto,
d) conduct of Allen in any way related to his duties as an officer or
director of Compressent, except for such conduct which violates any
applicable federal, state or local law, rule or regulation which is
expressly not released under this Agreement,
e) any and all other liens, claims, demands, damages, liabilities,
suits, actions and causes of action arising from any act or omission
or from any undertaking terminated in paragraph I above or any
breach thereof,
f) any and all obligations of Call Now or Allen to contribute capital
or to make advances to or for the benefit of Compressent,
g) any and all obligations of Compressent to contribute capital or to
make advances to or for the benefit of Call Now or Allen, and
h) any loans, advances, goods or services or other thing of value
whatsoever of any kind provided by the releasor to or for the
benefit of any release relating in any way to Compressent.
3
<PAGE> 4
5. CALL NOW AND ALLEN -- ADDITIONAL OBLIGATIONS. Call Now and Allen, as
the case may be, agree to the following:
a) Upon the arranging for the issuance of the Compressent shares
pursuant to paragraph 6(b) below, Allen will immediately submit his
resignation as a member of the Board of Directors to Compressent via
facsimile and certified mail in form and substance similar to the
resignation attached hereto as Exhibit A and incorporated herein by
this reference;
b) Call Now hereby assumes and agrees to pay and perform and further
confirms and ratifies its assumption of all of Compressent's
obligations under the terms of the HSH Loan, including any Financial
Advisory Agreements between Compressent and HSH. Call Now will
continue to cause Compressent to be removed as maker or obligor
under the terms of the HSH Loan and related loan documents;
c) [Omitted]
d) Call Now and Allen will each assign to Harris & Hull, pllc, in trust
for Compressent all of Call Now's voting rights arising from its
ownership or control of any and all shares of Compressent common or
preferred stock, for a two year period commencing on the date of
this Agreement, pursuant to a Voting Rights Assignment Agreement the
terms and conditions of which will be mutually agreed upon; and
e) Call Now will surrender for cancellation or cause to be surrendered
for cancellation to Compressent all shares and warrants of
Compressent stock previously held or possessed by HSH or
International Trading Group, Inc. as described in Exhibit 8.15 of
the Call Now Form 10-KSB dated December 31, 1997 filed with the
Securities and Exchange Commission in July 1998.
6. OBLIGATIONS OF COMPRESSENT - ADDITIONAL OBLIGATIONS. Compressent agrees
to the following:
a) Compressent hereby confirms and ratifies its transfer of all right,
title and interest of Compressent in and to the Retama Bonds to Call
Now;
b) Compressent will instruct the transfer agent to arrange for the
issue of 500,000 shares of Compressent common stock to Call Now
within five (5) days of the execution of this Agreement by Allen and
Call Now in consideration of Allen's release in paragraph 4 above.
Such shares will be registered for sale in the first registration
statement under the Securities Act of 1933 and blue sky laws of
Compressent which includes shares being sold by any shareholder of
Compressent after May 1, 1999;
4
<PAGE> 5
c) Compressent agrees to take such actions as are reasonably requested
by Call Now to complete the transfer of the Retama Bonds to Call
Now;
d) Compressent will maintain Allen's director's and officer's insurance
coverage by Compressent relating to Allen's service to Compressent
as a director to the fullest extent permitted by Compressent's
existing articles and by-laws under Florida law (and incorporated
herein by this reference) and subject to approval by Compressent's
insurers. In addition, Compressent agrees not to modify EX POST its
by-laws as they relate to the indemnification of Allen as a then
present or former director or officer of Compressent; and
e) Compressent will pay Call Now Inc. ten percent (10%) commission on
net amounts received by Compressent from AmTote pursuant to any
agreement between Compressent and AmTote arising out of AmTote
providing services to OTB for off track betting video technology,
within thirty (30) days of Compressent's receipt of such funds;
f) Within five days after the execution of this Agreement, to extent
permitted by law, Compressent will instruct its transfer agent to
remove the restrictive legend on all Compressent shares owned by
Allen or Call Now in excess of two years.
7. REPRESENTATIONS AND WARRANTS OF CALL NOW. In addition to the
representations and warranties set forth elsewhere herein, Call Now
hereby makes the following representations and warranties to
Compressent;
a) SHARES OWNED DIRECTLY AND INDIRECTLY. Except for those shares of
Compressent common and preferred stock now held of record in its
name with the stock transfer agent, Call Now has no common or
preferred shares of Compressent and has no options, warrants or
rights regarding any common or preferred shares of Compressent.
b) CORPORATE EXISTENCE AND POWER. Call Now is a corporation duly
incorporated, validly existing, and in good standing under the laws
of the State of Florida and has full corporate power and authority
to transact business in the corporate form in that state and to
enter into this Agreement and carry out the transactions provided
for herein. The execution and delivery of this Agreement does not
and the consummation of the transactions contemplated herein will
not violate any provision of its Articles of Incorporation or
Bylaws, or any provision of or result in accelerating of any
obligation under any mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment, or decree to which it is a
party, or by which it is bound, and will not violate any other
restriction of any kind or character to which it is subject.
c) BOARD OF DIRECTORS APPROVAL. Call Now's Board of Directors has duly
approved this Agreement and has authorized the execution and
delivery of this Agreement
5
<PAGE> 6
and all related agreements, documents and instruments.
d) DISCLOSURE. No representation or warranty by Call Now contained in
this Agreement, and nothing contained in any instrument or
certificate furnished or to be furnished by it or any of its
representatives pursuant to this Agreement or in connection with the
transactions contemplated hereby, contains or will contain any
untrue or misleading statement of fact.
e) BROKERS AND FINDERS. Call Now has not employed any investment
banker, broker or finder, or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the
transactions contemplated by this Agreement.
8. REPRESENTATIONS AND WARRANTIES OF COMPRESSENT. In addition to
representations and warranties set forth elsewhere herein, Compressent
makes the following representations and warranties to Call Now and
Allen:
a) CORPORATE EXISTENCE AND POWER. Compressent is a corporation duly
incorporated, validly existing, and in good standing under the laws
of the State of Florida and has full corporate power and authority
to transact business in the corporate form in that state and to
enter into this Agreement and carry out the transactions provided
for herein. The execution and delivery of this Agreement does not
and the consummation of the transactions contemplated herein will
not violate any provision of its Articles of Incorporation or
Bylaws, or any provision of or result in the acceleration of any
obligation under any mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment, or decree to which it is a
party, or by which it is bound, and will not violate any other
restriction of any kind or character to which it is subject.
b) BOARD OF DIRECTORS APPROVAL. Compressent's Board of Directors has
duly approved this Agreement and has authorized the execution and
delivery of this Agreement and all related agreements, documents and
instruments.
c) DISCLOSURE. No representation or warranty by Compressent contained
in this Agreement, and nothing contained in any instrument or
certificate furnished or to be furnished by it or any of its
representatives pursuant to this Agreement or in connection with the
transactions contemplated hereby, contains or will contain any
untrue or misleading statement of fact.
d) BROKERS AND FINDERS. Compressent has not employed any investment
banker, broker or finder, or incurred any liability for any
brokerage fees, commissions or finders fees in connection with the
transactions contemplated by this Agreement.
9. REPRESENTATIONS AND WARRANTIES OF ALLEN. In addition to representations
and warranties set forth elsewhere herein, Allen makes the following
representations and warranties to Compressent:
6
<PAGE> 7
a) SHARES OWNED DIRECTLY AND INDIRECTLY. Except as set forth on Recital
B, Allen has no common or preferred shares of Compressent and has no
options, warrants or rights regarding any common or preferred shares
of Compressent.
b) POWER AND AUTHORITY. Allen has full power and authority to enter
into this Agreement and to carry out the transactions provided for
herein. The execution and delivery of this Agreement does not, and
the consummation of the transaction contemplated herein will not,
violate any provision of or result in accelerating any obligation
under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment, or decree to which he is a party, or by
which he is bound, and will not violate any other restriction of any
kind or character to which he is subject.
c) DISCLOSURE. No representation or warranty by Allen contained in this
Agreement, and nothing contained in any instrument or certificate
furnished or to be furnished by him or any of his representatives
pursuant to this Agreement or in connection with the transactions
contemplated hereby, contains or will contain any untrue or
misleading statement of fact.
d) BROKERS AND FINDERS. Allen has not employed any investment banker,
broker or finder, or incurred any liability for any brokerage fees,
commissions or finders fees in connection with the transactions
contemplated by this Agreement.
10. ACCESS AND INFORMATION/RELIANCE. Compressent, Call Now and Allen and
their respective accountants, legal counsel, and other representatives
and agents have each had full access and opportunity to examine and
investigate all properties, assets, liabilities, books, contracts,
commitments, undertakings and records of each other. Neither Allen nor
any officer of Compressent or Call Now will be deemed to have knowledge
of any information or fact in any of the above-described items unless
that officer had actual knowledge thereof on the date of this
Agreement. No party hereto is relying on any agreement, statement,
representation or warranty of any other party or any other person or
entity in entering into this Agreement and the transactions
contemplated hereby other than those set forth in this Agreement
(including exhibits, addenda, agreements, instruments, certificates and
other writings delivered pursuant hereto or in connection herewith).
11. INTENT. The undersigned agree that the Mutual Release set forth in
paragraph 4 above and the giving of consideration therefor does not
constitute an admission of liability by any one or more of the
releases, and is given in full settlement and compromise of doubtful
and disputed claims, present and future, known and unknown and is also
intended to release any and all future injury and damage including
effects or consequences thereof, not now known but which may later
develop or be discovered, and all causes of action therefor, and a part
of the consideration is given and received by each respective releasee
and releasor in satisfaction of unknown liens, claims, injury and
damage.
12. BOUND AND REMITTED PERSONS. The foregoing Mutual Release set forth in
paragraph 4 above extends to and releases and binds and inures to the
benefit of each respective
7
<PAGE> 8
releasee and releasor, as the case may be, and in the case of corporations, all
its shareholders, directors, officers, employees, underwriters, lenders,
beneficiaries, attorneys, agents, assigns, successors, subsidiaries, affiliated
and connected corporations, companies and entities, and in the case of persons,
all their marital communities, heirs, executors, administrators, personal
representatives, underwriters, beneficiaries, attorneys, agents, and assigns.
13. MISCELLANEOUS.
a) CHOICE OF LAW. This Agreement is made with reference to and is
intended to be construed in accordance with the laws of the State of
California without reference to its conflict of law provisions. The
parties agree that the exclusive jurisdiction and venue of any suit
will be in U.S. District Court in San Jose, California or San
Francisco, California, unless the federal court declines
jurisdiction in which such jurisdiction will be the state court in
San Jose, California.
b) WAIVER AND MODIFICATION. The failure of any party hereto to require
strict performance of any provision hereof will not in any manner
limit the right of that party at a later time to enforce the same.
No waiver by any party of the breach of any term or covenant
contained in this Agreement will be deemed to be a release or limit
any liability resulting from the breach. No waiver of any nature,
whether by conduct, course of dealing, or otherwise, in any one or
more instances will be deemed to be or construed as a continuing
waiver of any such condition or breach or as a waiver of any other
condition or of any other breach of any other term or covenant of
this Agreement.
c) SUCCESSORS IN INTEREST. This Agreement is and will be binding upon
and is and will inure to the benefit of the successors and assigns
of the parties. No party hereto may assign any of its rights or
obligations under this Agreement without the prior written consent
of all of Compressent, Call Now and Allen, except to a successor to
at least 80% of the business and assets of the assignor in which
case both assignor and assignee will be and remain jointly and
severally liable to pay and perform all indebtedness, liabilities
and obligations of the assignor under this Agreement.
d) ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto with respect to the subject matter hereof
and supersedes all prior negotiations and agreements. There are no
representations, warranties, understandings, or agreements other
than those expressly set forth herein. Time is expressly declared to
be of the essence of this Agreement.
e) EXHIBITS. Exhibits, schedules and addenda attached to this Agreement
and any other agreements, documents, instruments and certificates
delivered in connection with this Agreement are expressly made a
part of this Agreement as fully as though completely set forth in
it. All references to this Agreement either in the Agreement itself
or in any of such writings will be deemed to refer to and include
this
8
<PAGE> 9
Agreement and all such exhibits, schedules, addenda, agreements,
documents, instruments and certificates. Any breach of or default under
any provision of any such writings will, for all purposes, constitute a
breach or default under this Agreement and all other such writings.
f) EXECUTION BY COUNTERPART. This Agreement may be executed separately or
independently in any number of counterparts, each and all of which
together will be deemed to have been executed simultaneously and for
all purposes to be one agreement.
g) CAPTIONS. The respective captions of the sections and paragraphs hereof
are inserted for convenience of reference only and will not be deemed
to modify or otherwise affect in any respect any of the provisions
hereof.
h) DISPUTE RESOLUTION EXPENSES. The prevailing party in any action,
proceeding or lawsuit arising out of the enforcement of any term or
condition of this Agreement will be entitled to an award of attorneys'
fees, costs and expenses.
EXECUTED as of the date first above written.
COMPRESSENT CORPORATION CALL NOW, INC.
By: /s/ illegible By: /s/ illegible
------------------- -------------------
Its: Chairman Its:
------------------- -------------------
/s/ William Allen
- ---------------------------
William Allen, Individually
9
<PAGE> 10
EXHIBIT A
RESIGNATION OF WILLIAM ALLEN
10
<PAGE> 11
August 4, 1998
To: The Shareholders and the Board of Directors of Compressent Corporation.
From: William Allen.
I hereby resign as a director of Compressent Corporation effective immediately.
/s/ William Allen
- -----------------------
William Allen
11
<PAGE> 12
CALL NOW, INC.
10803 Gulfdale, Suite 222
San Antonio, TX 78216-3634
September 14, 1998
Joseph S. Kastrup, President
Compressent Corporation
2105 Hamilton Avenue, Suite 140
San Jose, CA 95125
Dear Mr. Kastrup:
As you are aware, pursuant to our Termination and Mutual Release Agreement dated
August 4, 1998, Call Now, Inc. was to receive 500,000 shares of Compressent
Corporation common stock and 10% of the Amtote transaction. It has come to our
attention that Compressent Corporation is failing and refusing to deliver such
shares and complete said transaction.
For failure of consideration and breach by Compressent Corporation, the
foregoing agreement is considered null and void. William M. Allen will retain
his position on the Board of Directors.
Pursuant to the May 20, 1998 agreement, demand is hereby made for delivery of
1,333,333 shares of Compressent common stock to Call Now, Inc. pursuant to the
terms thereof.
Yours very truly,
CALL NOW, INC.
By: /s/ William M. Allen
--------------------
William M. Allen
Chairman
cc: Harris & Hull
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 78,420
<SECURITIES> 9,357,477
<RECEIVABLES> 15,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,964,430
<PP&E> 32,113
<DEPRECIATION> 21,399
<TOTAL-ASSETS> 15,404,538
<CURRENT-LIABILITIES> 1,461,285
<BONDS> 1,736,787
0
0
<COMMON> 5,774,528
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,404,538
<SALES> 0
<TOTAL-REVENUES> 2,770,861
<CGS> 0
<TOTAL-COSTS> 3,171,255
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,436
<INCOME-PRETAX> (491,830)
<INCOME-TAX> (223,310)
<INCOME-CONTINUING> (268,520)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (274,005)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
