<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file Number 0-1590
December 31, 1998
THE WESTWOOD GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 190 V.F.W. PARKWAY 04-1983910
(state or other jurisdiction) REVERE, MA 02151 (IRS Employer Identifi-
of incorporation or organization (address of principal executive offices fication No.)
including zip code)
</TABLE>
781-284-2600
(Registrant's telephone number, including area code)
---------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock-$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and 2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark disclosure of delinquent filers pursuant to item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment of this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within 60
days prior to the date of filing, was:
TOTAL NO. OF SHARES
PRICING OF COMMON STOCK HELD BY AGGREGATE
VOTING STOCK NONAFFILIATES MARKET VALUE
------------ -------------------- ------------
$ 3.00(1) 313,875(2) $ 941,625
(1) The registrant's Common Stock was removed from quotation through the NASDAQ
system on July 29, 1988. There is no established trading market for either
the Company's Common Stock or Class B Common Stock.
(2) Excludes shares held by Executive Officers and Directors of the registrant,
without admitting that any such Executive Officer or Director is an
affiliate of the registrant.
The number of shares outstanding of each of the registrant's classes of common
stock, as of April 15, 1999, was as follows:
Common Stock, $.01 par value: 351,210
Class B Common stock, $.01 par value: 912,015
DOCUMENTS INCORPORATED BY REFERENCE
None
1
<PAGE> 2
PART I
ITEM I. BUSINESS
(A) GENERAL
The Westwood Group, Inc. (the "Company" or "Westwood", which
term as used herein includes its wholly-owned subsidiaries) was
incorporated in Delaware in 1984 as the successor to racing and
restaurant operations which commenced in 1935 and 1968, respectively.
The Company operates Wonderland Greyhound Park, Inc. ("Wonderland"), a
pari-mutuel greyhound racing facility located in Revere,
Massachusetts. The Company also operated a pari-mutuel harness racing
facility located in Foxboro, Massachusetts through July, 1997 (see
Item 3).
(B) BUSINESS SEGMENTS
In 1998, the Company's business was principally conducted in
the pari-mutuel greyhound racing industry, while in 1997 the Company
was in the pari-mutuel greyhound racing industry for the entire year
and harness racing industry through July. The Company was in both
industries during 1996.
(C) DESCRIPTION OF BUSINESS
The Company's wholly-owned subsidiary, Wonderland, owns and
operates a greyhound racetrack, located in the City of Revere,
Massachusetts. Revere adjoins the City of Boston. Wonderland Park is
approximately five miles north of downtown Boston and is served
directly by major transportation routes and the Massachusetts Bay
Transportation Authority rail line. The racetrack is approximately two
miles from Boston's Logan International Airport.
The racetrack facilities include a one-quarter mile oval sand
track, a physical plant consisting of a climate controlled grandstand
and clubhouse and a two-story administrative center. The Company
maintains and operates two full service restaurants, a sports bar and
other concession facilities at the racetrack to serve Wonderland's
patrons. The racetrack facility can accommodate 10,000 patrons. The
average attendance per day in 1998 was approximately 1,021 persons.
The total attendance for the year was approximately 407,000 persons.
The complex encompasses a total of approximately 35 acres, including
paved and lighted parking providing capacity for approximately 2,300
cars.
Wonderland was originally opened in 1935 and has operated
continuously from the same location since that time. Wonderland
operates a year-round racing schedule of up to 520 live matinee and
evening performances. In addition to conducting live racing during
1998, Wonderland provided its patrons with simulcast wagering from
over 26 various greyhound and thoroughbred tracks throughout the
country and was one of the first sites, and the only greyhound race
track in North America, to introduce international simulcasting from
the Hong Kong Jockey Club. In addition, Wonderland has broadcast its
simulcast signal to over 60 locations throughout the country. The
Company is continuing to research new markets to broadcast its signal
and new ways to provide quality racing entertainment to its on-track
patron.
The Company's annual revenues are mainly derived from the
commissions that it receives from wagers made by the public during its
racing performances and from admission and concession charges at such
performances. Wagers at Wonderland are placed under the pari-mutuel
wagering system, pursuant to which the winning bettors in each race
divide the total amount bet on the race (the "pool") in proportion to
the sums they wagered individually, after deducting certain
percentages governed by state law including amounts which are reserved
for the Commonwealth of Massachusetts, the owners of the winning
greyhounds, and the racetrack.
The pari-mutuel commission is regulated by the local and state
regulatory commission in the jurisdiction of the individual race
track. In addition, the net pari-mutuel commission varies based upon
the type of wager. Also, the Company generates commission revenue from
other tracks for all amounts wagered on its product at their facility.
These commissions vary based upon contractual arrangements.
2
<PAGE> 3
During 1995, the Commonwealth of Massachusetts enacted new
legislation allowing Wonderland to increase the amount withheld from
the bettors up to a maximum of 26% of each $1.00 wagered on certain
live wagers beginning in 1996. As such, the average net pari-mutuel
commission at Wonderland was approximately 21.8%, 22.8% and 22.5% of
each $1.00 wagered on track during 1998, 1997 and 1996, respectively.
Out of this amount approximately 6% is distributed to kennel operators
as purses paid, 5% is paid to the Commonwealth of Massachusetts in the
form of pari-mutuel tax and .5% is deposited into both the Capital
Improvements Trust Fund and Promotional Trust Fund.
The Commonwealth of Massachusetts State Racing Commission, as
individuals, are the trustees and Wonderland is the beneficiary of the
Greyhound Capital Improvements and Promotional Trust Funds which have
been established in accordance with Massachusetts law and are
dedicated to reimbursement of capital improvements and promotional
expenses.
During July 1997, the Company's harness racing subsidiary,
Foxboro Park, Inc. (including wholly owned subsidiaries), was evicted
from the Foxboro Raceway (see Litigation at Note 5 of Notes to
Consolidated Financial Statements). As such, its operating results are
reflected as discontinued operations.
In February 1998 the Company executed an Assignment for the
Benefit of Creditors ("AFBC") for Foxboro Park, Inc., Foxboro Harness,
Inc. and Foxboro Thoroughbred, Inc. (collectively, the "Foxboro
Entities"). The AFBC was executed to provide a mechanism for the
liquidation of its assets and the distribution of proceeds to its
creditors. Provided that 70% in amount and 50% in number of the
Foxboro Entities creditors become Assenting Creditors, the Company
will subordinate its claims except for those claims relating to
certain contingent litigation matters. Creditors must file a written
assent with the Assignee in order to become an Assenting Creditor.
Assenting Creditors agree that the submission of an assent to this
AFBC will operate as a release of any claims which could be asserted
by an Assenting Creditor seeking to avoid the corporate separateness
of the Company or any affiliate of the Company and the Foxboro
Entities.
Additionally Assenting Creditors agree not to institute or
continue a suit against the Foxboro Entities or any other proceeding
at law or in equity or otherwise on account of any debt due and owing
to the Assenting Creditor from the Foxboro Entities, nor will the
Assenting Creditor transfer its claim without the written approval of
the Assignee. Each Assenting Creditor accepts in lieu of its claim
against the Foxboro Entities the rights acquired in the AFBC.
(D) COMPETITION AND MARKETING
The Company is trying to adapt and survive in a dramatically
changing environment, one in which the Company and the racing industry
nationally have experienced significant declines in on-site attendance
and dollars wagered.
The Company continues to be negatively impacted by a strong
Massachusetts Lottery, two Indian Casinos in Connecticut and slot
machines at the Lincoln, Rhode Island, greyhound track. The casinos
and track are in close proximity to the Massachusetts border and
therefore rely upon their ability to attract Massachusetts patrons.
Wonderland is at a competitive disadvantage when compared with other
New England greyhound racetracks in that it can offer only a very
limited amount of simulcasting from thoroughbred racetracks.
Additionally, this past year a casino boat began operation
approximately twenty miles north of Wonderland in the City of
Gloucester. The boat takes its patrons into international waters where
state prohibitions on casino forms of wagering do not apply.
Management believes that the long-term strategy to best
maximize shareholder value is to position Westwood for growth, not in
the narrow confines of the greyhound pari-mutuel industry, but rather,
in the gaming and entertainment industry. To that end, management has
worked diligently attempting to convince the Governor and the
Legislature of the Commonwealth of Massachusetts of the need to allow
the State's commercial racetracks to offer their patrons expanded
gaming opportunities. No assurance can be given that such legislation
will be enacted or enacted on favorable terms.
(E) GOVERNMENT REGULATION
Wonderland operates under an annual license granted after
application to, and public hearings by, the Massachusetts State Racing
Commission (the "Racing Commission"). Wonderland received its first
license in 1935 and has had its license renewed annually since that
date. The Racing Commission has certain regulatory powers with respect
to the dates and the number of performances granted to its licensees
and various other aspects of racetrack operations. In addition, the
Racing Commission licenses certain key officials employed by
Wonderland.
3
<PAGE> 4
Alcoholic beverage control regulations require each of the
restaurant and bar facilities at Wonderland to apply to a state and
local authority for a license or permit to sell alcoholic beverages on
the premises. The licenses must be renewed annually and may be revoked
or suspended for cause at any time. Alcoholic beverage control
regulations relate to numerous aspects of the daily operations of the
restaurants and bars, including minimum age of patrons and employees,
hours of operation, advertising, wholesale purchasing, inventory
control and handling, and storage and dispensing of alcoholic
beverages. The failure to receive or retain, or a delay in obtaining,
a liquor license could adversely affect the Company's ability to
operate the restaurant facilities. The Company has not encountered any
material problems relating to alcoholic beverage licenses to date.
Various federal and state labor laws govern the Company's
relationship with its employees, including such matters as minimum
wage requirements, overtime and other working conditions.
Significant additional government-imposed increases in minimum
wages, paid leaves of absence, mandated health benefits or increased
tax payment requirements in respect to employees who receive
gratuities could, however, have a material adverse effect on the
Company's results of operations.
(F) EMPLOYEES
At December 31, 1998, the Company employed approximately 350
persons.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's Wonderland Park racing facility is mortgaged to secure
the indebtedness owed under a term loan to the Century Bank and Trust Company.
(See Item 1(C), "Description of Business", Item 7, Liquidity and Capital
Resources and Note 2 of Notes to Consolidated Financial Statements).
The executive offices are owned by the Company and are located at
Wonderland Greyhound Park in Revere, Massachusetts.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and legal actions that arise
in the ordinary course of its business.
In 1996 litigation ensued between Foxboro Realty Associates, LLC, ET
AL. ("FRA") and the Company, its subsidiary Foxboro Park, Inc., ET AL., in
Norfolk Superior Court in Massachusetts, over Foxboro's right to occupy Foxboro
Raceway. The Court issued an execution pursuant to which Foxboro was evicted
from the racetrack on July 31, 1997. The parties appealed to the Appeals Court
on January 27, 1998. The Company expects the appeals to be decided sometime
during calendar year 1999.
On July 8, 1998, Foxboro Route 1 Limited Partnership, ET AL., filed a
civil action in Suffolk Superior Court in Massachusetts against The Westwood
Group, Inc., Wonderland Greyhound Park, Inc., ET AL., seeking payment for use
and occupancy of Foxboro Raceway, and other damages, from 1992 through July
1997.
The ultimate outcome of such pending litigation cannot be
determined at this time, however it is the opinion of the Company's management,
any liability under such pending litigation would not materially affect its
financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on November 19,
1998. At this Meeting, Paul J. DiMare and Charles F. Sarkis were elected by the
holders of Common Stock to serve for a term of three (3) years on the Board. The
following votes were cast in connection therewith:
For Withheld
------- --------
Charles F. Sarkis 193,361 3,435
Paul J. DiMare 193,566 3,230
4
<PAGE> 5
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) MARKET PRICE
There is no established trading market for the Company's
Common Stock or the Company's Class B Common Stock.
(b) APPROXIMATE NUMBER OF RECORD HOLDERS OF COMMON STOCK AND CLASS B
COMMON STOCK
NUMBER
OF RECORD
HOLDERS AS OF
TITLE OR CLASS APRIL 15, 1999
-------------- --------------
Common Stock -- par value $.01 463
Class B Common Stock -- par value $.01 11
(c) DIVIDEND HISTORY
No dividends have been declared by the Company on its Common
Stock during 1998, 1997 or 1996. The Company has not paid a cash
dividend on its Class B Common Stock to date. The Company does not
intend to pay cash dividends on either class of Common Stock in the
immediate future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following table summarizes certain financial information derived
from the Consolidated Financial Statements of the Company. The Selected
Consolidated Financial Information as of and for the fiscal year ended December
31, 1998, 1997 and 1996 is derived from the Consolidated Financial Statements,
as audited by BDO Seidman, LLP, independent accountants. The Selected
Consolidated Financial Information as of and for the fiscal years ended December
31, 1995 and 1994 is derived from the Consolidated Financial Statements, as
audited by Coopers & Lybrand L.L.P., independent accountants as adjusted for the
discontinued Foxboro business during 1997. This information should be read in
conjunction with and is qualified by reference to the Consolidated Financial
Statements of the Company and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included in the
Company's prior years' Form 10-K and included herein.
5
<PAGE> 6
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.(continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Operating revenue $ 18,971 $ 21,046 $ 20,582 $ 22,079 $ 21,069
---------- ---------- ---------- ---------- ----------
Expenses:
Operating expenses 17,506 18,509 18,161 21,147 21,071
Depreciation and amortization 700 529 828 883 942
---------- ---------- ---------- ---------- ----------
Total expenses 18,206 19,038 18,989 22,030 22,013
---------- ---------- ---------- ---------- ----------
Income (loss) from operations 765 2,008 1,593 49 (944)
Interest expense, net (398) (387) (755) (709) (2,248)
Other income (expense), net (2) 525 1,169 1,867 (159) 6,643
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes
and extraordinary item 892 2,790 2,705 (819) 3,451
Provision for income taxes 83 -- 13 -- 145
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations, before
operations of discontinued harness racing
subsidiary and extraordinary item 809 2,790 2,692 (819) 3,306
Loss from operations of discontinued harness
racing subsidiary -- (2,412) (2,180) (1,235) (2,374)
Gain from discontinued harness racing subsidiary
(net of income taxes of $20,400 in 1998) 1001 2,581 -- -- --
Extraordinary item, net -- -- -- -- 11,160
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 1,810 $ 2,959 $ 512 $ (2,054) $ 12,092
========== ========== ========== ========== ==========
Basic per share data:
Income from continuing operations $ .63 $ 2.22 $ 2.15 $ (.65) $ 2.63
Income (loss) from discontinued operations .81 .14 (1.74) (.98) (1.89)
Extraordinary item -- -- -- -- 8.89
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 1.44 $ 2.36 $ .41 $ (1.63) $ 9.63
========== ========== ========== ========== ==========
Basic weighted average common shares outstanding 1,261,252 1,255,225 1,255,225 1,255,225 1,255,225
========== ========== ========== ========== ==========
Diluted per share data:
Income from continuing operations $ .62 $ 2.19 $ 2.15 $ (.65) $ 2.63
Income (loss) from discontinued operations .80 .13 (1.74) (.98) (1.89)
Extraordinary item -- -- -- -- 8.89
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 1.42 $ 2.32 $ .41 $ (1.63) $ 9.63
========== ========== ========== ========== ==========
Diluted weighted average common shares
outstanding 1,281,243 1,275,225 1,255,225 1,255,225 1,255,225
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit) $(4,439) $(9,309) $(17,105) $(20,480) $(15,264)
Total assets 13,369 13,581 20,830 25,608 27,823
Long-term debt (1) 5,551 997 3,435 5,774 9,550
Stockholders' equity (deficit) 466 (1,551) (4,464) (4,913) (2,952)
</TABLE>
(1) Long-term debt at December 31, 1998, 1997, 1996, 1995 and 1994 excludes $10,
$4,373, $3,412, $1,751 and $2,504, respectively, of long term debt reclassified
as current obligations (see Note 2 of Consolidated Financial Statements).
(2) The table above reflects the Company's accounting for its investment in Back
Bay Restaurant Group, Inc. ("BBRG") under the equity method. Other income
(expense), net contains income (loss) of approximately $525, $337, $86 and
$(552), from the Company's investment in BBRG for 1998, 1997, 1996, and 1995,
respectively.
In 1994, other income (expense), net contained income of approximately $4
million from the sale of certain real estate.
6
<PAGE> 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Wonderland conducts live racing seven nights and two afternoons per
week, and offers simulcast wagering afternoons and evenings. The table below
illustrates certain key statistics for Wonderland, for each of the past three
years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Performances 399 458 449
Simulcast Days 363 362 358
Pari-mutuel handle (millions)
Live-on track $ 31 $ 40 $ 45
Live-simulcast (wagering on live racing at Wonderland) 39 35 27
Guest-simulcast (wagering on live racing at other tracks) 51 52 52
---- ---- ----
Total handle $121 $127 $124
==== ==== ====
Total attendance (thousands) 407 490 524
==== ==== ====
Average per capita on site wagering $201 $188 $185
==== ==== ====
</TABLE>
Wonderland has been granted a license to conduct 360 racing
performances during 1999.
OPERATING REVENUE
The Company is still experiencing a decline in total attendance and
live-on track handle, caused by a variety of factors including a general decline
in the pari-mutuel racing industry and strong competition for the wagered
dollar, from the Massachusetts State Lottery and from the introduction of casino
gambling and slot machines in neighboring states.
1998 VERSUS 1997
Total operating revenue decreased to $19.0 million in 1998 as
compared to $21.0 million in 1997. Pari-mutuel commissions decreased by
approximately $1,684,000 or 9.9% to $15.4 million in 1998 from $17.1 million in
1997. Total handle in 1998 was $121 million as compared to $127 million in 1997.
Guest-simulcast handle decreased by approximately $1 million or 2% in 1998 as
compared to 1997. Live-on track handle decreased by $9 million or 22% in 1998 as
compared to 1997, while Live-simulcast handle increased by $4 million or 13%.
The decrease in pari-mutuel commission revenue is attributable to
the increase in Live-simulcast handle and an increase in the commission rate
earned on Guest-simulcast handle offset by the decrease from live on track
handle. Commission revenue was negatively impacted by a decline in Live-on track
handle which was partially offset by an increase in the commission rate. Per
capita wagering at Wonderland did not change significantly in 1998 as compared
to 1997. Wonderland had 59 less live racing performances in 1998 as compared to
1997, with a minimal decrease in attendance between 1998 and 1997.
Concessions revenue decreased to $1.8 million as compared to $2.0
million in 1997. Such declines are largely attributable to the decline in total
attendance. Other operating revenue consists of program sales, admissions,
parking and gift shop sales.
Revenue for 1998 includes $282,000 deposited into the Greyhound
Promotional Trust Fund and $279,000 deposited into the Greyhound Capital
Improvements Trust Fund. These funds are dedicated to reimbursement of
promotional expenses and capital improvements, respectively, incurred by
Wonderland. These funds are funded by a percentage of the handle and
reimbursement is approved by the Commonwealth.
1997 VERSUS 1996
Total operating revenue increased to $21.0 million in 1997 as
compared to $20.6 million in 1996. Pari-mutuel commissions increased by
approximately $303,000 or 1.8% to $17.1 million in 1997 from $16.8 million in
1996. Total handle in 1997 was $127 million as compared to $124 million in 1996.
Guest-simulcast handle remained consistent at $52 million. Live-on track handle
decreased by $5 million or 11% in 1997 as compared to 1996, while Live-simulcast
handle increased by $8 million or 30%.
7
<PAGE> 8
The increase in pari-mutuel commission revenue is attributable to
the increase in Live-simulcast handle and an increase in the commission rate
earned on Guest-simulcast handle. Commission revenue was negatively impacted by
a decline in Live-on track handle which was partially offset by an increase in
the commission rate. Per capita wagering at Wonderland did not change
significantly in 1997 as compared to 1996. Wonderland had nine more live racing
performances in 1997 as compared to 1996, with an average attendance of
approximately 1,070 persons, while average attendance was approximately 1,167
persons in 1996.
Concessions revenue was essentially unchanged in 1997 as compared
to 1996 at $1.9 million. Other operating revenue consists of program sales,
admissions, parking and gift shop sales. These revenues increased by
approximately $136,000 or 7% in 1997 as compared to 1996 to $2.04 million from
$1.90 million.
Revenue for 1997 includes $334,000 deposited into the Greyhound
Promotional Trust Fund and $332,000 deposited into the Greyhound Capital
Improvements Trust Fund.
OPERATING EXPENSES
1998 VERSUS 1997
Operating expenses were $18.2 million and $19.0 million in 1998 and
1997, respectively. The Company realized cost savings on purse expense of
approximately $622,000 in 1998 as compared to 1997. Purse expense is determined
by contractual agreement with the dog owners and statutory requirements of the
Commonwealth of Massachusetts based upon on-track handle. The decrease in purse
expense in 1998 is attributable to a decline in on-track handle.
The Company also realized savings in operating wages, taxes and
benefits, general operating costs and cost of food and beverage expenses in 1998
as compared to 1997. These cost savings realized by the Company were offset by
increases in administrative costs in 1998 as compared to 1997.
1997 VERSUS 1996
Operating expenses were $19 million in both 1997 and 1996. The
Company realized cost savings on purse expense of approximately $151,000 in 1997
as compared to 1996. Purse expense is determined by contractual agreement with
the dog owners and statutory requirements of the Commonwealth of Massachusetts
based upon on-track handle. The decrease in purse expense in 1997 is
attributable to a decline in on-track handle.
The Company also realized savings in general operating costs and cost
of food and beverage expenses of approximately $50,000 and $18,000, respectively
in 1997 as compared to 1996. The cost savings realized by the Company were
offset by increases in operating wages, taxes and benefits of approximately
$406,000 and administrative costs of $159,000, respectively in 1997 as compared
to 1996.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased in 1998 as compared to 1997
by approximately $171,000 and decreased by approximately $299,000 in 1997 from
1996. Certain assets reached the end of their depreciable lives during 1997 thus
the reduction in depreciation in 1997 from 1996. The Company has invested
approximately $1.5 million in capital assets over the past two years explaining
the increase in depreciation in 1998 from 1997. The Company continues to replace
capital items as they become obsolete.
INTEREST EXPENSE
During 1998, interest expense increased by approximately $11,000 as
compared to 1997. The increase was attributed to the new long-term financing
entered into during 1998. During 1997, interest expense decreased by
approximately $368,000 as compared to 1996. The decrease was attributed to the
Company reducing its outstanding debt by approximately $2 million in December
1996 in connection with the foreclosure on the property located at 284 Newbury
Street in the Back Bay section of Boston. As discussed further below, the
Company significantly reduced its long-term debt during 1996 and 1997. However,
the Company's 1996 interest expense was not significantly impacted due to the
late timing of such events in December of 1996.
8
<PAGE> 9
EQUITY INCOME IN INVESTMENTS
At December 31, 1998, the Company owned approximately 673,000 or 19%
of the outstanding shares of the Back Bay Restaurant Group, Inc. ("BBRG").
During 1994, the Company and BBRG jointly pursued a series of transactions, the
effect of which resulted in the control of BBRG no longer resting with the
Company. Accordingly, the Company's investment in BBRG has been accounted for
under the equity method. The equity income in investments represents the
Company's proportionate share of BBRG's net earnings (see Notes 10 and 14 of
Notes to Consolidated Financial Statements).
NET GAIN ON SALE/FORECLOSURE OF REAL PROPERTY
In 1997, the Company sold its interest in a limited partnership which
owned land and an office and retail building for a cash payment of $500,000.
In December 1996 the first and second mortgage holders completed
foreclosure proceedings on the Company's property located at 284 Newbury Street
in the Back Bay Section of Boston. These transactions resulted in a gain of
approximately $1.1 million.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes is less than the statutory
federal tax rate of 34% during 1998, 1997 and 1996 primarily due to the
utilization of available net operating loss carryforwards for which the
related deferred tax asset has been fully reserved. The provision for
taxes of $102,800 in 1998 and $13,000 in 1996 represents the Federal alternative
minimum tax and state income taxes.
DISCONTINUED OPERATIONS
Foxboro Park, Inc. ("Foxboro", which term as used herein includes its
wholly-owned subsidiaries) conducted seasonal live harness racing generally two
evenings and two matinees per week, while simulcasting afternoons and evenings
through July 1997 (see Item 3 and Note 3 in Notes to Consolidated Financial
Statements.) The table below presents certain key statistics for Foxboro for the
periods indicated:
Period Ended Year Ended
July 31, December 31,
1997 1996
------------ ------------
Performances 99 150
Simulcast Days 204 352
Pari-mutuel handle (millions)
Live-on track $ 3 $ 6
Live-simulcast 27 32
Guest-simulcast 28 48
---- ----
$ 58 $ 86
==== ====
Total attendance (thousands) 148 257
==== ====
Average per capita on site wagering $209 $211
==== ====
Foxboro operated the premises through July 1997 (see Item 3 Legal
Proceedings and Note 3 of Notes to Consolidated Financial Statements).
The Company recognized a gain on the discontinuance of the Company's
harness racing business of $1.0 million and $2.6 million for years ended
December 31, 1998 and 1997, respectively. Such gain is primarily comprised of
the excess of occupancy and other liabilities over non recoverable net leasehold
improvements and other assets. The Company had a loss from operations of its
discontinued harness racing operations of $2.4 million and $2.2 million for the
period ended December 31, 1997 and the year ended December 31, 1996,
respectively.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of capital to finance its
businesses have been its cash flow from operations and credit facilities. The
Company's capital needs are primarily for maintenance and enhancement of the
racing facility at Wonderland, and for debt service requirements
The Company's unrestricted cash and cash equivalents totaled $188,462
at December 31, 1998, compared with $374,292 at December 31, 1997. The Company
generated cash flows from operations of approximately $480,000 in 1998 as
compared to $441,000 in 1997. The increase in 1998 is principally attributable
to the continued reduction of operating expenses. Non cash items included in the
Company's net income in 1998 consist of gain on discontinuance of harness racing
subsidiary of approximately $1.0 million, depreciation and amortization expense
of approximately $700,000 and equity in income from investments of approximately
$525,000. Changes in working capital accounts including restricted cash,
accounts payable and other accrued liabilities provided approximately $407,000
of cash in 1998. Net cash used in investing activities in 1998 is comprised of
investments and additions to the property, plant and equipment of approximately
$694,000 which was offset by proceeds from sales and redemption of investments
aggregating approximately $100,000. Financing activities in 1998 include
approximately $4,814,000 of funds used to reduce outstanding balances on long
term debt. Short-term borrowings arrangements used net cash of approximately
$182,000. The source of the funds was from a new $5,000,000 long-term debt
financing, which has a seven year term (see Note 2 of Notes to Consolidated
Financial Statements).
The Company expects to fund any capital expenditures for 1999 from
internally generated cash. The Company expects cash flow from operations to be
sufficient to cover the operating obligations of the Company.
INVESTMENT IN BBRG
On March 26, 1999, a majority of BBRG's shareholders approved a
merger agreement (the "Merger Agreement"), by and between BBRG and SRC
Holdings, Inc. (the "Acquiror"), a Delaware corporation formed by Charles F.
Sarkis, BBRG's Chairman and Chief Executive Officer, pursuant to which the
Acquiror would be merged (the "Merger") with and into BBRG, with BBRG being the
surviving company. The Merger was consummated April 5, 1999. Pursuant to the
Merger, the holders of BBRG's common stock, other than the Company, Mark L.
Hartzfeld, Francis P. Bissaillon, Ann Marie Lagrotteria and Richard P. Dalton
(collectively, the "Affiliated Shareholders"), received $10.25 in cash in
exchange for each share of common stock of BBRG held by them. The Affiliated
Shareholders continued to own stock of the surviving corporation. As of the
date of the Merger, the Company holds 48.64% of the common stock of BBRG on a
fully diluted basis. Following the Merger, BBRG no longer meets the
requirements of a public company and its shares will no longer be listed or
traded in the public market.
RACING SUBSIDIARY
In order to meet the requirements for renewal of racing licenses in
2000, the Company's racing subsidiary must demonstrate, amongst other criteria,
it is a financially stable entity, capable of disposing of its obligations on a
timely basis. Although management is optimistic that it will be able to
demonstrate financial stability in their applications for 2000 racing license,
there can be no assurance that the Racing Commission will continue to grant a
licenses to conduct racing on the schedule presently maintained at Wonderland.
In the event that the Company is not successful in obtaining a year
2000 racing license, the adverse impact on the Company's financial results and
position would be material.
IMPACT OF INFLATION AND CHANGING PRICES
Certain of the Company's operating expenses, such as wages and
benefits, equipment repair and replacement, and inventory and marketing costs,
increase with general inflation. In order for the Company to cope with
inflation, it must, to the extent permitted by competition and patron
acceptance, pass increased cost on by periodically increasing prices. The
Company is limited in its ability to offset the effects of inflation by
increasing its percentage of handle because this percentage is governed by
statute.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 requires companies to recognize all derivative contracts
as either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain or
loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged assets or liability or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not designated as
a hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
10
<PAGE> 11
Historically, the Company has not entered into derivative contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard to affect its financial
statements.
YEAR 2000 DISCLOSURE
The Company is aware of the potential for industry wide business
disruption which could occur due to problems related to the "Year 2000 issue."
It is the belief of the Company that the Company has a prudent plan in place to
address these issues. The components of our plan include: an assessment of
internal systems for modification and/or replacement; communication with
external vendors to determine their state of readiness to maintain an
uninterrupted supply of goods and services to the Company; an evaluation of our
equipment as to its ability to function properly after the turn of the century;
an evaluation of facility related issues; and the development of a contingency
plan.
STATE OF READINESS
The Company has developed a comprehensive plan to reduce the
probability of operational difficulties due to Year 2000 related failures. While
there is still a significant amount of work to do the Company believes that it
is on track towards a timely completion. Overall, the Company estimates the
organization to be approximately 85% complete in regard to the identification
and remediation of Year 2000 issues.
INTERNAL SYSTEMS
The process the Company is following to achieve Year 2000 compliance
for internal systems is as follows: The Company expects to have all of its
financial accounting software to be Year 2000 compliant by the end of the second
quarter of 1999. The Company expects to have the hardware components of its
financial accounting system to be Year 2000 compliant by the end of the first
quarter of 1999.
SUPPLIER
The Company is in the process of communicating with its external
vendors to gain an understanding of their state of readiness to maintain an
uninterrupted supply of goods and services to the Company. The Company has
contacted many of its suppliers regarding the Year 2000 issue. The Company has
been assured by its major suppliers that there will be no interruption of the
delivery of goods and services.
EQUIPMENT
The Company is in the process of completing an inventory of currently
used equipment at the Company. The Company will determine the Year 2000
readiness through communication with the equipment manufacturers and testing
where appropriate. At this time the company is not aware of any equipment which
is affected by the Year 2000 issue and will not be repaired or replaced prior to
operating problems. The Company, as in most companies, remains aware of the
potential for imbedded logic within microchips to cause equipment to failure.
The Company believes that our action plan provides a prudent approach towards
evaluating equipment, however, some equipment may prove not feasible or
impossible to test.
FACILITY RELATED ISSUES
The Company is in the process of completing an inventory and
evaluating facilities related equipment with the potential for Year 2000 related
failures. The Company will determine the Year 2000 readiness through
communication with the equipment manufactures and testing where appropriate. At
this time the Company is not aware of any facilities related equipment which is
affected by the Year 2000 issue and will not be repaired or replaced prior to
operating problems. The Company, as in most companies, remains aware of the
potential of imbedded logic within microchips to cause equipment failure. The
companies believes that our action plan provides a prudent approach towards
evaluating production equipment, however, some equipment may prove not feasible
or impossible to test.
COSTS
The Company is evaluating the total cost of Year 2000 compliance. At
this time the Company is unable to estimate the total cost of Year 2000 related
activities.
11
<PAGE> 12
CONTINGENCY PLAN
At this time the Company is not aware of any internal systems or
external vendors issues related to the Year 2000 which would prevent, or
seriously impact the Company from continuing operations before, during, or after
the turn of the century.
Although the Company believes that we are taking prudent action
related to the identification and resolution of issues related to the Year 2000
our assessment is still in progress. The Company may never be able to know with
certainty whether certain key vendors are compliant, especially those outside
the United States. There are also technical vagaries to logic imbedded within
microchips which may prove not feasible or impossible to test.
The Company continues to evaluate the risks associated with potential
Year 2000 related failures. As the Company betters understands the risks within
our unique set of business partners, production processes, and internal systems,
the Company will develop a formal contingency plan to alleviate the impact of
high potential or serious failures. The Company anticipates having this
contingency plan outline by the end of the first quarter of 1999.
RISKS
The failure to correct a material Year 2000 problem could result in
an interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have material impact on the Company's results of operations, liquidity or
financial condition. The Year 2000 Project is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problem and, in
particular, about the Year 2000 compliance and readiness of its material
external agents. The Company believes that, with the implementation f new
business systems and completion of the Project as scheduled, the possibility of
significant interruptions of normal operations should be reduced. Readers are
cautioned that forward-looking statements contained in the Year 2000 Update
should be read in conjunction with the Company's disclosures under the heading:
"CAUTIONARY STATEMENT".
SUBSEQUENT EVENT
On March 26, 1999, a majority of BBRG's shareholders approved a
merger agreement (the "Merger Agreement"), by and between BBRG and SRC Holdings,
Inc. (the "Acquiror"), a Delaware corporation formed by Charles F. Sarkis,
BBRG's Chairman and Chief Executive Officer, pursuant to which the Acquiror
would be merged (the "Merger") with and into BBRG, with BBRG being the surviving
company. The Merger was consummated April 5, 1999. Pursuant to the Merger, the
holders of BBRG's common stock, other than the Company, Mark L. Hartzfeld,
Francis P. Bissaillon, Ann Marie Lagrotteria and Richard P. Dalton
(collectively, the "Affiliated Shareholders"), received $10.25 in cash in
exchange for each share of common stock of BBRG held by them. The Affiliated
Shareholders continued to own stock of the surviving corporation. As of the date
of the Merger, the Company holds 48.64% of the common stock of BBRG on a fully
diluted basis. Following the Merger, BBRG no longer meets the requirements of a
public company and its shares will no longer be listed or traded in the public
market.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report constitute
"forward-looking statements" as that term is defined under the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from those contemplated or projected,
forecasted, estimated or budgeted in or expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions; industry trends, changes in business
strategy or development plans; availability and quality of management; and
availability, terms and deployment of capital, SPECIAL ATTENTION SHOULD BE PAID
TO SUCH FORWARD-LOOKING STATEMENTS INCLUDING, BUT NOT LIMITED TO, STATEMENTS
RELATING TO (I) THE COMPANY'S ABILITY TO EXECUTE ITS BUSINESS STRATEGY, AND (II)
THE COMPANY'S ABILITY TO OBTAIN SUFFICIENT RESOURCES TO FINANCE ITS WORKING
CAPITAL AND CAPITAL EXPENDITURE NEEDS AND PROVIDE FOR ITS OBLIGATIONS.
12
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS 14
CONSOLIDATED BALANCE SHEETS 15-16
CONSOLIDATED STATEMENTS OF INCOME 17
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT) 18
CONSOLIDATED STATEMENTS OF CASH FLOWS 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20-30
13
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Westwood Group, Inc. and Subsidiaries
Revere, Massachusetts
We have audited the accompanying consolidated balance sheets of The Westwood
Group, Inc. and Subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of income, stockholders' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statement of the investee which was
the basis for recording the Company's investment in and equity in earnings of
the investment. The investment in the investee and equity in the income for the
investor represents 43.8%, 39.2%, and 24.0% of total assets and 29.0%, 11.4%
and 16.9% of net income for the years ended December 31, 1998, 1997 and 1996,
respectively. Those statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to the
amounts included for such investments, is based solely on the reports of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance as to whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects
the consolidated financial position of The Westwood Group, Inc. and Subsidiaries
as of December 31, 1998 and 1997 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
----------------------------------------
BDO SEIDMAN, LLP
Boston, Massachusetts
March 26, 1999
14
<PAGE> 15
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 188,462 $ 374,292
Restricted cash 170,052 612,037
Accounts receivable 23,496 629,204
Prepaid expenses and other current assets 168,964 161,502
Notes receivable from officers 151,377 --
----------- -----------
Total current assets 702,351 1,777,035
----------- -----------
Property, plant & equipment:
Land 348,066 348,066
Buildings and building improvements 18,466,838 17,830,342
Machinery and equipment 4,498,547 4,441,026
----------- -----------
23,313,451 22,619,434
Less accumulated depreciation and amortization 17,458,993 16,913,769
----------- -----------
Net property, plant and equipment 5,854,458 5,705,665
----------- -----------
Other assets:
Deferred financing costs, less accumulated amortization of $10,833 171,265 --
Investments 5,849,814 5,324,522
Notes receivable from officers 742,016 369,375
Other assets, net 49,559 404,875
----------- -----------
Total other assets 6,812,654 6,098,772
----------- -----------
Total assets $13,369,463 $13,581,472
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
15
<PAGE> 16
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
---------------
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and other accrued liabilities $ 2,395,518 $ 4,765,747
Outstanding pari-mutuel tickets 622,447 310,763
Net liabilities of discontinued operations 704,420 1,280,620
Current maturities of long-term debt 350,663 494,561
Debt obligations in default 10,000 4,234,286
----------- -----------
Total current liabilities 4,083,048 11,085,977
Long-term debt, less current maturities 5,550,847 996,671
Other long-term liabilities 3,270,114 3,049,452
----------- -----------
Total liabilities 12,904,009 15,132,100
----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value authorized 3,000,000 shares,
1,936,409 shares issued 19,444 19,364
Class B common stock, $.01 par value; authorized 1,000,000
shares; 912,615 shares issues 9,126 9,126
Additional paid-in capital 13,379,275 13,355,355
Accumulated deficit (4,728,205) (6,538,493)
Note receivable from stockholder -- (345,119)
Other comprehensive loss (249,404) (86,079)
Cost of 1,593,199 common and 600 Class B common shares in treasury (7,964,782) (7,964,782)
----------- -----------
Total stockholders' equity (deficit) 465,454 (1,550,628)
----------- -----------
Total liabilities and stockholders' equity (deficit) $13,369,463 $13,581,472
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
16
<PAGE> 17
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenue:
Pari-mutuel commissions $15,373,562 $17,057,287 $16,754,300
Concessions 1,758,670 1,952,759 1,928,152
Other 1,839,100 2,035,732 1,899,295
----------- ----------- -----------
Total operating revenue 18,971,332 21,045,778 20,581,747
----------- ----------- -----------
Operating expenses:
Wages, taxes and benefits 7,248,903 7,311,681 6,905,439
Purses 4,470,893 5,092,615 5,243,461
Cost of food and beverage 524,296 562,403 580,151
Administrative 1,541,658 1,460,084 1,300,739
General operating 3,720,757 4,081,578 4,131,154
Depreciation and amortization 700,106 529,288 828,191
----------- ----------- -----------
Total operating expenses 18,206,613 19,037,649 18,989,135
----------- ----------- -----------
Income from operations 764,719 2,008,129 1,592,612
----------- ----------- -----------
Other income (expense):
Interest expense, net (398,284) (386,803) (754,796)
Equity income in investment 525,292 336,726 86,395
Other income, net -- 331,915 353,334
Net gain on sale/foreclosure of real property -- 500,000 1,427,697
----------- ----------- -----------
Total other income 127,008 781,838 1,112,630
----------- ----------- -----------
Income from continuing operations before provision
for income taxes 891,727 2,789,967 2,705,242
Provision for income taxes 82,400 -- 13,000
----------- ----------- -----------
Income from continuing operations 809,327 2,789,967 2,692,242
Loss from operations of discontinued harness racing
operations -- (2,411,787) (2,180,436)
Gain from discontinued harness racing operations
(net of income taxes of $20,400 in 1998) 1,000,961 2,580,676 --
----------- ----------- -----------
Net income $ 1,810,288 $ 2,958,856 $ 511,806
=========== =========== ===========
Basic per share data:
Income from continuing operations $ .63 $ 2.22 $ 2.15
Income (loss) from discontinued operations .81 .14 (1.74)
----------- ----------- -----------
Net income per share $ 1.44 $ 2.36 $ .41
=========== =========== ===========
Basic weighted average common shares outstanding 1,261,252 1,255,225 1,255,225
=========== =========== ===========
Diluted per share data:
Income from continuing operations $ .62 $ 2.19 $ 2.15
Income (loss) from discontinued operations per share .80 .13 (1.74)
----------- ----------- -----------
Net income per share $ 1.42 2.32 .41
=========== =========== ===========
Diluted weighted average common shares outstanding 1,281,243 1,275,225 1,255,225
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
17
<PAGE> 18
THE WESTWOOD GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
---------------
<TABLE>
<CAPTION>
NOTE
CLASS B ADDITIONAL RECEIVABLE
COMMON COMMON PAID-IN ACCUMULATED FROM
STOCK STOCK CAPITAL DEFICIT STOCKHOLDER
------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $19,364 $9,126 $13,355,355 $(10,009,155) $(316,073)
Interest receivable -- -- -- -- (14,521)
Comprehensive income (loss):
Net income -- -- -- 511,806 --
Pension Liability Adjustment -- -- -- -- --
------- ------ ----------- ------------ ---------
Balance, December 31, 1996 19,364 9,126 13,355,355 (9,497,349) (330,594)
Interest receivable -- -- -- -- (14,525)
Comprehensive income (loss):
Net income -- -- -- 2,958,856 --
Pension Liability Adjustment -- -- -- -- --
------- ------ ----------- ------------ ---------
Balance, December 31, 1997 19,364 9,126 13,355,355 (6,538,493) (345,119)
Issuance of common stock 80 -- 23,920 -- --
Note reclassification -- -- -- -- 345,119
Comprehensive income (loss):
Net income -- -- -- 1,810,288 --
Pension Liability Adjustment -- -- -- -- --
------- ------ ----------- ------------ ---------
Balance, December 31, 1998 $19,444 $9,126 $13,379,275 $ (4,728,205) $ --
======= ====== =========== ============ =========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
OTHER STOCKHOLDERS'
COMPREHENSIVE TREASURY EQUITY
(LOSS) STOCK (DEFICIT)
------------- ----------- -------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ (6,561) $(7,964,782) $(4,912,726)
Interest receivable -- -- (14,521)
Comprehensive income (loss)
Net income -- -- 511,806
Pension Liability Adjustment (48,798) -- (48,798)
--------- ----------- -----------
Balance, December 31, 1996 (55,359) (7,964,782) (4,464,239)
Interest receivable -- -- (14,525)
Comprehensive income (loss)
Net income -- -- 2,958,856
Pension Liability Adjustment (30,720) -- (30,720)
--------- ----------- -----------
Balance, December 31, 1997 (86,079) (7,964,782) (1,550,628)
Issuance of common stock -- -- 24,000
Note reclassification -- -- 345,119
Comprehensive income (loss)
Net income -- -- 1,810,288
Pension Liability Adjustment (163,325) -- (163,325)
--------- ----------- -----------
Balance, December 31, 1998 $(249,404) $(7,964,782) $ 465,454
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
18
<PAGE> 19
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,810,288 $ 2,958,856 $ 511,806
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on discontinuance of harness racing operations (1,021,361) (2,580,676) --
Recovery of bad debts (77,548) -- --
Depreciation and amortization 700,106 529,288 1,539,918
Gain on sale/foreclosure of real property -- (500,000) (1,427,697)
Change in liability estimate (445,161) -- --
Gain on bond sales and redemptions -- (199,415) --
Equity in income from investments (525,292) (336,726) (86,395)
Deferred revenue -- (132,500) (353,334)
Minimum pension liability adjustment (163,325) (30,720) (48,798)
Other -- -- 142,698
Changes in operating assets and liabilities:
Decrease in restricted cash 441,985 409,184 380,578
Decrease in accounts receivable 587,049 112,141 154,740
Decrease (increase) in prepaid expenses
and other current assets (7,462) 36,793 72,390
Decrease (increase) in other assets, net 211,316 (5,134) 26,601
Increase in notes receivable from officers (82,692) -- --
Increase (decrease) in accounts payable and
other accrued liabilities (2,058,545) (1,200,511) 557,355
Increase in other long-term liabilities 1,110,984 1,380,295 865,287
----------- ----------- -----------
Total adjustments (1,329,946) (2,517,981) 1,823,343
----------- ----------- -----------
Net cash provided by operating activities 480,342 440,875 2,335,149
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (694,066) (756,444) (676,457)
Proceeds from bond sales and redemptions -- 99,415 --
Proceeds from sale of real property -- 500,000 --
----------- ----------- -----------
Net cash used in investing activities (694,066) (157,029) (676,457)
----------- ----------- -----------
Cash flows from financing activities:
Payments for debt issue costs (182,098) -- --
Proceeds from short-term debt -- 407,466 900,000
Proceeds from notes payable 5,000,000 -- --
Principal payments of debt (4,814,008) (1,350,931) (1,975,768)
Issuance of common stock 24,000 -- --
----------- ----------- -----------
Net cash provided (used) in financing activities 27,894 (943,465) (1,075,768)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (185,830) (659,619) 582,924
Cash and cash equivalents at beginning of year 374,292 1,033,911 450,987
----------- ----------- -----------
Cash and cash equivalents at end of year $ 188,462 $ 374,292 $ 1,033,911
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 625,589 $ 439,165 $ 958,960
=========== =========== ===========
Income taxes $ 84,970 $ -- $ 91,704
=========== =========== ===========
</TABLE>
Non-cash financing activities:
During 1997, the Company wrote-off property and other assets of
$6,372,682 and relieved liabilities of $8,953,358 in connection with
the Company's discontinuance of its Foxboro harness racing business
(see Note 12).
During 1996, the Company wrote-off property of $4,103,702 in exchange
for the discharge of $5,231,399 in debt related to a foreclosure
transaction (see Note 12).
The accompanying notes are an integral part of these
consolidated financial statements.
19
<PAGE> 20
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company operates primarily in one business segment through its
pari-mutuel racing subsidiary. Wonderland Greyhound Park, Inc.
("Wonderland") is a pari-mutuel greyhound racing facility located in Revere,
Massachusetts. The Company also operated Foxboro Park, a pari-mutual harness
racing facility located in Foxboro, Massachusetts through the date of
eviction in July, 1997 (see Litigation at Note 6). The Company's Foxboro
harness racing operations were discontinued during 1997 and is reported as a
discontinued operation in the accompanying consolidated financial statements
(see Note 3 of Notes to Consolidated Financial Statements).
The Wonderland facility includes a one-quarter mile sand track, a
physical plant consisting of a climate controlled grandstand and clubhouse
and a two-story administrative center. The Company maintains and operates
two full service restaurants, a sports bar and other concession facilities
at the racetrack. The racetrack facility can accommodate 10,000 patrons. The
average attendance per performance in 1998 was approximately 1,020 persons.
The complex encompasses a total of approximately 35 acres, including paved
and lighted parking providing capacity for approximately 2,300 cars.
Wonderland provides its patrons with a variety of entertainment options
including live racing and full card simulcast wagering.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash investments with maturities of three months or less at the time of
their purchase are classified as cash equivalents.
RESTRICTED CASH
Restricted cash is related to the operations of Wonderland and consists
of amounts held by The Commonwealth of Massachusetts (the "Commonwealth") in
trust funds (for capital improvements and advertising/promotion), and
unclaimed winnings from pari-mutuel wagering. Removal of restrictions on the
use of the trust funds is dependent upon approval by the Commonwealth.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated
using the straight-line method over the following estimated useful lives:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
Buildings and improvements 30 Years
Machinery and equipment 5-10 Years
Gains or losses are recognized upon the disposal of property, plant and
equipment, and the related accumulated depreciation and amortization are
adjusted accordingly. Losses are also recognized on buildings and
improvements in the event of a permanent impairment to their value, as
determined by SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". Maintenance, repairs
and betterments that do not enhance the value of or increase the life of the
assets are charged to operations as incurred.
20
<PAGE> 21
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY, PLANT AND EQUIPMENT (continued)
Depreciation and amortization expense of approximately $700,000,
$529,000 and $1,540,000, was recorded for the years ended December 31, 1998,
1997 and 1996, respectively.
INVESTMENTS
The Company's investment in Back Bay Restaurant Group, Inc. ("BBRG") at
December 31, 1998 represented approximately 19% of BBRG common stock. The
Company is deemed to have the ability to exercise influence over BBRG since
the Chairman of the Board of the Company is also the Chief Executive Officer
of BBRG. Accordingly, the investment in BBRG has been accounted for under
the equity method (see Note 14 of Notes to Consolidated Financial
Statements).
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1998 and 1997, the following methods and assumptions
were used to estimate the fair value of each class of financial instruments
for which it is practical to estimate. The carrying amount of cash
equivalents approximates the fair value due to short term maturity of the
cash equivalents. The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
remaining maturities.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit
risk consist of cash equivalents and accounts receivable. The Company's
policy is to limit the amount of credit exposure to any one financial
institution and place investments with financial institutions evaluated as
being creditworthy. Concentration of credit risk, with respect to accounts
receivable, is limited due to the Company's credit evaluation process. The
Company does not require collateral from its customers. The Company's
customer base consists principally of other race tracks. Historically, the
Company has not incurred any significant credit related losses.
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Under this method, deferred income taxes are provided based on the estimated
future tax effects of differences between financial statement carrying
amounts and the tax basis of existing assets and liabilities. The Company's
policy is to record a valuation allowance against deferred tax assets unless
it is more likely than not that such assets will be realized in future
periods. The Company considers estimated future taxable income or loss and
other available evidence when assessing the need for its deferred tax asset
valuation allowance.
INCOME (LOSS) PER COMMON SHARE
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings per Share, issued by the Financial Accounting Standards
Board. Under SFAS No. 128, the basic and diluted net income (loss) per share
of common stock are computed by dividing the net income (loss) by the
weighted average number of common shares outstanding during the period,
including potentially dilutive stock options. The Company's stock options
did not have a dilutive effect in 1997 and 1996 since the option prices per
share were deemed to be higher than the estimated average per share market
price of the Company's common stock.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
21
<PAGE> 22
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense
was approximately $219,000, $319,000 and $350,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
NEW ACCOUNT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 requires companies to recognize all derivatives
contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which is to match
the timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged assets or
liability or (ii) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999.
Historically, the Company has not entered into derivative contracts.
either to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard to affect its financial
statements.
RECLASSIFICATIONS
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform with the 1998 presentation.
22
<PAGE> 23
2. LONG-TERM DEBT
At December 31, 1998 and 1997, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
9.5% Century Bank and Trust Company ("Century Bank") term
loan, requiring 84 monthly payments of principal and
interest of $58,319 beginning August 1, 1998,
collateralized by a mortgage and security interest in all
real estate and personal property located at Wonderland
Greyhound Park and by 125,000 shares of BBRG common
stock held by the Company $4,904,828 $ --
6% BBRG Term Note, payable in equal quarterly payments of
principal and interest beginning in 1999, collateralized
by certain tangible personal property and licenses 970,000 970,000
7.5% Promissory Note, payable in 60 monthly payments
of principal and interest of $2,003, commencing
April, 1995 26,682 47,838
14-1/4% Subordinated Notes, due August 1997 10,000 285,000
8-3/4% MSCGAF Realty Trust term loan, paid in full
during 1998 -- $2,381,286
Line of credit note, paid in full during 1998 -- 1,568,000
Margin agreement, paid in full during 1998 -- 117,855
12% short-term note payable, paid in full during 1998 -- 355,539
---------- ----------
5,911,510 5,725,518
Less:
Current maturities 350,663 494,561
Debt obligations in default 10,000 4,234,286
---------- ----------
Long-term portion $5,550,847 $ 996,671
========== ==========
</TABLE>
The aggregate principal payments required to be made on long term debt,
for the years subsequent to December 31, 1998 are as follows:
1999 $ 360,663
2000 407,000
2001 438,000
2002 476,000
2003 518,000
2004 and thereafter 3,711,847
----------
$5,911,510
==========
In May 1994, the Company entered into an agreement with BBRG to
transfer the operations under the Concessions Agreement and the Management
Agreement to the Company in return for a six year term note in the amount of
$970,000. In 1997 the Note was amended requiring equal quarterly payments of
principal and interest beginning April 1, 1999 of approximately $36,000 with
interest at 6%.
In May 1994, holders of approximately $19,300,000 of the Company's
14.25% Subordinated Notes (the "Notes") exchanged them for approximately
887,000 shares of BBRG common stock. The shares were exchanged in full
settlement of principal, accumulated interest and default premiums due in
respect of such Notes. Holders of approximately $285,000 of the Notes
elected not to participate in the exchange. As of December 31, 1998, a
balance of $10,000 remains unpaid and in default.
In July 1998, the Company obtained long-term debt financing for
$5,000,000 with Century Bank. The proceeds were used to repay previously
outstanding indebtedness, including approximately $275,000 of subordinated
debt, $2,381,000 of a realty trust term loan, $1,568,000 of a line of credit
note, $118,000 on a margin agreement, and $356,000 of a short-term note
payable. The remaining proceeds were used to pay other liabilities. The note
agreement contains certain restrictive covenants including the maintenance
of certain financial ratios and debt coverage requirements. The note is
collateralized by a mortgage and security interest in all real estate and
personal property at Wonderland Greyhound Park and by 125,000 shares of BBRG
common stock held by the Company.
23
<PAGE> 24
3. DISCONTINUED OPERATIONS
In 1996 litigation ensued between Foxboro Realty Associates, LLC, ET
AL. ("FRA") and the Company, its subsidiary Foxboro Park, Inc., ET AL., over
Foxboro's right to occupy Foxboro Raceway. The Court issued an execution
pursuant to which Foxboro was evicted from the racetrack on July 31, 1997
(see Litigation at Note 5 of Notes to Consolidated Financial Statements). As
a result the Company discontinued its harness racing operations.
The gain on the discontinuance of approximately $1.0 million and $2.6
million for year ended December 31, 1998 and 1997, respectively, is
primarily comprised of the excess of occupancy and other liabilities over
non-recoverable net leasehold improvements and other assets. The 1998 gain
also includes approximately $445,000 for a change in a liability estimate
(see Note 13 of Notes to Consolidated Financial Statements).
The remaining liabilities of the Company's discontinued operations at
December 31, 1998 are comprised of the following:
1998
--------
Creditors Trust Agreement Promissory obligation and
other liabilities $174,451
Trade payable 53,598
Outstanding pari-mutuel tickets 476,371
--------
$704,420
========
The loss of the Company's discontinued operations is summarized as
follows:
Period Ended Year Ended
July 31, December 31,
1997 1996
------------ ------------
Operating revenues $ 6,476,083 $ 11,214,689
Operating expenses (8,976,203) (13,395,125)
Other income 88,333 --
----------- ------------
$(2,411,787) $ (2,180,436)
=========== ============
In February 1998 the Company executed an Assignment for the Benefit of
Creditors ("AFBC") for Foxboro Park, Inc., Foxboro Harness, Inc. and Foxboro
Thoroughbred, Inc. (collectively, the "Foxboro Entities"). The AFBC was
executed to provide a mechanism for the liquidation of its assets and the
distribution of proceeds to its creditors. Provided that 70% in amount and
50% in number of the Foxboro Entities creditors become Assenting Creditors,
the Company will subordinate its claims except for those claims relating to
certain contingent litigation matters. Creditors must file a written assent
with the Assignee in order to become an Assenting Creditor. Assenting
Creditors agree that the submission of an assent to this AFBC will operate
as a release of any claims which could be asserted by an Assenting Creditor
seeking to avoid the corporate separateness of the Company or any affiliate
of the Company and the Foxboro Entities.
Additionally Assenting Creditors agree not to institute or continue a
suit against the Foxboro Entities or any other proceeding at law or in
equity or otherwise on account of any debt due and owing to the Assenting
Creditor from the Foxboro Entities, nor will the Assenting Creditor transfer
its claim without the written approval of the Assignee. Each Assenting
Creditor accepts in lieu of its claim against the Foxboro Entities the
rights acquired in the AFBC.
4. OTHER LONG-TERM LIABILITIES
Other long-term liabilities includes approximately $1,032,000 and
$1,346,000 at December 31, 1998 and 1997, respectively, of fees owed to a
law firm primarily related to the Foxboro litigation (see Litigation at Note
5 of Notes to Consolidated Financial Statements). Such amount is currently
payable at $5,000 per week.
24
<PAGE> 25
5. COMMITMENTS AND CONTINGENCIES
PLEDGES OF BBRG STOCK
Approximately 40,000 shares of BBRG common stock have been pledged to
collateralize a performance bond for Wonderland Park, which is required
annually by the Mass State Racing Commission for all race tracks. The bond
is for $125,000.
Approximately 125,000 shares of BBRG common stock have been pledged as
additional collateral for the note agreement with Century Bank.
RACING LICENSE
In order to meet the requirements for renewal of racing licenses,
Wonderland must demonstrate, on an annual basis, that it is a financially
viable entity, capable of disposing of their obligations on a timely basis.
The racing license has been granted for the 1999 calendar year. Although
management is optimistic that it will be able to demonstrate financial
stability in their applications for a year 2000 racing license, there can
be no assurance that the Racing Commission will continue to grant licenses
to conduct racing on the schedules presently maintained at Wonderland.
In the event that the Company is not successful in obtaining a year
2000 racing license, the adverse impact on the Company's assets would be
material.
LEASE COMMITMENT
Totalisator equipment rent (which is primarily based on the handle per
performance) was approximately $320,000, $386,000, and $471,000, in 1998,
1997 and 1996, respectively. Future minimum payments are due at amounts
contingent on the Company's total handle amounts.
The Company is also liable for numerous operating leases for
automobiles and other equipment which expire through 2001. The future
minimum lease commitments relating to noncancelable operating leases as of
December 31, 1998 are immaterial.
LITIGATION
The Company is subject to various claims and legal actions that arise
in the ordinary course of its business.
In 1996 litigation ensued between Foxboro Realty Associates, LLC, ET
AL. ("FRA") and the Company, its subsidiary Foxboro Park, Inc., ET AL., in
Norfolk Superior Court in Massachusetts over Foxboro's right to occupy
Foxboro Raceway. The Court issued an execution pursuant to which Foxboro was
evicted from the racetrack on July 31, 1997. The parties appealed to the
Appeals Court on January 27, 1998. The Company expects the appeals to be
decided sometime during calendar year 1999.
On July 8, 1998, Foxboro Route 1 Limited Partnership, ET AL., filed a
civil action in Suffolk Superior Court in Massachusetts, against The
Westwood Group, Inc., Wonderland Greyhound Park, Inc., ET AL., seeking
payment for use and occupancy of Foxboro Raceway, and other damages, from
1992 through July 1997.
The ultimate outcome of such pending litigation cannot be determined at
this time, however it is the opinion of the Company's management, any
liability under such pending litigation would not materially affect its
financial condition or operations.
CONSULTING ARRANGEMENTS
Prior to 1995, the Company engaged a firm to assist management in the
planning and execution of a financial and operational reorganization of the
Company. As compensation for its services, the Company agreed to a success
fee, in addition to the basic fee, to grant options to acquire common stock
totalling 6% of the total of the Company's capital stock at $3 per share
(the "success fee" option). The success fee also stipulated that the
principle of such firm, who was a director of the Company, would be required
to return options to purchase 25,000 shares of the Company's common stock if
the success fee options are exercised. Upon completion of the contract, the
total costs were deemed to be materially less than the value of the success
fee and thus the success fee options were not granted. The Company intends
to renegotiate the amount of shares, price per share and other terms. The
Company has previously recorded an estimated reserve of $100,000 for this
consulting arrangement which is included with accounts payable and other
accrued liabilities in the accompanying consolidated balance sheet.
25
<PAGE> 26
6. COMMON STOCK, STOCK OPTION AND GRANT PLANS
The Company follows SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 allows the Company to account for its
stock-based compensation plans based upon either a fair value method or the
intrinsic value method. The Company has elected to follow the intrinsic
value method of accounting for stock-based compensations plans prescribed
under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". Under SFAS No. 123, the Company is required to
disclose the effects of applying the fair value method on the net income or
loss.
In October 1995, the Board of Directors approved and ratified the
granting of non-qualified stock options. These options were granted to the
Directors of the Company to purchase shares of common stock at an option
price equal to the fair market value of the Company's common stock at the
date the options were granted.
The Company's stock options activity is summarized as follows:
Number Exercise
of Shares Price
--------- --------
Balance, December 31, 1996 and 1995 241,334 $3.00
Granted 52,500 3.00
Terminated (5,000) 3.00
-------
Balance, December 31, 1997 and 1998 288,834 3.00
=======
Exercisable, December 31, 1998 283,834 3.00
=======
The Company's total stock options outstanding of 288,834 at December
31, 1998 and 1997 expire as follows: 190,000 in 2002; 51,334 in 2005; and
47,500 in 2007.
The Company has computed the pro forma disclosures required under SFAS
No. 123 for stock options using the Black-Scholes option pricing model
prescribed by SFAS No. 123.
The assumptions used and the weighted average information for year
ended December 31, 1998 and 1997 are as follows:
1998 1997
-------- -------
Risk-free interest rates 7.5% 6.5%
Expected dividend yield 2.5% None
Expected lives 10 YEARS 8 years
Expected volatility 45% 46.5%
Weighted average fair value of
options on date of grant $3.01 $3.81
Weighted-average exercise price $3.00 $3.00
Weighed-average remaining
contractual life of options
outstanding 9 YEARS 9 years
26
<PAGE> 27
6. COMMON STOCK, STOCK OPTION AND GRANT PLANS (continued)
The effect of applying SFAS No. 123 for year ended December 31, 1998
and 1997 would be as follows:
1998 1997
---------- ----------
Net income As reported $1,810,288 $2,958,856
Pro forma $1,667,133 $2,796,931
Net income per basic share As reported $ 1.44 $ 2.36
Pro forma $ 1.32 $ 2.23
Net income per diluted share As reported $ 1.42 $ 2.32
Pro forma $ 1.30 $ 2.19
7. INCOME TAXES
The Company's provision for income taxes for the years ended December
31, 1998 and 1996 represents alternative minimum Federal taxes and state
income taxes. There was no provision for income taxes for the year ended
December 31, 1997 due to the Company's taxable net operating loss.
The Company's effective tax rates differ from amounts computed by
applying the statutory federal income tax rate to income (loss) before
income taxes, as follows:
1998 1997 1996
----- ----- -----
Statutory federal income tax rate 34.0% 34.0% 34.0%
(Increase) Decrease in deferred tax
valuation allowance (5.1) (34.0) 11.6
Alternative minimum tax 2.0 -- 2.0
Utilization of carryforward losses (21.7) -- (45.1)
----- ----- -----
Income tax rate 9.2% --% 2.5%
===== ===== =====
The tax effects of the significant temporary differences which comprise
the deferred tax assets and liabilities are as follows:
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
DEFERRED TAX ASSETS
Net operating loss carryforwards $ 13,663 $ 14,105 $ 10,559
Capital loss carryforwards 670 670 670
Fixed assets 931 1,168 1,164
Deferred compensation 136 258 292
Miscellaneous operating reserves 717 341 748
Alternative minimum tax credit 580 580 580
Capitalized expense 150 150 150
Rent expense -- -- 2,212
-------- -------- --------
Gross deferred assets 16,847 17,272 16,375
Less valuation allowance (14,449) (14,813) (14,303)
-------- -------- --------
Net deferred assets 2,398 2,459 2,072
DEFERRED TAX LIABILITIES
Miscellaneous liabilities -- 244 64
Investment in BBRG 2,398 2,215 2,008
-------- -------- --------
Net deferred tax liabilities $ -- $ -- $ --
======== ======== ========
The Company's net operating loss carryforwards begin expiring as of
December 31, 2007. The net operating loss carryforwards, amounting to $13.7
million, expire as follows (in thousands) $2,046 in 2007, $7,591 in 2008,
$43 in 2010, $437 in 2011, and $3,546 in 2012. The Company has fully
reserved for all net deferred tax assets as future realization of these
assets is not presently determinable.
27
<PAGE> 28
8. PENSION PLANS AND RETIREMENT BENEFITS
The Company contributed $81,399, $84,049 and $86,338 in 1998, 1997 and
1996, respectively, to three multi-employer pension plans for employees
covered by collective bargaining agreements. These plans are not
administered by the Company and contributions are determined in accordance
with the provisions of negotiated labor contracts. The Company maintains a
defined benefit retirement plan for certain other union employees and one
for non-union employees. The plan provides a benefit of a flat dollar
amount, determined by the collective bargaining agreement with the union.
Company contributions to this plan totaled $142,073, $100,650 and $78,740 in
1998, 1997 and 1996, respectively. Benefits under the plan are provided by a
group annuity contract purchased from an insurance carrier. The expense for
this plan includes amortization of the cost of providing plan benefits for
past service over a period of approximately 14 years. The Company's funding
policy is to contribute amounts annually to the Plan, subject to the
Internal Revenue Service and ERISA minimum required and maximum allowable
funding limitations. The following table sets forth the plan's funded status
at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $1,283,304 and $1,709,769 for 1998 and
1997, respectively $(1,348,030) $(1,763,919)
=========== ===========
Projected benefit obligation $(1,348,030) $(1,763,919)
Plan assets at fair value 760,967 1,319,124
Unrecognized transition obligation -- (170,299)
Unrecognized net losses (253,060) (89,735)
Adjustment for minimum liability 253,060 260,034
----------- -----------
Adjusted accrued pension cost (included in other
long-term liabilities) $ 587,063 $ 444,795
=========== ===========
</TABLE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ -- $ 24,344 $ 26,820
Interest cost on projected benefit obligation 102,406 133,086 136,508
Actual return on plan assets (47,307) (113,811) (77,609)
Net gain (loss) during the year, deferred for
later recognition (20,088) (7,120) (31,944)
Amortization of unrecognized net obligation 170,299 42,576 42,576
-------- --------- --------
Net periodic pension cost $205,310 $ 79,075 $ 96,351
======== ========= ========
</TABLE>
Assumptions used in accounting for the above pension information
included a discount rate of 7% and an expected long-term rate of return of
8.5% for all years presented.
<TABLE>
<CAPTION>
The following tables set forth pension obligations and plan assets as
of December 31, 1998:
1998
----------------------------------------------
<S> <C>
Change in benefit
obligation:
Benefit obligation
as of January 1, 1998 $1,763,919
Interest cost 102,406
Actuarial loss (gain) 220,215
Benefits paid (738,510)
----------
Benefit obligation
as of December 31, 1998 $1,348,030
------------------------ ==========
Change in plan
assets:
Fair value as
of January 1, 1998 $1,319,124
Actual return on plan
assets 47,307
Company contribution 142,073
Benefits paid (738,510)
Plan expenses paid (9,027)
----------
Fair value as
of December 31, 1998 $ 760,967
==========
</TABLE>
The Company amended the defined benefit plan in connection with the
renewal of a collective bargaining agreement. The amendment provides that as
of January 31, 1998, benefit accruals under the plan will be frozen for
those active employees who accrued benefits under the plan before January
31, 1998. The amendment further provides that on and after January 31, 1998,
employees hired by Wonderland will no longer be eligible to join the plan.
The Company will make contributions on behalf of these employees at a fixed
rate to the union 401(k) plan based upon hours worked. These contributions
commenced in 1998 and amounted to approximately $4,300.
During 1997 the Company established separate 401(k) plans for union and
nonunion employees, respectively. The plans are administered by an insurance
company. The Company made contributions on behalf of certain union employees
based upon a fixed rate and performances worked. The total of these
contributions was approximately $56,000 and $41,000 for the years ended
December 31, 1998 and 1997, respectively.
28
<PAGE> 29
8. PENSION PLANS AND RETIREMENT BENEFITS (continued)
The Company also has employment contracts with certain retired
employees which provide for the payment of retirement benefits, the cost of
which has been accrued during their active employment.
Expense for all retirement plans of the Company for the years ended
December 31, 1998, 1997, and 1996, was approximately $436,000, $358,000 and
$329,000, respectively.
9. INVESTMENTS
During 1994, the Company and BBRG jointly pursued a series of
transactions, the effect of which resulted in the control of BBRG no longer
resting with the Company. Accordingly, the Company's investment in BBRG for
the years ended December 31, 1998, 1997 and 1996 has been accounted for
under the equity method (see Note 14 of Notes to Consolidated Financial
Statements).
The following summarized financial information was derived from BBRG's
financial statements which have been audited by other independent certified
public accountants, and included in their Form 10-K for the year ended
December 27, 1998:
BALANCE SHEET INFORMATION DECEMBER 27, December 28,
(IN THOUSANDS) 1998 1997
----------- ------------
Current assets $ 4,848 $ 4,050
Property and equipment 33,043 30,405
Noncurrent assets 8,754 8,617
Current liabilities 12,531 11,786
Noncurrent liabilities 4,298 4,274
Stockholders' equity 29,816 27,012
Years Ended
-----------------------------------------
OPERATIONS INFORMATION DECEMBER 27, December 28, December 29,
(IN THOUSANDS) 1998 1997 1996
------------ ------------ ------------
Net sales $99,396 $94,904 $87,753
Gross profit 71,887 68,503 62,968
Net income 2,684 1,731 467
Company's equity in net
earnings of BBRG 525 337 86
The quoted market value of BBRG stock during 1998 reflected a high and low
price of $9.88 and $4.63, respectively. The quoted market value of BBRG
stock at December 31, 1998, reflected a price $9.50.
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31, 1998 and
1997 consisted of the following:
1998 1997
---------- ----------
Accounts payable, trade $ 853,220 $2,399,542
Other accrued liabilities 882,598 1,666,913
Accrued bonus 322,777 481,000
Accrued interest 336,923 218,292
---------- ----------
$2,395,518 $4,765,747
========== ==========
29
<PAGE> 30
11. TRANSACTIONS WITH OFFICERS, EMPLOYEES AND RELATED PARTIES
In May 1994, the Company purchased all restaurant and concession
operations at Wonderland from BBRG for a sales price of $770,000. Included
in the term note of $970,000 was additional amounts owed to BBRG for costs
incurred under a Cross Indemnification agreement amounting to $200,000, and
interest expense of approximately $58,000 each of the last three years.
The Company received payments of $80,000 in January 1995, as repayments
on a note receivable from Charles Sarkis, the Company's Chairman and
majority stockholder. At December 31, 1998 and 1997, the aggregate amounts
of loans outstanding to officers/stockholders including interest, was
$893,393 and $820,949, respectively. The loans have been restructured and
are payable over five years and bear interest at 8.0% per annum. Notes
receivable and related interest, in the amount of $384,434 is due from
Charles Sarkis and $508,959 is due from Richard P. Dalton, the Company's
President, Chief Executive Officer, and stockholder. Charles Sarkis' loan,
including interest, has previously been recorded as a component of
stockholders' equity. The $384,434 is now recorded as a note receivable at
December 31, 1998. The accrued bonus due to Charles F. Sarkis and Richard P.
Dalton of $419,500 and $200,100 at December 31, 1998, respectively, will be
used to repay the outstanding notes receivable balances as they become due.
See Note 14 for additional transactions with related parties. These bonuses
amounts are classified in Accounts payable and other accrued liabilities and
Other long-term liabilities at December 31, 1998.
12. NET GAIN ON SALE/FORECLOSURE OF REAL PROPERTY
In 1997, the Company sold its interest in a limited partnership which
owned land and an office and retail building for a cash payment of $500,000.
During 1992, the Company reduced the carrying value of this investment to
zero, therefore the entire amount of the proceeds resulted in a gain in
1997.
In December 1996 the first and second mortgage holders completed
foreclosure proceedings on the Company's property located at 284 Newbury
Street in the Back Bay Section of Boston. These transactions resulted in a
gain of approximately $1.1 million and the reduction of liabilities of
approximately $5.2 million including accrued interest and property taxes of
approximately $471,000. These mortgage obligations were non-recourse to the
company and also resulted in the release of 45,000 shares of BBRG stock
previously held by the first mortgagee as additional collateral.
13. CHANGE IN LIABILITY
In prior years, Westwood recorded a liability of approximately $890,000
to a supplier. During 1998, Westwood eliminated the recorded liability by
recording approximately half as discontinued operations on Foxboro and
recording approximately half against general operating expenses of
Wonderland.
14. SUBSEQUENT EVENT
On March 26, 1999, a majority of BBRG's shareholders approved a merger
agreement (the "Merger Agreement"), by and between BBRG and SRC Holdings,
Inc. (the "Acquiror"), a Delaware corporation formed by Charles F. Sarkis,
BBRG's Chairman and Chief Executive Officer, pursuant to which the Acquiror
would be merged (the "Merger") with and into BBRG, with BBRG being the
surviving company. The Merger was consummated April 15, 1999. Pursuant to
the Merger, the holders of BBRG's common stock, other than the Company, Mark
L. Hartzfeld, Francis P. Bissaillon, Ann Marie Lagrotteria and Richard P.
Dalton (collectively, the "Affiliated Shareholders"), received $10.25 in
cash in exchange for each share of common stock of BBRG held by them. The
Affiliated Shareholders continued to own stock of the surviving corporation.
As of the date of the Merger, the Company holds 48.64% of the common stock
of BBRG on a fully diluted basis. Following the Merger, BBRG no longer meets
the requirements of a public company and its shares will no longer be listed
or traded in the public market.
30
<PAGE> 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
NAME AGE SINCE POSITION
---- --- ----- --------
Charles F. Sarkis 59 1978 Chairman of the Board
Richard P. Dalton 51 1978 President, Chief Executive
Officer, Director
A. Paul Sarkis 31 1995 Executive Vice President,
Director
Paul J. DiMare 56 1987 Director
CHARLES F. SARKIS has served as Chairman of the Board since 1978.
He was Chief Executive Officer of the Company from 1978 to 1992 and President
from 1984 to 1992. He has been Chairman of the Board, President and Chief
Executive Officer of Back Bay Restaurant Group, Inc. (restaurant holding
company), formerly a wholly-owned subsidiary of the Company, for more than six
years. He also has been Chief Executive Officer of Sarkis Management Corporation
(restaurant management).
RICHARD P. DALTON has served as President and Chief Executive
Officer of the Company since 1993. He served as Executive Vice President of the
Company from 1988 to 1992 and Chief Operating Officer from 1989 until 1992. He
was Vice President from 1984 until 1987; Chief Financial Officer from 1988 to
1989; Treasurer from 1974 to 1989; Assistant Secretary since 1984; and General
Manager from 1981 to 1983. Mr. Dalton is also a director of Back Bay Restaurant
Group, Inc.
A. PAUL SARKIS was elected Executive Vice President and Director
in August, 1995. Mr. Sarkis was Corporate Director of Development from 1993 to
1995 and Financial Analyst from 1990 to 1993.
PAUL J. DIMARE has been President of DiMare Homestead, Inc.
(agricultural processing and packaging) and DiMare Management Corp.
(agricultural management and marketing) for over six years. He also is a
director of First National Bank of Homestead, Florida.
Mr. A. Paul Sarkis, currently an Executive Vice President of the
Company and director of the Company, is the son of Charles F. Sarkis, the
Chairman of the Board of Directors. All of the directors and executive officers
are citizens of the United States. There are no arrangements or understandings
between any of the directors or executive officers of the Company and any other
person pursuant to which such director or executive officer was or will be
selected as a director or officer of the Company. Each of the executive officers
of the Company holds office at the pleasure of the Board of Directors.
31
<PAGE> 32
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE - The following table shows the cash and other
remuneration paid or accrued, in respect of services rendered to the Company and
its wholly-owned subsidiaries for the three years ended December 31, 1998, to
each of the Company's executive officers whose aggregate remuneration exceeded
$100,000.
<TABLE>
<CAPTION>
COMPENSATION --AWARDS-- PAYOUTS
- -----------------------------------------------------------------------------------------------------------------------
NAME AND OTHER RESTRICTED
PRINCIPAL ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS(S) SARS PAYOUTS COMPENSATION
- ----------------------- ---- -------- -------- ------------ ---------- ---- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles F. Sarkis 1998 $250,000 $159,500
Chairman of the Board 1997 $200,000 $269,000 - 20,000 - - -
1996 $200,000 $ - - - - - -
Richard P. Dalton 1998 $205,000 $ 95,700
President and Chief 1997 $186,250 $161,400 - 15,000 - - -
Executive Officer 1996 $180,000 - - - - - -
A. Paul Sarkis 1998 $125,000 $ 63,800
Executive Vice 1997 $ 93,750 $107,600 - 7,500 - - -
President
Richard G. Egan, Jr. 1998 $110,000 $ - - - - - -
Former Vice 1997 $100,817 $ 9,840 - 5,000 - - -
President and CFO
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1998, Messrs. Charles F.
Sarkis, Richard P. Dalton and A. Paul Sarkis served as executive officers of the
Company and as members of the Board of Directors of the Company which performs
the functions of a compensation committee. In addition, Mr. Charles F. Sarkis
served as a director and executive officer of BBRG and Mr. Dalton served as a
member of the Compensation Committee of the Board of Directors of BBRG.
REMUNERATION OF DIRECTORS - The Company pays to each nonemployee
Director $2,000 per Board meeting attended with an additional fee of $1,000 for
each Committee meeting attended.
COMPENSATION PLAN - The Company has adopted a executive
compensation plan. The compensation plan is designed to provide an environment
and opportunity for key executives to be rewarded for individual achievement as
well as for attaining overall corporate goals. The compensation plan includes
provisions for a base salary, annual incentive and long term incentives. Base
salary is determined annually and is based upon the level and amount of
responsibility in the context of comparable companies. Additional annual
incentives are to be distributed to key executives from a bonus pool. A
performance bonus equal to 10% of income before tax will be allocated to the key
executives at the discretion of the Compensation Committee and Board of
Directors. Additionally, a discretionary bonus up to 5% of income before income
taxes will be available to reward an employee's individual performance. Finally,
long term incentives will consist of stock options granted to key executives at
the discretion of the Compensation Committee and Board of Directors.
In addition, a special transaction bonus is available in the
event the Chairman initiates and/or negotiates an extraordinary transaction to
enhance shareholder value, including a merger, sale, acquisition or joint
venture. The transaction bonus is equal to 2% of the value of any such
transaction.
STOCK OPTION AGREEMENTS - During 1997, the Company issued to
certain executives 47,500 options to purchase the Company's common stock at an
exercise price of $3.00 per share. During 1995, the Company awarded to Directors
and Former Directors of the Company, non-qualified stock options to purchase
241,334 shares of the Company's common stock at an exercise price of $3.00 per
share. All such options expire 10 years from the date of grant.
32
<PAGE> 33
Year-End Option Values
The table below shows the total number of unexercised options
held at December 31, 1998. There are no unexercised in-the-money options(1) a
the fiscal year-end. No options were exercised in the year-ended December 31,
1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options at Fiscal Year-End(#) Year-End($)(1)
----------------------------- -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles F. Sarkis 95,000 - 0 -
Richard P. Dalton 40,000 - 0 -
A. Paul Sarkis 32,500 - 0 -
Richard G. Egan Jr. 0 5,000 0 0
</TABLE>
(1) In-the-Money Options are those where the fair market value of the
underlying Securities exceeds the exercise price of the option.
33
<PAGE> 34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMMON STOCK
The following table sets forth certain information, as of April 15, 1999,
with respect to the beneficial ownership of the Company's Common Stock by each
Director, by all Directors and officers of the Company as a group and by persons
known by the Company to own beneficially more than 5% of the outstanding Common
Stock. Unless otherwise noted, such stockholders have full voting and investment
power with respect to the shares listed as beneficially owned by them.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
Directors and Officers:
Richard P. Dalton 52,350(2) 13.7%
The Westwood Group, Inc.
190 VFW Parkway
Revere, MA 02151
Paul J. DiMare* 143,300(3) 37.4%
P.O. Box 900460
Homestead, FL 33090
A. Paul Sarkis 48,609(4) 12.4%
Back Bay Restaurant Group, Inc.
284 Newbury Street
Boston, MA 02115
Charles F. Sarkis* 899,616(5) 72.4
--------- ----
Back Bay Restaurant Group, Inc.
284 Newbury Street
Boston, MA 02115
All Directors and Officers as a
group (five persons) 1,143,875(6) 83.4
====
Holders of more than 5%, not included above
- -------------------------------------------
Dimare Homestead, Inc. 92,500(7) 27.0%
Jori M. Baker 37,749(8) 10.2%
Michael S. Fawcett 25,600(9) 7.0%
Joseph J. O'Donnell 47,669(10) 12.9%
Pauline F. Evans 26,122(11) 7.6%
Patricia F. Harris 19,850(12) 5.8%
* Messrs. Sarkis and DiMare each beneficially owns over five percent of the
outstanding Common Stock.
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to
dispose of or to direct the disposition of, a security). For purposes of
this table a person is deemed to have "beneficial ownership" of any
security that such person has the right to acquire within 60 days,
including by conversion of such stockholder's shares of Class B Common
Stock into shares of Common Stock or by exercise of options. For purposes
of this table, any shares of Common Stock not outstanding which are subject
to such a right, or conversion privileges, are deemed to be outstanding for
the purposes of computing the percentage of outstanding shares owned by
such person or group, but are not deemed to be outstanding for the purposes
of computing such percentage owned by any other person or group.
(2) Includes presently exercisable options to purchase 40,000 shares.
(3) Includes 92,500 shares held of record by DiMare Homestead Inc. over which
Mr. DiMare has voting and investment power, and presently exercisable
options and grants to purchase 40,000 shares.
(4) Includes presently exercisable options to purchase 32,500 shares and 16,109
shares issuable upon conversion of the shares of Class B Common Stock
beneficially owned by Mr. Sarkis.
34
<PAGE> 35
(5) Consists of 804,616 shares issuable upon conversion of the shares of
Class B Common Stock beneficially owned by Mr. Sarkis as well as presently
exercisable options to purchase 95,000 shares. Does not include 6,750
shares of Common Stock or 2,900 shares of Class B Common Stock held by Mr.
Sarkis' former wife; Mr. Sarkis disclaims beneficial ownership of such
shares. See footnote (2) to the table below showing beneficial ownership of
Class B Common Stock.
(6) Includes presently exercisable options to purchase 207,500 shares and
820,725 shares issuable upon conversion of shares of Class B Common Stock,
held by all directors and officers as a group.
(7) See Footnote (3)
(8) Includes 7,665 shares held of record by International Planning Group 401(K)
Profit Sharing Plan over which Mr. Baker has voting and investment power,
and presently exercisable options to purchase 26,334 shares. Mr. Baker's
address is c/o The Baker Companies, 62 Walnut Street, Wellesley,
Massachusetts 02181.
(9) Includes presently exercisable options to purchase 25,000 shares. Mr.
Fawcett's address is c/o Dorman & Fawcett, P.O. Box 214, Hamilton,
Massachusetts 01936.
(10) Includes presently exercisable options to purchase 25,000 shares. Mr.
O'Donnell's address is c/o Boston Concessions Group, Inc., 111 6th Street,
Cambridge, Massachusetts 02141.
(11) Ms. Evans' address is 3600 Galt Ocean Drive, Fort Lauderdale, Florida
33308.
(12) Ms. Harris' address is 11 Royal Road, Brookline, Massachusetts 02146.
(b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF CLASS B COMMON STOCK
The following table sets forth certain information, as of April 15, 1999
with respect to the beneficial ownership of the Company's Class B Common Stock
by each Director, and named Executive Officer and by all Directors and officers
of the Company as a group and by persons known by the Company to own
beneficially more than 5% of the outstanding Class B Common Stock. Unless
otherwise noted, such stockholders have full voting power and investment power
with respect to the shares listed as beneficially owned by the.
SHARES OF CLASS B
NAME AND ADDRESS COMMON STOCK PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
------------------- --------------------- --------
Charles F. Sarkis 804,616(2) 88.2%
Back Bay Restaurant Group, Inc.
284 Newbury St.
Boston, MA 02116
A. Paul Sarkis 16,109 1.8%
Back Bay Restaurant Group, Inc.
284 Newbury St.
Boston, MA 02116
------- ---
All Directors and 820,725(2) 90%
Officers as a ======= ===
Group (five persons)
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to
dispose of, or to direct the disposition of, a security). In addition, for
purposes of this table a person is deemed to have "beneficial ownership" of
any security that such person has the right to acquire within 60 days.
(2) Includes shares held by Sarkis Management Corporation which is wholly-owned
by Mr. Sarkis. Does not include 93,754 shares held by Mr. Sarkis' six adult
children (including A. Paul Sarkis) or 2,900 shares held by Mr. Sarkis'
former wife; Mr. Sarkis disclaims beneficial ownership of such shares.
35
<PAGE> 36
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Based solely on the review of Forms 3, 4 and 5 and all amendments thereto
furnished to the Company with respect to its most recent fiscal year, it appears
that each Director, officer and 10% beneficial owner of Common Stock of the
Company complied with Section 16(a) of the Securities Exchange Act of 1934,
except that Messrs. Charles F. Sarkis, A. Paul Sarkis, Richard P. Dalton and
Richard G. Egan, Jr. failed to timely file a Form 5 with respect to option
grants made in fiscal year 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) The Company made loans of $28,000, $52,000 and $32,400 to Richard P.
Dalton, a director and executive officer of the Company, in 1986, 1987 and
1988 respectively, in connection with certain purchases by Mr. Dalton of
shares of the Company's Common Stock. Personal loans in the amounts of
$107,905, $55,104 and $10,000 were also made to Mr. Dalton during 1989, 1990
and 1991, respectively. During 1990, Mr. Dalton repaid $25,000 in principal
amount of these loans. The Company also made personal loans to Mr. Sarkis in
the amounts of $201,086 and $209,237 during 1989 and 1990, respectively. In
January, 1995, Mr. Sarkis repaid $80,000 to the Company. The restructuring of
these loans have been agreed upon by the principals and formal agreements are
to be prepared and executed. These loans are to be payable over five years of
monthly principal and interest payments maturing on December 31, 2003, and
bear interest at 8.0% per annum. As of December 31, 1998, the outstanding
balance on these loans, including accrued interest, is $893,393:
(b) Mr. Charles F. Sarkis is the majority shareholder of the Company. At
December 31, 1998, the Company owned 19% of the common stock of Back Bay
Restaurant Group, Inc. ("BBRG). Certain arrangements between the Company and
BBRG and/or their respective affiliates were made while BBRG was a
wholly-owned subsidiary of the Company and accordingly, were established by
related parties and were not subject to arms length negotiations. Prior to
1994, the Company and BBRG were parties to agreements pursuant to which BBRG
operated the concession business and received certain other revenues in
connection with the operation of Wonderland Greyhound Park and Foxboro Park,
two pari-mutuel race tracks owned by the Company. In May 1994, BBRG
transferred its concession and related operations to the Company in return
for $770,000 term note to which $200,000 owed by the Company to BBRG was
added, to bring the total principal amount of the note to $970,000. In 1997,
this note was amended requiring equal quarterly payments of principal and
interest beginning April 1, 1999 of approximately $36,000 with interest at
6%.
(c) On March 26, 1999, a majority of BBRG's shareholders approved a merger
agreement (the "Merger Agreement"), by and between BBRG and SRC Holdings,
Inc. (the "Acquiror"), a Delaware corporation formed by Charles F. Sarkis,
BBRG's Chairman and Chief Executive Officer, pursuant to which the Acquiror
would be merged (the "Merger") with and into BBRG, with BBRG being the
surviving company. The Merger was consummated April 5, 1999. Pursuant to the
Merger, the holders of BBRG's common stock, other than the Company, Mark L.
Hartzfeld, Francis P. Bissaillon, Ann Marie Lagrotteria and Richard P. Dalton
(collectively, the "Affiliated Shareholders"), received $10.25 in cash in
exchange for each share of common stock of BBRG held by them. The Affiliated
Shareholders continued to own stock of the surviving corporation. As of the
date of the Merger, the Company holds 48.64% of the common stock of BBRG on a
fully diluted basis. Following the Merger, BBRG no longer meets the
requirements of a public company and its shares will no longer be listed or
traded in the public market.
(d) Prior to 1995, the Company engaged a firm to assist management in the
planning and execution of a financial and operational reorganization of the
Company. As compensation for its services, the Company agreed to a success
fee, in addition to the basic fee, to grant options to acquire common stock
totalling 6% of the total of the Company's capital stock at $3 per share (the
"success fee" option). The success fee also stipulated that the principle of
such firm, who was a director of the Company, would be required to return
options to purchase 25,000 shares of the Company's common stock if the
success fee options are exercised. Upon completion of the contract, the total
costs were deemed to be materially less than the value of the success fee and
thus the success fee options were not granted. The Company intends to
renegotiate the amount of shares, price per share and other terms. The
Company has previously recorded an estimated reserve of $100,000 for this
consulting arrangement which is included with accounts payable and other
accrued liabilities in the accompanying consolidated balance sheet.
36
<PAGE> 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Included under Item 8 in Part II of this report:
Reports of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All financial statement schedules are omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
(3) Exhibits
3.1 Certificate of Incorporation of the Company.(1)
3.2 Amendment, dated May 15, 1987, to the Certificate of Incorporation
of the Company.(4)
3.21 Amendment, dated November 2, 1995, to the Certificate of
Incorporation of the Company.(9)
3.3 Bylaws of the Company.(1)
4.1 Indenture, dated as of August 15, 1987, between the Company and
State Street Bank and Trust Company, as trustee, relating to the
Company's Subordinated Notes.(2).
4.2 Supplemental Indenture, dated as of March 16, 1988, between the
Company and State Street Bank and Trust company, as trustee.(4)
10.7 Collective Bargaining Agreement between Wonderland Greyhound Park,
Inc. and Local 103 - Electrical Workers, dated November 12, 1986.(2)
10.8 Retirement arrangement with James F Kelley.(5)
10.9 Loan Agreement dated May 15, 1992, in connection with a loan from
the MSCGAF Realty Trust, together with a promissory note and a
mortgage and security agreement.(6)
10.10 Term Loan Agreement, dated August 24, 1992 in connection with a loan
from First Trade Union Savings Bank, FSB, together with a term
promissory note, a pledge and security agreement and with a
Modification Agreement, dated August 27, 1992.(6)
10.11 Creditor Trust and Settlement Agreement dated September 29, 1992, in
connection with a settlement with certain trade creditors, together
with a promissory note and a creditors trust security agreement.(6)
10.12 Totalisator Service Agreement, dated August 30, 1991, in connection
with an exclusive service contract, together with an amendment and
extension agreement dated April 2, 1992.(6)
10.13 Contract dated November 20, 1992, in connection with services to be
provided to the Company by an entity of which a former Director of
the Company is a principal, together with an amendment by letter
agreement, dated February 2, 1993.(6)
37
<PAGE> 38
10.14 Collective Bargaining Agreement between the Company and United Food
and Commercial Workers' Union, Local 1445 AFL-CIO, CLC, dated June
1, 1993.(7)
10.15 Collective Bargaining Agreement between the Company and Local
25-Teamsters, effective January 1, 1993.(7)
10.16 Purchase and Sale Agreement dated December 14, 1993 between Back Bay
Restaurant Group, Inc. and The Westwood Group, Inc.(7)
10.17 Termination Agreement dated December 14, 1993 between Back Bay
Restaurant Group, Inc. and The Westwood Group, Inc. together with
termination of employee and administrative services agreement, a
termination of amended and restated tax sharing and indemnification
agreement, an amended and restated cross-indemnification agreement
and a mutual release.(7)
10.18 Loan Restructuring Agreement, dated as of July 1, 1993, between
certain subsidiaries of the Company and the MSCGAF Realty Trust, in
connection with the restructuring of $4,500,000 Term Loan, together
with Exhibits A through F of such agreement.(7)
10.19 Amendment, dated December 16, 1994, to Loan Restructuring Agreement
between certain subsidiaries of the Company and the MSCGAF Realty
Trust, in connection with the restructuring of $4,500,000 Term
Loan.(8)
10.20 Settlement of Litigation Agreement, dated October 12, 1994, between
Foxboro Park, Inc. and the trustee of the Creditor Trust and
Settlement Agreement, in connection with the restructuring of the
Creditor Trust and Settlement Agreement with related promissory
notes, dated July 7, 1994.(8)
10.21 Collective Bargaining Agreement between Wonderland Greyhound Park,
Inc. and Local 22 - Laborers' International Union, dated July 1,
1993.(8)
10.22 Collective Bargaining Agreement Extension between RFSC, Inc. and
Local 26 - Hotel and Restaurant Workers, effective January 1,
1994.(8)
10.23 Settlement Agreement between Wonderland Greyhound Park, Inc. and
Local 254 Service Employees International Union, dated September 19,
1994, in connection with a successor collective bargaining
agreement.(8)
10.24 Amendment to Term Note between certain subsidiaries of the Company
and BBRG, dated March 17, 1995.(8)
10.25 Margin Account Client Agreement between Westwood Financial Group,
Inc. and Tucker Anthony Inc., dated May 19, 1994, together with a
side agreement detailing additional terms.(8)
10.26 Assignment for the Benefit of Creditors and Sharing Agreement
(Foxboro Hamess).(10)
10.27 Assignment for the Benefit of Creditors and Sharing Agreement
(Foxboro Thoroughbred).(10)
10.28 Assignment for the Benefit of Creditors and Sharing Agreement
(Foxboro Park).(10)
10.29 Form of Executive Non-Qualified Stock Option Agreement.(10)
10.30 Form of Employee Non-Qualified Stock Option Agreement.(10)
10.31 Third Amendment to Term Note between certain subsidiaries of the
Company and BBRG, dated January 5, 1998.(10)
10.32 Voting and Shares Exchange Agreement, dated as of March 31, 1999.
(filed herewith).
38
<PAGE> 39
21 Subsidiaries of the Company (filed herewith).
27 Financial Data Schedule (filed herewith).
(1) Filed with the Company's Annual Report on Form 10-K for 1984 and
incorporated herein by reference.
(2) Filed with the Company's Registration Statement on Form S-2 No.
33-15344 filed on June 25, 1987 and incorporated herein by
reference. (3)
(3) Filed with the Company's Annual Report on Form 10-K for 1980 and
incorporated herein by reference.
(4) Filed with the Company's Annual Report on Form 10-K for 1987 and
incorporated herein by reference.
(5) Filed with the Company's Annual Report on Form 10-K for 1988 and
incorporated herein by reference.
(6) Filed with the Company's Annual Report on Form 10-K for 1992 and
incorporated herein by reference.
(7) Filed with the Company's Annual Report on Form 10-K for 1993 and
incorporated herein by reference.
(8) Filed with the Company's Annual Report on Form 10-K for 1994 and
incorporated herein by reference.
(9) Filed with the Company's Annual Report on Form 10-K for 1995 and
incorporated herein by reference.
(10) Filed with the Company's Annual Report on Form 10-K for 1997 and
incorporated herein by reference.
(b) REPORTS ON 8-K.
No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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.
THE WESTWOOD GROUP, INC.
By /s/ Charles F. Sarkis
----------------------------
Charles F. Sarkis
Chairman of the Board
Date: April 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: April 15, 1999 By /s/ Charles F. Sarkis
-------------------------------------------
Charles F. Sarkis
Chairman of the Board
Date: April 15, 1999 By /s/ Richard P. Dalton
-------------------------------------------
Richard P. Dalton
President, Chief Executive
Officer and Director
(Principal financial and accounting officer)
Date: April 15, 1999 By /s/ A. Paul Sarkis
-------------------------------------------
A. Paul Sarkis
Executive Vice President Director
Date: April 15, 1999 By /s/ Paul J. DiMare
-------------------------------------------
Paul J. DiMare
Director
40
<PAGE> 1
EXECUTION COPY
VOTING AND SHARES EXCHANGE AGREEMENT
VOTING AND SHARES EXCHANGE AGREEMENT (this "Agreement"), dated as of March
31, 1999, by and between SRC Holdings, Inc., a Delaware corporation
("Purchaser"), and The Westwood Group, Inc., a Delaware corporation (the
"Stockholder").
WHEREAS, Purchaser and Back Bay Restaurant Group, Inc., a Delaware
corporation (the "Company"), have entered into an Agreement and Plan of Merger,
dated December 3, 1999 (the "Merger Agreement;" capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement),
pursuant to which Purchaser will be merged with and into the Company with the
Company being the surviving corporation (the "Merger");
WHEREAS, under the terms of the Merger Agreement, each Non-Affiliated
Stockholder will receive a cash payment of $10.25 per share, net to the seller
in cash (the "Merger Consideration"), in exchange for each share of common stock
of the Company owned by such person ("Shares");
WHEREAS, as of the date hereof, the Stockholder beneficially owns 673,451
Shares (the "Owned Shares");
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Purchaser has required that the Stockholder agree, and the
Stockholder has agreed (i) to vote the Owned Shares in favor of the adoption of
the Merger Agreement and the approval of the Merger at a Special Meeting of the
Stockholders of the Company to be held in accordance with the Merger Agreement
(the "Stockholders Meeting"); (ii) for purposes of the Stockholder to appoint
Purchaser as the Stockholder's proxy to vote the Owned Shares at the
Stockholders Meeting, and (iii) with respect to other matters put to the
stockholders of the Company for a vote, to vote the Owned Shares in each case,
in accordance with the terms and conditions of this Agreement; and
WHEREAS, as consideration for not receiving Merger Consideration in
exchange for the Stockholder's Owned Shares, the Stockholder shall exchange the
Owned Shares for an equal number of shares of common stock, $.01 par value per
share, of Purchaser (the "Purchaser Shares").
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
<PAGE> 2
1. VOTING AT THE STOCKHOLDERS MEETING. The Stockholder hereby agrees
that, during the time that this Agreement is in effect, at the Stockholders
Meeting or any meeting of the stockholders of the Company, however called, the
Stockholder shall (a) vote all of the Owned Shares as are beneficially owned by
it on the record date for determining the stockholders of record entitled to
vote at such meeting in favor of the adoption of the Merger Agreement and
approval of the Merger; (b) vote such Owned Shares against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement; and (c) vote such Owned Shares against any action or
agreement (other than the Merger Agreement or the transactions contemplated
thereby) that would impede, interfere with, delay, postpone or attempt to
discourage the Merger, including, but not limited to: (i) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company; or (ii) a sale or transfer of a material
amount of assets of the Company or any of its subsidiaries or a reorganization,
recapitalization or liquidation of the Company or any of its subsidiaries. The
Stockholder shall forward to Purchaser any proxy cards that the Stockholder
receives with respect to the Merger Agreement duly executed by the Stockholder.
2. IRREVOCABLE PROXY. In the event that the Stockholder shall breach its
covenant set forth in Section 1, the Stockholder (without any further action on
the Stockholder's part) shall be deemed to have hereby irrevocably appointed
Purchaser as the attorney and proxy of the Stockholder, with full power of
substitution, to vote, and otherwise act (by written consent or otherwise) with
respect to all Owned Shares that the Stockholder is entitled to vote at any
meeting of the stockholders of the Company (whether annual, special or the
Stockholders Meeting and whether or not an adjourned or postponed meeting) or
consent in lieu of any such meeting or otherwise, to vote such Shares as set
forth in Section 1 above. THIS PROXY AND POWER OF ATTORNEY IS IRREVOCABLE AND
COUPLED WITH AN INTEREST. The Stockholder hereby revokes, effective upon the
execution and delivery of the Merger Agreement by the parties thereto, all other
proxies and powers of attorney with respect to the Owned Shares that the
Stockholder may have heretofore appointed or granted, and no subsequent proxy or
power of attorney (except in furtherance of the Stockholder's obligations under
Section 1 hereof) shall be given or written consent executed (and if given or
executed, shall not be effective) by the Stockholder with respect thereto so
long as the Stockholder's obligations under this Section remain in effect.
3. EXCHANGE OF OWNED SHARES. On or prior to the Closing, Purchaser will
issue and deliver to the Stockholder, against and in exchange for transfer and
delivery of the Owned Shares, an equal number of Purchaser Shares (the
"Exchange"). The Exchange is intended to qualify as a transaction under Section
351 of the Internal Revenue Code of 1986, as amended.
4. EXPIRATION. This Agreement and the Stockholder's obligations hereunder
shall terminate on the earlier of (a) the consummation of the Merger, or (b) the
termination of the Merger Agreement in accordance with its terms.
- 2 -
<PAGE> 3
5. REPRESENTATIONS AND WARRANTIES.
5.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants to the Stockholder as follows:
(a) ORGANIZATION; DUE AUTHORIZATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. Purchaser has full power and authority to execute and deliver this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Purchaser, and no other corporate proceedings on the
part of Purchaser are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Purchaser and constitutes a valid and binding
agreement of Purchaser, enforceable against Purchaser in accordance with its
terms, except to the extent (i) such enforcement may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights and (ii) the
remedy of specific enforcement and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(b) ISSUANCE OF SECURITIES. The issuance and delivery of the
Purchaser Shares in accordance with this Agreement have been duly authorized by
all necessary corporate action and, when issued in accordance with the terms
hereof, will be duly and validly issued, fully paid and non-assessable.
5.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The
Stockholder hereby represents and warrants to Purchaser as follows:
(a) TITLE. The Stockholder has good and valid title to the Owned
Shares, free and clear of any lien, charge, encumbrance or claim of whatever
nature.
(b) OWNERSHIP OF SHARES. On the date hereof, the Stockholder
beneficially owns the number of Owned Shares, all of which are held of record by
the Stockholder. The Stockholder has sole voting power and sole power of
disposition with respect to the Owned Shares, with no restrictions, subject to
applicable federal and state securities laws, on its rights of disposition
pertaining thereto.
(c) POWER; BINDING AGREEMENT. The Stockholder has the legal
capacity, power and authority to enter into and perform all of its obligations
under this Agreement. The execution, delivery and performance of this Agreement
by the Stockholder will not violate any other agreement to which the Stockholder
is a party including, without limitation, any voting agreement, the stockholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance
- 3 -
<PAGE> 4
with its terms, except to the extent (i) such enforcement may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights,
and (ii) the remedy of specific enforcement and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(d) NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Stockholder will not constitute a breach, violation or
default (or any event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien or encumbrance upon any of the
properties or assets of the Stockholder under, any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument to which
the Stockholder is a party or by which the Stockholder's properties or assets
are bound.
(e) INVESTMENT REPRESENTATIONS.
--------------------------
(i) This Agreement is made with the Stockholder in
reliance upon the Stockholder's representation to Purchaser, which by the
Stockholder's acceptance hereof the Stockholder hereby confirms, that (i) the
Purchaser Shares to be received by the Stockholder will be acquired by the
Stockholder, for investment for the Stockholder's own account, and not with a
view to the sale or distribution of any part thereof in violation of applicable
Federal and state securities laws, and (ii) the Stockholder has no current
intention of selling, granting participation in or otherwise distributing the
same in violation of applicable Federal and state securities laws. By executing
this Agreement, the Stockholder further represents that it does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person, or to any third person, with
respect to any of the Purchaser Shares in violation of applicable Federal and
state securities laws.
(ii) The Stockholder understands that the Purchaser
Shares have not been registered under the Securities Act of 1933, as amended
(the "1933 Act") on the basis that the sale provided for in this Agreement and
the issuance of securities hereunder is exempt from registration under the 1933
Act pursuant to Section 4(2) thereof and regulations issued thereunder, and that
Purchaser's reliance on such exemption is predicated on representations of the
Stockholder set forth herein.
(iii) The Stockholder represents that the Stockholder
has, either alone or together with the "Purchaser Representative" as that term
is defined in Regulation D promulgated under the 1933 Act, such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment. The Stockholder further represents that the
Stockholder has had access, during the course of the transaction and prior to
the Stockholder's purchase of the Purchaser Shares, to information concerning
Purchaser and its assets, liabilities and prospects, and that it has had, during
the course of the transaction
- 4 -
<PAGE> 5
and prior to its purchase of the Purchaser Shares, the opportunity to ask
questions of, and receive answers from, Purchaser concerning the terms and
conditions of the offering and to obtain additional information (to the extent
Purchaser possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished
to the Stockholder or to which the Stockholder had access.
(iv) The Stockholder understands that the Purchaser
Shares may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Purchaser Shares or
an available exemption from registration under the 1933 Act, the Purchaser
Shares must be held indefinitely. In particular, the Stockholder is aware that
the Purchaser Shares may not be sold pursuant to Rule 144 promulgated under the
1933 Act unless all of the conditions of that Rule are met. Among the current
conditions for use of Rule 144 by certain holders is the availability to the
public of current information about Purchaser. Such information is not now
available, and Purchaser has no current plans to make such information
available. The Stockholder represents that, in the absence of an effective
registration statement covering the Purchaser Shares, the Stockholder will sell,
transfer or otherwise dispose of the Purchaser Shares only in a manner
consistent with its representations set forth herein.
(v) The Stockholder agrees, except with respect to
transfers permitted under this Agreement, that it will not make a transfer,
disposition or pledge of any of the Purchaser Shares other than pursuant to an
effective registration statement under the 1933 Act, unless and until (i) the
Stockholder shall have notified Purchaser of the proposed disposition and shall
have furnished Purchaser with a statement of the circumstances surrounding the
disposition, and (ii) if requested by Purchaser, at the expense of the
Stockholder or transferee, the Stockholder shall have furnished to Purchaser an
opinion of counsel, reasonably satisfactory to Purchaser and its counsel, to the
effect that such transfer may be made without registration of the Purchaser
Shares under the 1933 Act.
(f) LEGENDS; STOP TRANSFER.
----------------------
(a) the Stockholder acknowledges that all certificates
evidencing the Purchaser Shares shall bear the following legend:
"TRANSFER RESTRICTED
The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933 (the "Act") or the securities laws of any state. The shares may
not be transferred by sale, assignment, pledge or otherwise unless (i)
a registration statement for the shares under the Act is in effect or
(ii) the corporation has received an opinion of counsel, which opinion
is reasonably satisfactory to the
- 5 -
<PAGE> 6
corporation, to the effect that such registration is not
required under the Act or the securities laws of any state.
The corporation is authorized to issue more than one class or
series of stock. Such a statement is set forth in the
Certificate of Incorporation on file in the office of the
Secretary of State. The corporation will furnish a copy of
such statement to the record holder of this certificate
without charge on written request to the corporation at its
principal place of business or registered office.
(b) The certificates evidencing the Purchaser Shares shall
also bear any legend required by any applicable state securities law.
(c) In addition, Purchaser shall make a notation regarding
the restrictions on transfer of the Purchaser Shares in its stock books,
and the Purchaser Shares shall be transferred on the books of Purchaser
only if transferred or sold pursuant to an effective registration statement
under the 1933 Act covering such Purchaser Shares. All common stock of
Purchaser hereafter issued to the Stockholder shall bear the same
endorsement, shall be subject to all the terms and conditions of this
Agreement, and for all purposes shall be deemed the "Purchaser Shares"
hereunder. A copy of this Agreement, together with any amendments thereto,
shall remain on file with the Secretary of Purchaser and shall be available
for inspection to any properly interested person without charge within five
(5) days after Purchaser's receipt of a written request therefor.
5. CERTAIN COVENANTS OF THE STOCKHOLDER. The Stockholder hereby covenants
and agrees as follows:
5.1 RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE. The
Stockholder hereby agrees, while this Agreement is in effect and except as
contemplated hereby, not to (i) directly or indirectly, sell, transfer, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to the sale, transfer, pledge,
encumbrance, assignment or other disposition of, any of the Owned Shares, (ii)
grant any proxies, deposit any shares of capital stock of the Company into a
voting trust or enter into a voting agreement with respect to any of the Owned
Shares, or (iii) take any action that would make any representation or warranty
of the Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling the Stockholder from performing its obligations under
this Agreement; provided, however, that the Stockholder shall be permitted to
transfer any of the Owned Shares to any trust, limited partnership or other
entity the beneficial ownership of which is held by the Stockholder (each, a
"Permitted Transferee"), so long as such Permitted Transferee, prior to any such
transfer, agrees in writing, in form and substance satisfactory to Purchaser, to
be bound by the terms hereof to the same extent as the Stockholder is bound and
provided further, however, that no
- 6 -
<PAGE> 7
such transfer shall relieve the Stockholder of its obligations hereunder if such
Permitted Transferee does not perform such obligations.
5.2 ADDITIONAL SHARES. The Stockholder hereby agrees, while this
Agreement is in effect, to promptly notify Purchaser of the number of additional
Shares acquired by the Stockholder, if any, whether prior to, on or after the
date hereof, which additional Shares shall be deemed Owned Shares for all
purposes of this Agreement.
6. FURTHER ASSURANCES. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective the transactions contemplated by
Section 1 of this Agreement.
7. MISCELLANEOUS.
-------------
7.1 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (i) constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, and (ii) shall not
be assigned by operation of law or otherwise, provided that Purchaser may assign
its rights and obligations hereunder to any direct or indirect wholly-owned
subsidiary of Purchaser, but no such assignment shall relieve Purchaser of its
obligations hereunder if such assignee does not perform such obligations.
7.2 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram,
facsimile, by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
To the Stockholder: at the address set forth on the signature
page attached hereto.
To Purchaser:
SRC Holdings, Inc.
284 Newbury Street
Boston, Massachusetts 02115
Attention: President
Facsimile No.: (617) 425-5252
with a copy to:
- 7 -
<PAGE> 8
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, Massachusetts 02110
Attn: Francis J. Feeney, Jr., Esq.
Facsimile No.: (617) 951-1295
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of The Commonwealth of Massachusetts, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
7.4 SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereby agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
7.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same Agreement.
7.6 DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
7.7 SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, Purchaser and the Stockholder have caused this
Agreement to be duly executed as an instrument under seal as of the day and year
first above written.
SRC HOLDINGS, INC.
By: /s/ Francis P. Bissaillon
-------------------------------
Name: Francis P. Bissaillon
Title: Vice President and
Chief Financial Officer
THE WESTWOOD GROUP, INC.
By: /s/ Richard P. Dalton
-------------------------------
Name: Richard P. Dalton
Title: President
190 V.F.W. Parkway
Revere, Massachusetts 02151
S-1
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE WESTWOOD GROUP, INC.
Wonderland Greyhound Park, Inc. (Massachusetts corporation)
Foxboro Park, Inc. (Massachusetts corporation)
Foxboro Harness, Inc. (Massachusetts corporation)
Foxboro Thoroughbred, Inc. (Massachusetts corporation)
Wonderland Parking, Inc. (Massachusetts corporation)
41
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 986,329
<SECURITIES> 0
<RECEIVABLES> 629,204
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 161,502
<PP&E> 22,619,434
<DEPRECIATION> 16,913,769
<TOTAL-ASSETS> 13,581,472
<CURRENT-LIABILITIES> 11,085,977
<BONDS> 0
0
0
<COMMON> 19,364
<OTHER-SE> (1,569,992)
<TOTAL-LIABILITY-AND-EQUITY> 13,581,472
<SALES> 21,045,778
<TOTAL-REVENUES> 21,045,778
<CGS> 191,037,649
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (1,168,641)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 386,803
<INCOME-PRETAX> 2,789,967
<INCOME-TAX> 0
<INCOME-CONTINUING> 168,889
<DISCONTINUED> 2,789,967
<EXTRAORDINARY> 168,884
<CHANGES> 0
<NET-INCOME> 2,958,856
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.32
</TABLE>
