UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PRELIMINARY PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
AMENDMENT NO. 2
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
</Table>
THE WESTWOOD GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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(THE WESTWOOD GROUP, INC. LETTERHEAD)
November , 2003
Dear Stockholder:
You are invited to attend a special meeting of stockholders of The Westwood
Group, Inc., a Delaware corporation, to be held on December , 2003, at 10:00
a.m. local time, at 190 V.F.W. Parkway, Revere, Massachusetts. The approximate
date on which the accompanying proxy statement and form of proxy card are first
being sent or given to the stockholders is November , 2003.
At this meeting you will be asked to consider and vote upon a proposal to
amend the Westwood Group's Certificate of Incorporation, pursuant to which each
share of Common Stock, par value $.01 per share, authorized immediately prior to
the effectiveness of the proposed amendment will be reclassified into one-five
hundredth of one fully paid and non-assessable share of Common Stock, par value
$.01 per share, so that every 500 shares of Common Stock authorized immediately
prior to the effectiveness of this amendment will be combined together to form
one full share of Common Stock, par value $.01. At the effective time of the
proposed amendment, each share of Class B Common Stock, par value $.01 per
share, authorized immediately prior to the effectiveness of this amendment will
be reclassified into one-five hundredth of one fully paid and non-assessable
share of Class B Common Stock, par value $.01 per share, so that every 500
shares of Class B Common Stock authorized immediately prior to the effectiveness
of this amendment will be combined together to form one full share of Class B
Common Stock, par value $.01. The Westwood Group will make a cash payment of
$4.00 per share to record holders of fewer than 500 shares of either Common
Stock or Class B Common Stock immediately prior to the effectiveness of this
amendment. Certificates for fractional shares of Common Stock and Class B Common
Stock will be issued by reason of this amendment to holders of greater than 500
shares of either Common Stock or Class B Common Stock immediately prior to the
effectiveness of this amendment.
In addition to receiving the cash payment of $4.00 per share, each record
holder being redeemed in connection with the proposed reverse stock split will
be entitled to receive an additional cash payment if, within one calendar year
from the date of this meeting, the Massachusetts state legislature enacts
legislation that expands legalized gaming in The Commonwealth of Massachusetts
and such legislation authorizes the Westwood Group to install slot machines at
its Wonderland racetrack facility. If such legislation is enacted, the Board of
Directors of the Westwood Group will engage an independent financial advisor,
and in consultation with this advisor, will determine the valuation of the
Westwood Group in light of such legislation, and based upon such valuation, will
pay each redeemed record holder any increase in value above the $4.00 per share
cash payment received in connection with the reverse stock split, which will be
payable at such time and in such manner as determined by the Board of Directors.
If effected, the reverse stock split will enable the Westwood Group to
change from public company status, subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, as administered by the Securities
and Exchange Commission, to private company status. As a private company, the
Westwood Group will not be subject to these reporting requirements.
IF YOU ARE A BENEFICIAL OWNER OF FEWER THAN 500 SHARES OF COMMON STOCK WHO
IS NOT THE RECORD HOLDER OF THOSE SHARES, AND YOU WANT TO HAVE YOUR SHARES
EXCHANGED FOR CASH IN THE REVERSE STOCK SPLIT, YOU SHOULD INSTRUCT YOUR BROKER
OR NOMINEE TO TRANSFER YOUR SHARES INTO A RECORD ACCOUNT IN YOUR NAME. NOMINEES
AND BROKERS MAY HAVE REQUIRED PROCEDURES. THEREFORE, SUCH HOLDERS SHOULD CONTACT
THEIR NOMINEES AND BROKERS TO DETERMINE HOW TO EFFECT THE TRANSFER IN A TIMELY
MANNER PRIOR TO THE DATE OF THE SPECIAL MEETING.
The proposed amendment to the Certificate of Incorporation is attached as
Exhibit A to the accompanying proxy statement. The reverse stock split will
become effective upon the filing of the Amendment to the Certificate of
Incorporation with the Office of the Secretary of State of the State of Delaware
subsequent to stockholder approval.
Assuming the completion of the reverse stock split and termination of the
Westwood Group's public company status, the Westwood Group intends to promptly
initiate a tender offer for up to an aggregate of 21,000 pre-reverse stock split
shares of its Common Stock and up to an aggregate of 3,500 pre-reverse stock
split shares of its Class B Common Stock. The purpose of the tender offer is to
provide holders of Common Stock and Class B Common Stock (other than officers
and directors of the Westwood Group) who do not receive a cash payment pursuant
to the reverse stock split an opportunity to tender one post-reverse-split-share
in exchange for a purchase price equal to $2,000 per share, which reflects the
product of (i) 500 times (ii) the $4.00 per share cash payment payable in
connection with the reverse stock split.
Schroeder & Co., an independent financial advisor engaged by the Westwood
Group in connection with the proposed reverse stock split, has rendered an
opinion that the $4.00 cash payment to be made to unaffiliated stockholders who
are being redeemed pursuant to the reverse stock split and to those unaffiliated
stockholders who tender one share in connection with the subsequent tender offer
is fair from a financial point of view. You are urged to read the opinion of
Schroeder & Co., which is attached to the accompanying proxy statement as
Exhibit B. You are also urged to read carefully the accompanying proxy statement
in its entirety, including the section entitled "Special Factors" for important
information concerning the proposed reverse stock split.
THE BOARD OF DIRECTORS HAS FULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE PROPOSED REVERSE STOCK SPLIT AND HAS UNANIMOUSLY DETERMINED
THAT THE PROPOSED REVERSE STOCK SPLIT, TAKEN AS A WHOLE, IS FAIR TO, AND IN THE
BEST INTERESTS OF, THE UNAFFILIATED STOCKHOLDERS OF THE WESTWOOD GROUP.
Attendance in person or by proxy of holders of a majority of shares of
capital stock of the Westwood Group issued and outstanding and entitled to vote
will constitute a quorum. In order to approve the reverse stock split, the
following stockholder votes in favor of the amendment are necessary: (i) a
majority of the votes entitled to be cast at the meeting by the holders of the
outstanding shares of Common Stock and Class B Common Stock, voting together as
a single class, (ii) a majority of the votes entitled to be cast at the meeting
by the unaffiliated holders of the outstanding shares of Common Stock, voting as
a separate class, and (iii) a majority of the votes entitled to be cast at the
meeting by the unaffiliated holders of the outstanding shares of Class B Common
Stock voting as a separate class. For this purpose, an unaffiliated holder is a
holder of either Common Stock or Class B Common Stock other than Charles F.
Sarkis, Richard P. Dalton and Joseph M. Cassin, each an officer and/or director
of the Westwood Group, and Paul M. DiMare, a former director of the Westwood
Group. Holders of Common Stock will be entitled to one vote for each share of
Common Stock. Holders of Class B Common Stock will be entitled to ten votes for
each share of Class B Common Stock. The officers and directors of the Westwood
Group own approximately 85% of the issued and outstanding shares entitled to
vote. The officers and directors of the Westwood Group own approximately 5.6% of
the outstanding shares of Common Stock and approximately 88% of the outstanding
shares of Class B Common Stock entitled to vote at the special meeting. Each of
the officers and directors has indicated that he will vote his shares in favor
of the proposed reverse stock split.
Provided that the reverse stock split is approved, a letter of transmittal
will be mailed to all holders of Common Stock or Class B Common Stock of the
Westwood Group for use in surrendering their stock certificates. Please do not
send in your stock certificates until you receive your letter of transmittal.
Sincerely,
-s- Richard P. Dalton
RICHARD P. DALTON
President
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE
MERITS OR FAIRNESS OF THE TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE WESTWOOD GROUP, INC.
190 V.F.W. PARKWAY
REVERE, MASSACHUSETTS 02151
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER , 2003
A special meeting of the stockholders of THE WESTWOOD GROUP, INC., will be
held at 190 V.F.W. Parkway, Revere, Massachusetts 02151, on December , 2003,
at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to amend the Westwood Group's
Certificate of Incorporation, pursuant to which each share of Common Stock,
par value $.01 per share, authorized immediately prior to the effectiveness
of the proposed amendment will be reclassified into one-five hundredth of
one fully paid and non-assessable share of Common Stock, par value $.01 per
share, so that every 500 shares of Common Stock authorized immediately
prior to the effectiveness of this amendment will be combined together to
form one full share of Common Stock, par value $.01. At the effective time
of the proposed amendment, each share of Class B Common Stock, par value
$.01 per share, authorized immediately prior to the effectiveness of this
amendment will be reclassified into one-five hundredth of one fully paid
and non-assessable share of Class B Common Stock, par value $.01 per share,
so that every 500 shares of Class B Common Stock authorized immediately
prior to the effectiveness of this amendment will be combined together to
form one full share of Class B Common Stock, par value $.01. The Westwood
Group will make a cash payment of $4.00 per share to record holders of
fewer than 500 shares of either Common Stock or Class B Common Stock
immediately prior to the effectiveness of this amendment. Certificates for
fractional shares of Common Stock and Class B Common Stock will be issued
by reason of this amendment to holders of greater than 500 shares of either
Common Stock or Class B Common Stock immediately prior to the effectiveness
of this amendment. In addition to receiving the cash payment of $4.00 per
share, each record holder being redeemed in connection with the proposed
reverse stock split will be entitled to receive an additional cash payment
if, within one calendar year from the date of this meeting, the
Massachusetts state legislature enacts legislation that expands legalized
gaming in The Commonwealth of Massachusetts and such legislation authorizes
the Westwood Group to install slot machines at its Wonderland racetrack
facility. If such legislation is enacted, the Board of Directors of the
Westwood Group will engage an independent financial advisor, and in
consultation with this advisor, will determine the valuation of the
Westwood Group in light of such legislation, and based upon such valuation,
will pay each redeemed record holder any increase in value above the $4.00
per share cash payment received in connection with the reverse stock split,
which will be payable at such time and in such manner as determined by the
Board of Directors.
2. To transact such other business pertaining or related to the
foregoing as may properly come before the special meeting.
The reverse stock split will become effective upon the filing of an
amendment to the Certificate of Incorporation with the Office of the Secretary
of State of the State of Delaware subsequent to stockholder approval. Each share
of Common Stock authorized immediately prior to the effectiveness of the reverse
stock split will be reclassified into one-five hundredth of one fully paid and
non-assessable share of Common Stock so that every 500 shares of Common Stock
authorized immediately prior to the effectiveness of the reverse stock split
will be combined together to form one full share of Common Stock. Each share of
Class B Common Stock authorized immediately prior to the effectiveness of the
reverse stock split will be reclassified into one-five hundredth of one fully
paid and non-assessable share of Class B Common Stock so that every 500 shares
of Class B Common Stock authorized immediately prior to the effectiveness of the
reverse stock split will be combined together to form one full share of Class B
Common Stock. The Westwood Group will make a cash payment of $4.00 per share to
the record holders prior to the reverse stock split of fewer than 500 shares of
either Common Stock or Class B Common Stock. Certificates for any resulting
fractional shares of Common Stock or Class B Common Stock will be issued
following the reverse stock split to holders of greater than 500 shares of
either Common Stock or Class B Common Stock immediately prior to the
effectiveness of this amendment.
Information relating to the above matters is set forth in the attached
proxy statement. You are entitled to vote at the special meeting, or any
adjournments of the meeting if you owned shares of Common Stock or Class B
Common Stock at the close of business on November , 2003. A list of the
stockholders entitled to vote will be available for your review at the meeting
and, for the ten days before the meeting during normal business hours, at The
Westwood Group, Inc., 190 V.F.W. Parkway, Revere, Massachusetts 02151.
By Order of the Board of Directors,
-s- Richard P. Dalton
RICHARD P. DALTON
President
Revere, Massachusetts
November , 2003
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY COMPLETE, EXECUTE AND
RETURN THE ENCLOSED PROXY CARD. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY
REVOKE THE PROXY AND VOTE IN PERSON IF YOU SO DESIRE.
TABLE OF CONTENTS
<Table>
Summary Term Sheet.......................................... 1
Information Regarding the Special Meeting of Stockholders... 6
Voting; Record Date....................................... 6
Amendment of Certificate of Incorporation to Effect the
Reverse Stock Split.................................... 7
Quorum and Vote Required.................................. 7
Appraisal Rights.......................................... 7
Proxies................................................... 7
Exchange of Certificates for Cash Payment or Shares....... 8
Contingent Cash Payment................................... 9
Special Factors............................................. 10
Reasons for and Purpose of the Reverse Stock Split........ 10
Alternatives Considered................................... 15
Background of the Proposed Reverse Stock Split............ 16
Fairness Opinion of Schroeder & Co........................ 26
The Effects of the Reverse Stock Split.................... 32
Potential Detriments of the Reverse Stock Split to
Stockholders; Accretion in Ownership and Control of
Certain Stockholders................................... 33
Effect of the Proposed Reverse Stock Split on Option
Holders................................................ 34
Financial Effect of the Reverse Stock Split............... 34
Pro Forma Financial Information........................... 34
Recommendation of the Board of Directors; Fairness of the
Reverse Stock Split.................................... 39
Fairness of the Reverse Stock Split to Unaffiliated
Stockholders Being Redeemed in Connection with the
Reverse Stock Split.................................... 40
Fairness of the Reverse Stock Split to Unaffiliated
Stockholders Retaining Their Interest in the Westwood
Group.................................................. 42
Procedural Fairness to All Unaffiliated stockholder....... 44
Conduct of the Westwood Group's Business after the Reverse
Stock Split............................................ 45
Certain Federal Income Tax Consequences................... 46
Financing of the Reverse Stock Split...................... 47
Costs of the Reverse Stock Split.......................... 48
The Company............................................... 49
Selected Historical and Pro Forma Financial Data.......... 50
Price Range of Common Stock; Dividends; Trading Volume.... 51
Security Ownership of Certain Beneficial Owners and
Management............................................. 51
Other Information Concerning the Company and Affiliates... 53
Independent Certified Public Accountants.................. 54
Other Matters............................................. 54
Proposals of Stockholders................................. 54
Incorporation of Certain Documents by Reference........... 55
Available Information..................................... 55
Exhibit A Certificate of Amendment to the Certificate of
Incorporation of The Westwood Group, Inc. ................ A-1
Exhibit B Opinion of Schroeder & Co., dated July 29, 2003... B-1
Exhibit C Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 2002, and Form 10-K/A for the Fiscal
Year Ended December 31, 2002.............................. C-1
Exhibit D Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 2003....................................... D-1
</Table>
i
SUMMARY TERM SHEET
The following is a summary of the material terms of the proposed amendment
to the Certificate of Incorporation, the proposed reverse stock split and the
other transactions contemplated in connection with the reverse stock split.
The proxy statement contains a more detailed description of the terms of
the proposed amendment to the Certificate of Incorporation and the reverse stock
split. We encourage you to read the entire proxy statement and the documents
that we have attached as exhibits carefully before voting.
- Our Board of Directors has authorized a 500-for-1 reverse stock split of
our Common Stock, par value $.01 per share, and 500-for-1 reverse stock
split of our Class B Common Stock, par value $.01 per share. The Board
recommends that all stockholders approve the proposal by voting for an
amendment to our Certificate of Incorporation. See also the information
under the captions "Reasons for and Purpose of the Reverse Stock Split"
and "Recommendation of the Board of Directors; Fairness of Reverse Stock
Split Proposal" in this proxy statement.
- Assuming the reverse stock split becomes effective, you will receive one
new share of Common Stock for each 500 shares of Common Stock that you
may own at that time and one new share of Class B Common Stock for each
500 shares of Class B Common Stock that you may own at that time. You may
receive fractional shares as a result of the reverse stock split if you
own greater than 500 shares of either Common Stock or Class B Common
Stock immediately prior to the reverse stock split becoming effective.
See also the information under the caption "Exchange of Certificates for
Cash Payment or Shares" in this proxy statement.
- For those of you who are record holders at the effective time of the
reverse stock split and who hold less than either 500 shares of Common
Stock or Class B Common Stock, you will receive a cash payment of $4.00
per share for those shares which would otherwise be converted into a
fraction of a share of the new stock. See also the information under the
caption statement "Exchange of Certificates for Cash Payment or Shares"
in this proxy statement.
- In addition to receiving the cash payment of $4.00 per share, each record
holder being redeemed in connection with the proposed reverse stock split
will be entitled to receive an additional cash payment if, within one
calendar year from the date of this meeting, the Massachusetts state
legislature enacts legislation that expands legalized gaming in The
Commonwealth of Massachusetts and such legislation authorizes the
Westwood Group to install slot machines at its Wonderland racetrack
facility. If such legislation is enacted, the Board of Directors of the
Westwood Group will engage an independent financial advisor, and in
consultation with this advisor, will determine the valuation of the
Westwood Group in light of such legislation, and based upon such
valuation, will pay each redeemed record holder any increase in value
above the $4.00 per share cash payment received in connection with the
reverse stock split, which will be payable at such time and in such
manner as determined by the Board of Directors. This contingent right
will not be transferable, except in the event of death of the record
holder. See also the information under the caption "Contingent Cash
Payment" in this proxy statement.
- If the proposed reverse stock split is consummated, the Westwood Group
intends promptly to initiate a tender offer for shares of its Common
Stock and shares of its Class B Common Stock in order to provide
remaining stockholders (other than officers and directors of the Westwood
Group) who do not receive a cash payment in connection with the reverse
stock split an opportunity to tender one post-reverse stock split share
in exchange for a cash payment equal to $2,000. See also the information
under the caption "Conduct of the Westwood Group's Business After the
Reverse Stock Split" in this proxy statement.
- In order to authorize the amendment to the Certificate of Incorporation
and approve the reverse stock split, the following stockholder votes are
required: (i) a majority of the votes entitled to be cast at the meeting
by the holders of the outstanding shares of Common Stock and Class B
Common Stock, voting together as a single class, (ii) a majority of the
votes entitled to be cast at the meeting by the
1
unaffiliated holders of the outstanding shares of Common Stock voting as
a separate class, and (iii) a majority of the votes entitled to be cast
at the meeting by the holders of the outstanding shares of Class B Common
Stock voting as a separate class. For this purpose, an unaffiliated
holder is a holder of either Common Stock or Class B Common Stock other
than Charles F. Sarkis, Richard P. Dalton and Joseph M. Cassin, each an
officer and/or director of the Westwood Group, and Paul M. DiMare, a
former director of the Westwood Group. The votes entitled to be cast at
the special meeting of stockholders are those votes which are held by
holders of Common Stock or Class B Common Stock as of the record date.
See also the information under the caption "Quorum and Vote Required" in
this proxy statement. The reverse stock split will not become effective
until the amendment of the Certificate of Incorporation is filed with the
Delaware Secretary of State's office following its approval at the
special meeting of stockholders.
- Stockholders may either vote in person at the special meeting or by using
the attached proxy card. If voting by proxy, a stockholder should specify
his or her choice with regard to the proposed reverse stock split on the
enclosed proxy card. All properly executed proxies delivered to the
Westwood Group in time will be voted at the special meeting. A
stockholder may revoke his or her proxy at any time before it is voted at
the special meeting by giving written notice to the President of the
Westwood Group, executing and delivering to the President of the Westwood
Group a proxy card bearing a later date, or voting in person at the
special meeting. Any executed, but unmarked, proxies will be voted for
the reverse stock split. See also the information under the caption
"Proxies" in this proxy statement.
- The Westwood Group, Charles F. Sarkis, Richard P. Dalton and Joseph M.
Cassin are the filing persons of a Rule 13e-3 Transaction Statement on
Schedule 13E-3, in accordance with the Securities Exchange Act of 1934,
as amended. Each of Messrs. Sarkis and Dalton is a stockholder and a
director of the Westwood Group. Mr. Cassin is an option holder and a
director of the Westwood Group. In addition, Mr. Sarkis is Chairman, and
Mr. Dalton is President of the Westwood Group. Each filing person has
determined that the proposed reverse stock split is substantively and
procedurally fair to and in the best interest of the Westwood Group's
unaffiliated stockholders being redeemed pursuant to the reverse stock
split and the unaffiliated stockholders who will retain an equity
interest in the Westwood Group subsequent to the consummation of the
reverse stock split, and recommends that each stockholder vote in favor
of the reverse stock split. See also the information under
"Recommendation of the Board of Directors; Fairness of the Reverse Stock
Split Proposal" in this proxy statement.
- Our Board of Directors and executive officers currently own approximately
5.6% of our outstanding Common Stock and approximately 88% of our
outstanding Class B Common Stock. Each share of Class B Common Stock
entitles its owner to ten votes on each matter submitted to the
stockholders. See also the information under the caption "Quorum and Vote
Required" in this proxy statement. Our Board of Directors and executive
officers will own approximately 6.1% of the Common Stock and 88% of the
Class B Common Stock after the reverse stock split. After the reverse
stock split, the Directors and executive officers will hold approximately
85% of the voting power of the Westwood Group. See also the information
under the caption "Conduct of the Westwood Group's Business After the
Reverse Stock Split" and the caption "Security Ownership of Certain
Beneficial Owners and Management" in this proxy statement.
- Our Board of Directors retained the services of Schroeder & Co. to
provide an opinion as to the fairness from a financial point of view of
the consideration to be paid to the unaffiliated stockholders of the
Westwood Group's Common Stock or Class B Common Stock being redeemed
pursuant to the reverse stock split and the unaffiliated stockholders who
tender one share in connection with the subsequent tender offer.
Schroeder & Co.'s opinion does not address fairness with respect to the
unaffiliated stockholders who will retain an equity interest in the
Westwood Group subsequent to the consummation of the reverse stock split.
See also the information under the caption "Fairness Opinion of Schroeder
& Co." in this proxy statement.
- The Westwood Group has the financial resources available under its
current credit facility with Boston Federal Savings Bank and the balance
from working capital to complete the proposed reverse stock
2
split and the subsequent tender offer. See the information under the
caption "Financing the Reverse Stock Split" in this proxy statement.
- The highest trading price for a share of the Westwood Group's Common
Stock in 2002 prior to the first public filings made in October, 2002 in
connection with the Westwood Group's previously proposed reverse stock
split going private transaction was $1.25 per share, which occurred on
September 12, 2002. The highest trading price for a share of The Westwood
Group's Common Stock from October, 2002 to October, 2003 was $8.00 per
share, which occurred in January, 2003. The most recent trading price for
a share of The Westwood Group's Common Stock prior to the filing of this
proxy statement was $6.00 per share on October 20, 2003. See the
information under the caption "Reasons for and Purpose of the Reverse
Stock Split" in this proxy statement.
- The reverse stock split is not expected to effect our current business
plan or operations. See also the information under the caption "Conduct
of the Westwood Group's Business after the Reverse Stock Split" in this
proxy statement.
- If the reverse stock split is approved, we will be eligible to cease
filing periodic reports with the Securities and Exchange Commission and
we intend to cease public registration of our Common Stock. See also the
information under the captions "Reasons for and Purpose of the Reverse
Stock Split" and "Recommendation of the Board of Directors; Fairness of
Reverse Stock Split Proposal" in this proxy statement.
- For those record holders that receive a cash payment in the reverse stock
split and cease to hold, either directly or indirectly, any shares, you
will need to recognize a gain or loss for federal income tax purposes for
the difference between the amount of cash received and the aggregate tax
basis in your shares of Common Stock or Class B Common Stock. For those
record holders that receive Common Stock, Class B Common Stock or both
incident to the reverse stock split, but no cash, you will not recognize
any gain or loss for federal income tax purposes. If the contingent cash
payment is made, each redeemed stockholder of the Westwood Group
receiving the contingent cash payment would generally recognize gain or
loss as a result of receiving the payment and part of the payment may be
characterized as interest income. See also the information under the
caption "Certain Federal Income Tax Consequences" in this proxy
statement. You are urged to consult with your own tax advisor regarding
the tax consequences of the reverse stock split in light of your own
particular circumstances.
- There are no appraisal rights for any stockholder who dissents from
approval of the reverse stock split under either the Westwood Group's
Certificate of Incorporation or under Delaware General Corporation law.
See also the information under the caption "Appraisal Rights" in this
proxy statement.
3
THE WESTWOOD GROUP, INC.
PROXY STATEMENT
NOVEMBER , 2003
This proxy statement is furnished to the stockholders of THE WESTWOOD
GROUP, INC., in connection with the solicitation of proxies by the Board of
Directors of the Westwood Group to be voted at the special meeting of
stockholders and at any adjournments of the meeting. The special meeting will be
held at 190 V.F.W. Parkway, Revere, Massachusetts 02151 on December , 2003, at
10:00 a.m. local time.
The approximate date on which this proxy statement and form of proxy card
are first being sent or given to stockholders is November , 2003.
At this meeting you will be asked to consider and vote upon a proposal to
amend The Westwood Group's Certificate of Incorporation, pursuant to which each
share of Common Stock, par value $.01 per share, authorized immediately prior to
the effectiveness of the proposed amendment will be reclassified into one-five
hundredth of one fully paid and non-assessable share of Common Stock so that
every 500 shares of Common Stock authorized immediately prior to the
effectiveness of this amendment will be combined together to form one full share
of Common Stock. At the effective time of the proposed amendment, each share of
Class B Common Stock, par value $.01 per share, authorized immediately prior to
the effectiveness of this amendment will be reclassified into one-five hundredth
of one fully paid and non-assessable share of Class B Common Stock, so that
every 500 shares of Class B Common Stock authorized immediately prior to the
effectiveness of this amendment will be combined together to form one full share
of Class B Common Stock. The Westwood Group will make a cash payment of $4.00
per share to record holders of fewer than 500 shares of either Common Stock or
Class B Common Stock immediately prior to the effectiveness of this amendment.
Certificates for fractional shares of Common Stock and Class B Common Stock will
be issued by reason of this amendment to holders of greater than 500 shares of
either Common Stock or Class B Common Stock immediately prior to the
effectiveness of this amendment.
In addition to receiving the cash payment of $4.00 per share, each record
holder being redeemed in connection with the proposed reverse stock split will
be entitled to receive an additional cash payment if, within one calendar year
from the date of this meeting, the Massachusetts state legislature enacts
legislation that expands legalized gaming in The Commonwealth of Massachusetts
and such legislation authorizes the Westwood Group to install slot machines at
its Wonderland racetrack facility. If such legislation is enacted, the Board of
Directors of the Westwood Group will engage an independent financial advisor,
and in consultation with this advisor, will determine the valuation of the
Westwood Group in light of such legislation, and based upon such valuation, will
pay each redeemed record holder any increase in value above the $4.00 per share
cash payment received in connection with the reverse stock split, which will be
payable at such time and in such manner as determined by the Board of Directors.
If effected, the reverse stock split will enable the Westwood Group to
change from public company status, subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, as administered by the Securities
and Exchange Commission, to private company status. As a private company, the
Westwood Group will not be subject to these reporting requirements.
4
The net effect of the reverse stock split on the record holders of Common
Stock and Class B Common Stock will be as follows:
<Table>
<Caption>
RECORD HOLDER AS OF EFFECTIVE DATE NET EFFECT AFTER REVERSE STOCK SPLIT
- ---------------------------------- ------------------------------------
Record holders holding 500 or more shares of Shares of Common Stock or Class B Common
Common Stock or Class B Common Stock Stock will be converted on a 500 for 1 basis,
immediately prior to the reverse stock split including fractional shares. With respect to
stockholders of record of a number of shares
greater than 500 shares immediately prior to
the reverse stock split, you will receive
fractional shares.
Record holders holding fewer than 500 shares Shares of Common Stock or Class B Common
of Common Stock or Class B Common Stock Stock will be cashed out at a price of $4.00
immediately prior to the reverse stock split per share. Holders of these shares will not
have any continuing equity interest in the
Westwood Group, but will have a right to a
contingent cash payment if the Massachusetts
state legislature enacts legislation that
expands legalized gaming in Massachusetts and
authorizes the installation of slot machines
at the Wonderland racetrack within one
calendar year from the date of this meeting.
</Table>
IF YOU ARE A BENEFICIAL OWNER OF FEWER THAN 500 SHARES OF COMMON STOCK WHO
IS NOT THE RECORD HOLDER OF THOSE SHARES, AND YOU WANT TO HAVE YOUR SHARES
EXCHANGED FOR CASH IN THE REVERSE STOCK SPLIT, YOU SHOULD INSTRUCT YOUR BROKER
OR NOMINEE TO TRANSFER YOUR SHARES INTO A RECORD ACCOUNT IN YOUR NAME. NOMINEES
AND BROKERS MAY HAVE REQUIRED PROCEDURES. THEREFORE, SUCH HOLDERS SHOULD CONTACT
THEIR NOMINEES AND BROKERS TO DETERMINE HOW TO EFFECT THE TRANSFER IN A TIMELY
MANNER PRIOR TO THE DATE OF THE SPECIAL MEETING.
The proposed amendment to the Certificate of Incorporation is attached as
Exhibit A to this proxy statement. The reverse stock split will become
effective, assuming stockholder approval, upon the filing of the proposed
amendment to the Certificate of Incorporation with the Office of the Secretary
of State of the State of Delaware.
Assuming the completion of the reverse stock split and termination of the
Westwood Group's public company status, the Westwood Group intends to initiate a
tender offer for up to an aggregate of 21,000 pre-reverse-split shares of its
Common Stock and up to an aggregate of 3,500 pre-reverse-split shares of its
Class B Common Stock in order to provide remaining record holders of Common
Stock and Class B Common Stock (other than officers and directors of the
Westwood Group) who do not receive a cash payment pursuant to the reverse stock
split an opportunity to tender one post-reverse-split share in exchange for a
per share purchase price equal to $2,000, which reflects the product of (i) 500
times (ii) the $4.00 per share cash payment payable in connection with the
reverse stock split.
Our Board of Directors and each of Charles F. Sarkis, Richard P. Dalton and
Joseph M. Cassin, individually as filing persons, have determined that the
adoption of the proposed reverse stock split is fair to and in the best interest
of the Westwood Group's unaffiliated stockholders being redeemed pursuant to the
reverse stock split and the unaffiliated stockholders who will retain an equity
interest in the Westwood Group subsequent to the consummation of the reverse
stock split, and recommends that you approve the reverse stock split. In
arriving at its recommendation with respect to the reverse stock split, the
Board of Directors considered a number of factors described in the proxy
statement, including, among other things, the fairness opinion of Schroeder &
Co., the Board of Directors' independent financial advisor. The full text of
Schroeder & Co.'s opinion, which describes, among other things, the opinion
expressed, procedures followed,
5
matters considered and limitations on review undertaken in connection with the
opinion, is attached as Exhibit B to this proxy statement. Stockholders are
urged to read Schroeder & Co.'s opinion in its entirety.
RESERVATION OF RIGHTS
Although the Board of Directors requests stockholder approval of the
proposed reverse stock split, the Board reserves the right to decide, in its
discretion, to withdraw the proposed reverse stock split from the agenda of the
special stockholders' meeting prior to any stockholder vote thereon or to
abandon the proposed reverse stock split even if the proposal is approved.
Although the Board of Directors and each of Messrs. Sarkis, Dalton and Cassin,
individually as filing persons, presently believes that the proposed reverse
stock split is in the best interests of the Westwood Group, its unaffiliated
stockholders being redeemed pursuant to the reverse stock split and its
unaffiliated stockholders who will retain an equity interest in the Westwood
Group subsequent to the consummation of the reverse stock split, and thus has
recommended a vote for the proposed amendment to the Certificate of
Incorporation, the Board nonetheless believes that it is prudent to recognize
that, between the date of this proxy statement and the date of the special
stockholders' meeting, factual circumstances could possibly change such that it
might not be appropriate or desirable to effect the reverse stock split at that
time. If the Board decides to withdraw the proposed reverse stock split, the
Board will notify the stockholders of such decision promptly by mail.
FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements, which speak only as of the date
of this proxy statement. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially than those made in,
contemplated by, or underlying the forward-looking statements. For these
reasons, do not place undo reliance on any forward-looking statements included
in this proxy statement.
INFORMATION REGARDING THE SPECIAL MEETING OF STOCKHOLDERS
VOTING; RECORD DATE
The securities that can be voted at the special meeting consist of shares
of Common Stock of the Westwood Group, $.01 par value, and shares of Class B
Common Stock of the Westwood Group, $.01 par value. Each share of Common Stock
entitles its owner to one vote on each matter submitted to the stockholders.
Each share of Class B Common Stock entitles its owner to ten votes on each
matter submitted to the stockholders. The stockholder votes required to
authorize the reverse stock split are: (i) a majority of the votes entitled to
be cast at the meeting by the holders of the outstanding shares of Common Stock
and Class B Common Stock, voting together as a single class, (ii) a majority of
the votes entitled to be cast at the meeting by the unaffiliated holders of the
outstanding shares of Common Stock voting as a separate class, and (iii) a
majority of the votes entitled to be cast at the meeting by the unaffiliated
holders of the outstanding shares of Class B Common Stock voting as a separate
class. For this purpose, an unaffiliated holder is a holder of either Common
Stock or Class B Common Stock other than Charles F. Sarkis, Richard P. Dalton
and Joseph M. Cassin, each an officer and/or director of the Westwood Group, and
Paul M. DiMare, a former director of the Westwood Group. The record date for
determining the holders of Common Stock and Class B Common Stock who are
entitled to receive notice of and to vote at the special meeting is November ,
2003. The votes entitled to be cast at the special meeting of stockholders are
those votes which are held by holders of Common Stock or Class B Common Stock as
of the record date. On the record date, 351,210 shares of Common Stock and
912,015 shares of Class B Common Stock were outstanding and eligible to be voted
at the special meeting, of which approximately 228,310 shares of Common Stock
and 107,399 shares of Class B Common Stock were held by unaffiliated holders of
the Westwood Group.
6
AMENDMENT OF CERTIFICATE OF INCORPORATION TO EFFECT THE REVERSE STOCK SPLIT
Our Board of Directors has unanimously determined that it is advisable to
amend the Westwood Group's Certificate of Incorporation to effect a 500-for-1
reverse stock split of the Common Stock and a 500-for-1 reverse stock split of
the Class B Common Stock, and to provide for the cash payment of $4.00 per share
to the record holders of less than 500 shares of either Common Stock or Class B
Common Stock. The Board has proposed the amendment and the reverse stock split
to the stockholders for approval at the special meeting. The Certificate of
Incorporation provides that if the Westwood Group combines its outstanding
shares of Common Stock or Class B Common Stock, as it is doing in the reverse
stock split, the outstanding shares of each of the Common Stock and Class B
Common Stock will be proportionally combined in the same manner and on the same
basis.
QUORUM AND VOTE REQUIRED
A majority of the outstanding shares of capital stock of the Westwood Group
will constitute a quorum for the special meeting. For the purposes of
determining whether a quorum is present, the shares of Class B Common Stock are
counted the same as the Common Stock despite the fact that the Class B Common
Stock has ten votes per share. In counting the shares to determine whether a
quorum exists at the special meeting, the number of all shares voting "for,"
"against," or "withheld" and abstentions (including instructions to withhold
authority to vote) will be used. Proxies marked as abstentions or broker
non-votes will be treated as shares present for purposes of determining whether
a quorum is present.
While only the affirmative approval of a majority of the votes entitled to
be cast at the meeting by holders of the issued and outstanding shares of Common
Stock and Class B Common Stock, voting together as a single class, is required
to approve the proposed reverse stock split pursuant to the Westwood Group's
Certificate of Amendment and Delaware law, the Board of Directors is also
requiring: (i) a majority of the votes entitled to be cast at the meeting by the
holders of the outstanding shares of Common Stock held by unaffiliated
stockholders, voting as a separate class, and (ii) a majority of the votes
entitled to be cast at the meeting by the unaffiliated holders of the
outstanding shares of Class B Common Stock voting as a separate class. For this
purpose, an unaffiliated holder is a holder of either Common Stock or Class B
Common Stock other than Charles F. Sarkis, Richard P. Dalton and Joseph M.
Cassin, each an officer and/or director of the Westwood Group, and Paul M.
DiMare, a former director of the Westwood Group. The votes entitled to be cast
at the special meeting are those votes which are held by holders of Common Stock
or Class B Common Stock as of the record date.
It is anticipated that approximately 19,600 voting shares of Common Stock
owned or controlled on the record date by directors and executive officers of
the Westwood Group, constituting approximately 5.6% of the outstanding Common
Stock, will be voted in favor of the proposal. It is anticipated that
approximately 804,616 voting shares of Class B Common Stock, owned or controlled
on the record date by directors and executive officers of the Westwood Group,
constituting approximately 88% of the outstanding Class B Common Stock will be
voted in favor of the proposal. The directors and executive officers of the
Westwood Group represent approximately 85% of the voting power of the Westwood
Group.
APPRAISAL RIGHTS
No appraisal rights are available under either the Delaware General
Corporation Law or the Westwood Group's Certificate of Incorporation to any
stockholder who dissents from approving the reverse stock split.
PROXIES
Stockholders should specify their choice with regard to the proposal on the
enclosed proxy card. All properly executed proxies delivered by stockholders to
the Westwood Group in time to be voted at the special meeting and not revoked
will be voted at the special meeting in accordance with directions given. IN THE
ABSENCE OF INSTRUCTION, THE SHARES REPRESENTED BY A SIGNED AND DATED PROXY CARD
WILL BE VOTED "FOR" THE PROPOSAL LISTED ON THE PROXY CARD AND DESCRIBED IN THIS
PROXY STATEMENT. Proxies voted as abstentions will not be counted as votes
7
cast. In addition, shares held in street name which have been designated by
brokers on proxy cards as not voted will not be counted as votes cast. Such
abstentions and broker non-votes will have the effect of a vote against the
proposed reverse stock split. For any other matters that properly come before
the special meeting, the persons named as proxies will vote upon these matters
according to their judgment. Those persons named as proxies will not use
discretionary voting authority to postpone or adjourn the special meeting to
solicit additional proxies.
Any stockholder delivering a proxy has the power to revoke it any time
before it is voted by giving written notice to the President of the Westwood
Group at 190 V.F.W. Parkway, Revere, Massachusetts 02151, by executing and
delivering to the President a proxy card bearing a later date or by voting in
person at the special meeting. The presence of a stockholder at the special
meeting will not automatically revoke that stockholder's proxy.
In addition to soliciting proxies through the mail, the Westwood Group may
solicit proxies through its directors, officers and employees in person and/or
by telephone. Brokerage firms, nominees, custodians and fiduciaries also may be
requested to forward proxy material to the beneficial owners of shares held of
record by them. All expenses incurred in connection with the solicitation of
proxies will be borne by the Westwood Group.
EXCHANGE OF CERTIFICATES FOR CASH PAYMENT OR SHARES
Assuming the approval of the stockholders of the proposed reverse stock
split, the Westwood Group will file an amendment to its Certificate of
Incorporation, in the form of Exhibit A attached to this proxy statement, with
the Office of the Secretary of State of the State of Delaware. The reverse stock
split will become effective on the date of the filing of the amendment to its
Certificate of Incorporation, which is anticipated to be the same date on which
the special meeting is held. EquiServe Trust Company, N.A. has been appointed
exchange agent to carry out the exchange of certificates for new Common Stock
and new Class B Common Stock and/or cash.
As soon as practicable after the effective date of the reverse stock split,
the stockholders will be notified and asked to surrender their certificates
representing shares of Common Stock or Class B Common Stock to the exchange
agent. Those record holders beneficially owning 500 shares or more of Common
Stock or Class B Common Stock will receive in exchange certificates representing
shares of new Common Stock or Class B Common Stock on the basis of one share of
new Common Stock for each 500 shares of Common Stock held prior to the reverse
stock split and one share of new Class B Common Stock for each 500 shares of
Class B Common Stock held prior to the reverse stock split, and in cases where a
record holder does not beneficially own a number of shares evenly divisible by
500, the record holder will receive fractional shares of new Common Stock and/or
new Class B Common Stock following the reverse stock split. Record holders
owning fewer than 500 shares on the effective date of the reverse stock split
will receive in exchange a cash payment in the amount of $4.00 per share.
If the reverse stock split is effected, any stockholder beneficially owning
fewer than 500 shares of the currently outstanding Common Stock or Class B
Common Stock will cease to have any rights with respect to the Common Stock or
Class B Common Stock of the Westwood Group, except to be paid in cash, as
described in this proxy statement. No interest will be paid or accrued on the
cash payable to record holders after the reverse stock split is effected.
If and when the reverse stock split is effected, each certificate
representing shares of Common Stock and Class B Common Stock that was
outstanding prior to the reverse stock split and that was held by a stockholder
of record of 500 or more shares immediately prior to the reverse stock split,
until surrendered and exchanged for a new certificate, will be deemed for all
corporate purposes to evidence ownership of such number of shares as is set
forth on the face of the certificate divided by 500. Each fractional share of
new Common Stock and new Class B Common Stock will be entitled to a
corresponding vote on matters submitted to a vote of stockholders after the
reverse stock split is effected.
8
No service charges will be payable by stockholders in connection with the
exchange of certificates or the payment of cash, all expenses of which will be
borne by the Westwood Group.
Nominees (such as a bank or broker) may have required procedures, and a
stockholder holding Common Stock in street name should contact his or her
nominee to determine how the reverse stock split will affect them. If you are a
beneficial owner of fewer than 500 shares of Common Stock, and you want to have
your shares exchanged for cash, you should instruct your nominee to transfer
your shares into a record account in your name in a timely manner so that you
will be considered a holder of record immediately prior to the effective date of
the reverse stock split, which is anticipated to be the same date on which the
special meeting is held. A stockholder holding less than 500 shares of Common
Stock in street name who does not transfer shares into a record account in a
timely manner may not have his or her shares redeemed in connection with the
reverse stock split.
If you are a beneficial owner of more than 500 shares of Common Stock, and
you anticipate participating in the proposed post-reverse stock split tender
offer, you should instruct your nominee to transfer your shares into a record
account in your name in a timely manner so that you will be considered a holder
of record for purposes of the tender offer.
In the event that any certificate representing shares of Common Stock or
Class Common B Stock is not presented for cash upon request by the Westwood
Group, the cash payment will be administered in accordance with the relevant
state abandoned property laws. Until the cash payments have been delivered to
the public official pursuant to the abandoned property laws, such payments will
be paid to the holder thereof or his or her designee, without interest, at such
time as the payment has been properly presented for exchange.
CONTINGENT CASH PAYMENT
In addition to receiving the cash payment of $4.00 per share, each record
holder being redeemed in connection with the proposed reverse stock split will
be entitled to receive an additional cash payment if, within one calendar year
from the date of the stockholders' meeting, the Massachusetts state legislature
enacts legislation that expands legalized gaming in The Commonwealth of
Massachusetts and such legislation authorizes the Westwood Group to install slot
machines at its Wonderland racetrack facility. If such legislation is enacted,
the Board of Directors of the Westwood Group will engage an independent
financial advisor to advise it in determining the contingent cash payment. The
Board, with the assistance of the independent financial advisor, will determine
the valuation of the Westwood Group in light of such legislation, and based upon
such valuation, will pay each redeemed record holder any increase in value above
the $4.00 per share cash payment received in connection with the reverse stock
split.
The valuation will be determined by taking into account such factors (among
others) as the gaming tax rate, any licensing fees and the number of slot
machines that may be authorized to be placed at the company's Wonderland
racetrack facility, each as determined by such legislation and the related
regulations, as well as the capital improvement costs that the Westwood Group
would likely need to incur and the term of such license and/or legislation. The
Westwood Group, at this time, is unable to place a meaningful value on any of
these factors and will not be able to do so until such time that the legislation
is ever enacted. The amount to be received by a redeemed stockholder will be
calculated based upon this valuation and such person's ownership percentage of
the issued and outstanding capital stock of the Westwood Group immediately prior
to the stockholders' meeting. The payment schedule for this contingent cash
payment will be determined promptly after the completion of the Board's
valuation analysis, taking into account the Westwood Group's ability to make
such payment out of then available funds.
Once the Board's analysis has been completed and a good faith estimate of
the valuation of the Westwood Group is determined, the Westwood Group will
notify each redeemed stockholder in writing of the amount of the contingent cash
payment due to be paid to such person as well as when he or she could expect to
receive such payment. This notice will be accompanied by a written summary of
the analysis used by the Board of Directors to determine the amount of the
contingent cash payment. At the time that payment of this contingent cash
payment is to be made, the Westwood Group will forward the appropriate amount to
the last known address of each redeemed stockholder. Redeemed stockholders may
inform the Westwood Group of
9
any changes of address by sending a change of address notice to the following
address: The Westwood Group, Inc., 190 V.F.W. Parkway, Revere, Massachusetts
02151, Attention: President.
There can be no assurance that legislation to expand gaming will be passed
in Massachusetts within the one year period immediately following the
stockholders' meeting, or if enacted, that such legislation will authorize the
installation of slot machines at the Wonderland racetrack or will be on terms
that will result in an increased valuation of the Westwood Group, and,
consequently there is no assurance that this contingent cash payment will ever
be paid to any redeemed stockholder. If legislation expanding gaming is enacted
and such legislation does not result in an increased valuation of the Westwood
Group, no stockholder will receive the contingent cash payment. In addition, if
a contingent cash payment is determined to be made, the Westwood Group is unable
at this time to determine the amount of any such contingent cash payment or the
timing of payment to the redeemed stockholders.
There will be no certificates issued to redeemed stockholders for this
contingent cash payment, and no interest, distributions or dividends will be
paid thereon. This right to a contingent cash payment is non-assignable and
non-transferable (except upon death of the record holder in accordance with
applicable state law) and does not represent any ownership or equity interest in
the Westwood Group and the holders thereof will not have any voting rights with
respect thereto.
SPECIAL FACTORS
REASONS FOR AND PURPOSE OF THE REVERSE STOCK SPLIT
Our Board of Directors and each of Messrs. Sarkis, Dalton and Cassin,
individually as filing persons, hold the view that the Westwood Group and its
stockholders currently derive no material benefit from continued registration
under the 1934 Act. The Westwood Group has maintained its registered status in
the past in order to provide a trading market for its stockholders.
Unfortunately, the Westwood Group's stockholders have not made use of that
trading market as evidenced by the fact that, to the Westwood Group's knowledge,
twenty-four total public trades were made in its Common Stock between 1999 and
2001. To the Westwood Group's knowledge, there were public trades of Common
Stock on thirteen days made during the 2002 calendar year prior to the public
filings made in October, 2002 in connection with a reverse stock split, which
was never brought to a vote of the stockholders, with the highest per share
trading price of $1.25 per share. During the 2003 calendar year, to the Westwood
Group's knowledge, there were public trades of Common Stock on only twenty days
through October 28, 2003, with a per share price ranging from $2.70 to $8.00 and
an aggregate trading volume of 20,600 shares. The Board believes that this
increase in stock price is due to the increased publicity the Westwood Group has
received in local newspapers in connection with the consent order filed by the
Massachusetts Securities Division and subsequent settlement. See "Background of
the Proposed Reverse Stock Split." The increase is not due to any improved
financial performance of the Westwood Group. Therefore, the filing persons
determined that the increase in the recent share prices of the Westwood Group's
Common Stock is not meaningful and does not alter the analysis or their
conclusion that the proposed reverse stock split is fair to the unaffiliated
stockholders of the Westwood Group. The Board and each of Messrs. Sarkis, Dalton
and Cassin, individually as filing persons, believe that it is highly
speculative whether the Common Stock would ever achieve significant market value
given the lack of a trading market. During this same period, the Westwood Group
was involved in only one private transaction involving its Common Stock at a
price of $3.00 per share. See "Alternatives Considered."
The Westwood Group is also not in a position to use its status as a public
company to raise capital through sales of securities in a public offering in the
future or to acquire other business entities using its stock as the
consideration for any acquisition as a result of its limited trading market.
Moreover, the Westwood Group is not in a position to offer options to purchase
its capital stock as an incentive to prospective employees as a result of this
limited trading market.
The Westwood Group's status as a public company has not only failed to
materially benefit its stockholders, but also, in the Board's view and the view
of Messrs. Sarkis, Dalton and Cassin, individually as filing persons, places a
financial burden on the Westwood Group. As a public company, the Westwood Group
10
incurs direct costs associated with compliance with the Commission's filing and
reporting requirements imposed on public companies. To comply with the public
company requirements, the Westwood Group incurs approximately $185,000 annually
in related expenses as follows:
<Table>
<Caption>
Independent Auditors........................................ $ 50,000
SEC Counsel................................................. 90,000
Financial Printing.......................................... 25,000
Transfer Agent.............................................. 15,000
Miscellaneous Costs......................................... 5,000
--------
TOTAL..................................................... $185,000
========
</Table>
The Westwood Group also incurs substantial indirect costs as a result of,
among other things, the executive time expended to prepare and review these
filings which the Westwood Group estimates to be approximately 250 hours per
year. Since the Westwood Group has relatively few executive personnel, these
indirect costs can be substantial and although there will be no direct monetary
savings if the reverse stock split is effected, the time currently devoted to
the public process could be devoted to other purposes such as sales, marketing
and/or operational projects to further promote the Westwood Group's business.
The estimates set forth above are only estimates. The actual savings that
the Westwood Group may realize may be higher or lower than the estimates set
forth above. In light of the current size and resources of the Westwood Group,
the Board and each of Messrs. Sarkis, Dalton and Cassin, individually as filing
persons, do not believe that such costs are justified; and therefore, each
believes that it is in the best interests of the Westwood Group and its
unaffiliated stockholders to eliminate the administrative and financing burden
associated with being a public company.
In addition to such fees and expenses, the enactment of the Sarbanes-Oxley
Act of 2002 has resulted in the Westwood Group incurring additional expenses in
order to comply with the various requirements thereunder. Even though the
Westwood Group is exempt from many of the requirements because it is not a
listed company, this legislation, among other things, requires the Westwood
Group to adopt certain internal controls and procedures with respect to its
financial statements and annual and quarterly reports as well as to take other
actions necessary to comply with the prescribed standards of corporate
governance. The overall executive time expended on the preparation and review of
its public filings has increased in order for the chief executive and chief
financial officers of the Westwood Group to certify the financial statements in
each of its public filings as required under the Sarbanes-Oxley Act.
In certain respects, moreover, registration under the 1934 Act, has
resulted in the Westwood Group being at a competitive disadvantage with respect
to its privately-held competitors as well as possibly assist opponents of
greyhound racing. In the Board's view and the view of Messrs. Sarkis, Dalton and
Cassin, individually as filing persons, the Westwood Group's competitors and
opponents of greyhound racing generally have in the past used such information
that the Westwood Group files under the 1934 Act to the detriment of the
Westwood Group because such publicly available information can be readily
analyzed by its competitors and opponents of greyhound racing rendering the
Westwood Group at a competitive disadvantage in the marketplace and open to
attack by its opponents at a level not experienced by privately held racetracks.
Conversely, the Westwood Group does not have access to similar information with
respect to rivals nor can it protect information about its business if it is
mandated by federal securities laws to release such information on an annual or
quarterly basis.
The Westwood Group also has faced a number of obstacles over the course of
the last several years which have adversely impacted overall stockholder value.
Specifically, the Westwood Group continues to be negatively impacted by a strong
Massachusetts state lottery, two Indian Casinos in Connecticut and slot machines
at the Lincoln, Rhode Island greyhound track. The casinos and Rhode Island track
are in close proximity to the Massachusetts border and therefore rely upon their
ability to attract Massachusetts patrons. In addition, cruise ships offering
casino gambling sailing from the cities of Lynn and Gloucester, Massachusetts
also attract patrons away from the Wonderland racetrack. The Westwood Group is
at a competitive
11
disadvantage when compared with other New England greyhound racetracks in that
it can offer only a very limited amount of simulcasting from thoroughbred
racetracks.
In August, 2000, animal rights activists were able to obtain the necessary
number of signatures in order to place a binding initiative petition to ban all
wagering on greyhound racing within Massachusetts effective June 1, 2001 on the
November 2000 Massachusetts ballot. If the initiative had passed, it would have
prohibited both live and simulcast wagering at the Westwood Group's Wonderland
racetrack facility, thus, in all likelihood, shutting down its principal
business. The campaign to defeat the ballot initiative was conducted jointly
with the dogtrack in Raynham, Massachusetts through a Ballot Question Committee
established in accordance with the campaign finance laws of Massachusetts of
substantial expense to the Westwood Group. Richard P. Dalton, the Westwood
Group's President and Chief Executive Officer, served as the chairman of the
committee. This initiative was narrowly defeated in the November 7, 2000
election. Despite the defeat of the initiative and the fact that under
Massachusetts law, this ballot initiative cannot be placed on the state-wide
ballot again until 2006, the animal rights activists remain active in their
attempts to cause the Wonderland racetrack to be permanently closed which may
result in additional expense and likely would negatively impact the financial
results of the Westwood Group. Moreover, the advertising campaign directed at
banning greyhound racing continues to negatively affect the image of greyhound
racing.
During 2001, the Westwood Group and the owners of other area racetracks
worked to enact legislation which would permit the Westwood Group and the other
greyhound track to continue to provide simulcast broadcasting of thoroughbred
racing on a more frequent basis, as well as providing for a decrease in the
pari-mutuel taxes paid to the Commonwealth and that the funds available from the
pari-mutuel tax decrease be made available for increases in purses and the
Greyhound Capital Improvement and Promotional Trust Funds as well as the
establishment of a Greyhound Adoption Fund and the implementation of an
off-track betting system. On November 17, 2001, the "Act Providing for
Improvements to the Horse and Greyhound Racing Industry in the Commonwealth and
the Regulation Thereof" was signed into law by the acting Governor of
Massachusetts. Under this new statute, the Westwood Group and the other area
racetracks are permitted to continue to provide simulcast broadcasting of
thoroughbred racing to their patrons until December 2005. This legislation also
provides that the Westwood Group is to pay premiums for the right to simulcast
interstate thoroughbred and harness racing ranging from 3% to 7% for the benefit
of the purse accounts at the Commonwealth's two commercial horse racetracks. In
addition, to the extension and expansion of simulcast broadcasting, this statute
provides for a "purse pool," which will be funded by taxes, fees and assessments
with a minimum of $400,000 being credited to the purse accounts of each
racetrack with any remaining portion being apportioned among the racetracks
pursuant to a formula to be devised by the State Racing Commission. All
unclaimed simulcast wagers collected at each racetrack are to be deposited with
the Massachusetts State Racing Commission for payment to the purse account of
the individual racetracks responsible for such unclaimed wagers. The Westwood
Group also received a one-time grant of $300,035 from the Commonwealth for the
purpose of funding capital improvements and repairs to its facility and
equipment. Finally, the new statute authorizes account wagering at each of the
individual racetracks and establishes a nine member special commission (although
such commission has yet to be established) to study the feasibility of an
off-track betting program in Massachusetts. Despite the enactment of this
legislation, management does not believe that this new legislation has
materially benefited the Westwood Group's overall racing operations since
November 2001.
Management has worked diligently over the past decade in attempting to
convince the Governors and the Massachusetts state legislature of the need to
allow the Commonwealth's commercial racetracks to offer their patrons expanded
gaming opportunities. In connection with these efforts, the Westwood Group
engaged Cummings Associates to prepare studies of the impact on Massachusetts
and its citizens of the expansion of legalized gaming in the Commonwealth, to
lobby state legislators and members of the administration to enact legislation
for such expansion, and to monitor legislative activities in this area. In its
materials, Cummings presented various hypothetical models (alternating the
gaming tax rate and the number of slot machines that may be installed at any one
location) in order to demonstrate the financial impact on Massachusetts from a
tax revenue perspective that the installation of slot machines at different
locations in the Commonwealth. In addition, during this same period, Mr. Sarkis,
Mr. Dalton and the Westwood Group's legislative agents met
12
with various members of the state legislature and members of the administration
to discuss the potential positive ramifications of the passage of new gaming
legislation as demonstrated in the materials prepared by Cummings.
The written report by Cummings Associates, dated December 6, 2002, was
prepared at the request of management of the Westwood Group in connection with
its lobbying efforts for the expansion of gaming. The report provided estimated
gaming tax revenues. Cummings Associates provides its clients with consulting
services in the entertainment, gaming and parimutuel industries. Cumming
Associates is one of the nationally recognized experts in "racinos" in the
United States. The Westwood Group has worked with the principal of Cummings
Associates, Will Cummings, since the 1980's, and Cumming Associates has assisted
management of the Westwood Group with respect to legislative issues, lobbying
efforts, attending and speaking at public hearings and preparing presentations
to local and state officials. Cummings Associates' fees are billed on an hourly
basis to the Westwood Group. For 2002, Cummings Associates was paid
approximately $67,000 for their services, and for 2003 to date, Cummings
Associates' fees are approximately $42,000.
In Cummings Associates report, Cummings Associates assessed the
alternatives for expanded gaming, including adding slot machines at existing
racetrack facilities in Massachusetts and casino gaming in southeastern
Massachusetts. Cummings Associates report assessed estimated gaming-tax revenues
for the Commonwealth of Massachusetts to be from $400 million to $550 million
for 1,500 to 3,500 slot machines at each racetrack and $950 million to $1.1
billion for 1,500 to 3,500 slot machines at each racetrack and a casino in
southeastern Massachusetts. In this analysis, Cummings Associates assumed that
no other casinos or gaming-device facilities are in Massachusetts, gaming-device
operations would be monitored and regulated by a State Gaming Commission, there
would be similar facilities in New Hampshire, existing gaming facilities in
Connecticut and Rhode Island would continue to expand, Massachusetts would
receive 51% of the gaming revenues, an Indian casino in southeastern
Massachusetts would be similar to that in Connecticut, a portion of the
Commonwealth's share of the revenues would be distributed to cities and towns
similar to that procedure used by the Massachusetts State Lottery, and that
market-driven conditions of operations are similar to Rhode Island and
Connecticut, such as substantial investments by racetrack operators, rates of
payout, the types of gaming machines permitted, hours of operation and other
operating policies and procedures. Cummings Associates developed its estimates
of tax revenues by conducting a detailed analyses of the performance of casinos
and slot machine facilities in other states in relation to the demographics of
the market areas which surround them. In its models, Cummings Associates
examined data in each market including the adult population, per capita income,
urban/rural nature and distance to the casinos and did a demographic analysis of
Massachusetts, Rhode Island and New Hampshire. The Westwood Group did not place
any limitations on Cummings Associates with respect to its report.
While various legislation has been introduced, the Massachusetts state
legislature took no action to expand legalized gaming in the years 2000, 2001
and 2002. On October 3, 2002, the then Governor of Massachusetts issued an
executive order establishing a special commission to study and report on the
potential impact, both positive and negative, of the potential expansion of
legalized gaming in Massachusetts. This commission held public hearings in four
locations throughout the Commonwealth and reported its findings to the Governor
on December 31, 2002. This commission's report did not recommend that the
Governor and/or the state legislature enact legislation that would expand
gaming, but instead focused on the various social, financial and economic ways
that the expansion of legalized gaming could possibly impact, both negatively
and positively, the Commonwealth and its citizens. Management is unable to
predict what, if any, impact this report has had or will have on the overall
prospects for the enactment of legislation in Massachusetts to expand legalized
gaming. There is no assurance that the release of this report will prompt or
thwart the introduction or enactment of such legislation. This is not the first
time a commission of this type has been formed. Over the past decade, when
similar commissions have proposed the introduction of gaming legislation,
numerous bills have been introduced, but legislation has never been enacted
despite being supported of by the then Governor of The Commonwealth of
Massachusetts and certain state legislators.
In the Spring of 2003, according to newspaper accounts, Governor Mitt
Romney was considering introducing legislation to allow the installation of
video slot machines at two to four unspecified sites in the
13
Commonwealth which would be determined by means of an auction with five-year
licenses being awarded to the highest bidders. In a hearing of the Government
Regulations Committee of the Massachusetts House of Representatives, Robert
Pozen, Governor Romney's Chief of Commerce and Labor, on behalf of the Romney
administration, stated that 7,200 slot machines at three unspecified sites could
raise as much as $300 million annually in additional state tax revenues. At this
same hearing, a number of other gaming-related proposals were discussed.
In March, 2003, the Massachusetts House of Representatives approved a rule
that would prevent any amendments calling for the expansion of legalized gaming
from being introduced in connection with the deliberations in the House on its
version of the state budget for fiscal year 2004. In addition, on April 15,
2003, the House of Representatives debated two gaming bills related to
permitting slot machines at the Commonwealth's four racetracks and authorizing
slot machines and full-scale casinos. Both of these bills were defeated.
A provision calling for the expansion of legalized gaming was not included
in the Massachusetts budget for fiscal year 2004. According to published
newspaper accounts, the Massachusetts Senate will address the issue of the
expansion of gaming prior to the end of the legislative session in November,
2003 as a means of funding state social programs. To date, no proposal has been
introduced. If in fact the Senate does introduce and approve legislation
authorizing the expansion of legalized gaming, it is entirely unclear whether
either the House of Representatives or Governor Romney will support such
legislation.
If Governor Romney and/or the state legislature determines to introduce
legislation in 2003 to expand legalized gaming, the process to enact gaming
legislation could take a number of months, and it is impossible to predict the
nature of any such legislation and whether the Westwood Group would in fact
benefit from such legislation if ultimately enacted. When recently enacted in
other states, such legislation has had varying results. For example, while the
State of New York enacted gaming legislation in 2001 which provided for slot
machines at certain New York horse tracks, the initial allocation of funds
between the purses and the state lottery commission and the racetracks
prescribed in such legislation appeared to have deterred these racetracks from
installing slot machines at their respective facilities. According to newspaper
accounts, subsequent to the enactment of this legislation, there were prolonged
negotiations between the state and the racetracks with respect to the allocation
of funds. It was not until the parties came to an agreement on the reallocation
of funds from the purses and the state lottery commission to the racetracks
earlier this year that these racetracks announced plans to install slot machines
by the end of 2003 or early 2004.
In comparison, according to publicly available information, the State of
Delaware has three racetracks that were revitalized with the addition of slot
machines. For the year ending June 30, 2002, the total annual revenue at these
three sites with the installation of approximately 5,300 devices was $557
million with $183 million raised in annual government revenues.
The Board and each of Messrs. Sarkis, Dalton and Cassin, individually as
filing persons, did not take into account the potential expansion of gaming in
Massachusetts in determining the fairness to the unaffiliated stockholders being
redeemed pursuant to the reverse stock split and the unaffiliated stockholders
who will retain an equity interest in the Westwood Group subsequent to the
consummation of the reverse stock split because the impact and potential
benefits of gaming are speculative and unpredictable at this time. Based on the
foregoing, each believes that it is prudent to proceed with the proposed reverse
stock split at this time while funds are available to consummate the reverse
stock split. See "Recommendation of the Board of Directors; Fairness of the
Reverse Stock Split" for the discussion of the determination of fairness of the
reverse stock split. However, in the event that gaming is expanded in
Massachusetts and slot machines are permitted at the Wonderland racetrack, each
redeemed stockholder will receive a payment in an amount to be determined as set
forth in more detail under "Contingent Cash Payment."
In light of the previously described obstacles and legislative uncertainty
surrounding gaming, the Board of Directors and each of Messrs. Sarkis, Dalton
and Cassin, individually as filing persons, determined that it would be in the
best interest of unaffiliated stockholders being redeemed pursuant to the
reverse stock split and the unaffiliated stockholders who will retain an equity
interest in the Westwood Group subsequent to the consummation of the reverse
stock split to authorize a reverse stock split. The purpose of the reverse stock
split is to terminate the equity interests in the Westwood Group of
approximately 376 record holders of
14
Common Stock and two record holders of Class B Common Stock that own fewer than
500 shares of Common Stock or Class B Common Stock, at a price determined to be
fair by the Board of Directors in order to relieve the Westwood Group of the
administrative burden and cost and competitive disadvantages associated with
filing reports and otherwise complying with the requirements of registration
under the federal securities laws by deregistering its Common Stock, and to
permit small stockholders to receive a fair price for their shares without
having to pay brokerage commissions. Furthermore, the proposed contingent cash
payment, if paid, would provide the redeemed stockholders with an opportunity to
benefit from the expansion of legalized gaming and installation of slot machines
at the Wonderland racetrack within one year of the proposed stockholders'
meeting. Moreover, the Board and each of Messrs. Sarkis, Dalton and Cassin,
individually as filing persons, has determined that the proposed reverse stock
split provides smaller, unaffiliated stockholders with an expeditious and
beneficial mechanism for liquidating their equity interest, particularly in
light of the lack of liquidity available to holders of Westwood Group Common
Stock at any trading price.
The Westwood Group presently has approximately 421 stockholders of record,
of which approximately 310 own 100 shares or less. In the aggregate, the shares
held by these small holders comprise less than 1% of the outstanding capital
stock. The administrative burden and cost to the Westwood Group of maintaining
records in respect of these numerous small accounts and the associated cost of
printing and mailing information to them is, in the Board's view, excessive
given the Westwood Group's size. These expenditures result in no material
benefit to the Westwood Group. The reverse stock split will enable the Westwood
Group to eliminate much of this cost.
If the reverse stock split is consummated, stockholders owning fewer than
500 shares of Common Stock or Class B Common Stock will no longer have any
equity interest in the Westwood Group and will not participate in any future
earnings of the Westwood Group or any increases in the value of the Westwood
Group's assets or operations, except to the extent provided by the proposed
contingent cash payment being offered to redeemed stockholders. The stockholders
that will continue to have a common equity interest in the Westwood Group after
the reverse stock split will own a security, the liquidity of which will be
restricted. The share price offered by the Westwood Group to record holders of
less than 500 shares of Common Stock or Class B Common Stock was not determined
either pursuant to arms length negotiations with an independent third party or
on the basis of over the counter trading of the Common Stock and therefore does
not necessarily reflect an actual market value of the Common Stock. See
"Recommendation of the Board of Directors; Fairness of the Reverse Stock Split"
and "Fairness Opinion."
The reverse stock split will (i) cause the Westwood Group to redeem shares
held by approximately 376 holders of record of Common Stock, (ii) not eliminate
record holders who hold 500 or more shares of Common Stock and Class B Common
Stock, (iii) reduce the number of shares, on a pro-rata basis, held by the
holders of record who hold 500 or more shares of Common Stock and Class B Common
Stock, and (iv) change the percent of Common Stock held by the remaining
stockholders to 100%.
Assuming the completion of the reverse stock split and termination of the
Westwood Group's public company status, the Westwood Group intends to initiate a
tender offer for up to an aggregate of 21,000 pre-reverse-split shares of its
Common Stock and up to an aggregate of 3,500 pre-reverse-split shares of its
Class B Common Stock in order to provide remaining record holders of Common
Stock and Class B Common Stock (other than officers and directors of the
Westwood Group) who do not receive a cash payment pursuant to the reverse stock
split an opportunity to tender one post-reverse-split share in exchange for a
per share purchase price equal to $2,000 per share, which reflects the product
of (i) 500 times (ii) the $4.00 per pre-reverse-split share cash payment payable
in connection with the reverse stock split.
ALTERNATIVES CONSIDERED
In making the determination to proceed with the reverse stock split, the
Board and each of Messrs. Sarkis, Dalton and Cassin, individually as filing
persons, considered a number of other alternatives to take the company private.
As discussed below, however, these other alternatives were ultimately rejected
because the Board and each of Messrs. Sarkis, Dalton and Cassin individually as
filing persons, believed that
15
the reverse stock split would be the simplest and most cost effective approach
in which to achieve the purposes described above.
One alternative that was considered was an issuer tender offer to
repurchase shares of outstanding Common Stock. This alternative was dismissed
because its results would be too unpredictable. Due to its voluntary nature, it
was not certain that a sufficient number of stockholders would participate in a
tender offer to reduce the holders of Common Stock to fewer than 300.
A merger and/or sale of the Westwood Group was also determined not to be a
viable option due to the greater cost (as compared with a reverse stock split)
of acquiring all of the Westwood Group's outstanding stock (other than stock
held by officers and directors) which would be cost prohibitive in light of its
current financial condition. In addition, the Westwood Group had not been
approached by a suitable merger candidate nor did the Board and Messrs. Sarkis,
Dalton and Cassin individually as filing persons, believe that the value of the
consideration that a potential acquirer would likely offer to the Westwood Group
stockholders would reflect an appropriate return of their investment. Over the
past three years, the Westwood Group had received some preliminary inquiries
from third parties to purchase its real property, but these inquiries and
discussions never resulted in substantive negotiations with a third party and/or
entity into any type of purchase and sale agreement. In December, 1999, an
entity controlled by a stockholder then beneficially holding more than 5% of the
Westwood Group's Common Stock made an unsolicited, non-binding offer to purchase
the property located at 190 VFW Parkway, Revere, Massachusetts for an aggregate
purchase price of $10,000,000, which was subsequently increased orally to
$12,000,000. The offeror did not actively pursue the acquisition proposal with
the Westwood Group beyond his initial inquiry. On August 16, 2000, the Westwood
Group entered into a settlement agreement and mutual release with this offeror
regarding his equity ownership. Pursuant to this arrangement, the offeror agreed
to cancel certain stock options in the Westwood Group held by him, sell certain
of his shares of common stock in the Westwood Group to a third party for $3.00
per share and release the Westwood Group and Charles Sarkis from certain alleged
claims in consideration for $140,755 and the payment of his legal expenses.
BACKGROUND OF THE PROPOSED REVERSE STOCK SPLIT
In November, 2000, the Board of Directors, which was comprised at the time
of Charles F. Sarkis, Richard P. Dalton and Paul DiMare, directed Richard P.
Dalton, in his capacity as President, to begin a preliminary examination of the
full range of strategic alternatives available to the Westwood Group in an
effort to maximize stockholder value, including the advantages and disadvantages
of no longer being a public company, particularly in light of the lack of a
meaningful trading market for its Common Stock. Mr. Dalton, with the assistance
of company counsel, developed an outline of various strategic alternatives
available to the Westwood Group as well as the steps necessary to be taken to
implement each such alternative, which would be discussed with the entire Board
of Directors.
On January 11, 2001, the Board of Directors met to review strategic
alternatives available to the Westwood Group in an effort to maximize
stockholder value. All three directors were present at the meeting. The Westwood
Group's outside corporate counsel and a representative of Alouette Capital were
also present. Richard P. Dalton, in his capacity as President of the Westwood
Group, presented the Board with preliminary financial results from the most
recently completed fiscal year, which indicated that the Westwood Group
continued to experience financial difficulties. The Board discussed at length
how the financial burdens of maintaining the Westwood Group's public company
status far outweighed any tangible benefits it received as a public company in
light of the overall declining revenues and financial condition of the Westwood
Group. The Board determined that this financial burden, coupled with the
continued challenges that the Westwood Group faced in competing with its
competitors and battling opponents of greyhound racing, negatively impacted the
overall financial outlook of the Westwood Group. Accordingly, the Board decided
to proceed to review and discuss possible strategic alternatives available to
the Westwood Group. The Westwood Group's counsel discussed the fiduciary
obligations that the Board members had to be mindful of in considering the
number of strategic alternatives. The Board then discussed the need to engage an
investment banker to advise the Board of Directors on pursuing and analyzing
strategic alternatives as well as eventually providing a fairness opinion with
respect to the price per share payable to its record stockholders. Mr. Dalton
stated that he had had
16
conversations with investment banking firms to determine, among other factors,
how much experience each investment banking firm had with valuing businesses of
comparable size and nature to the Westwood Group and the approximate cost and
timetable to advise and, if necessary, deliver a fairness opinion to, the Board
of Directors. Based upon these discussions, Mr. Dalton recommended that the
Board retain Alouette Capital, Inc. Alouette Capital and its principals have
worked closely in the past with the members of the Westwood Group's Board of
Directors on matters relating to the Westwood Group as well as advising the
Westwood Group's Chairman, Charles Sarkis, with respect to matters relating to
his other companies. In addition, Alouette Capital is experienced in matters
relating to the valuation of securities and has extensive knowledge of the
operations of the Westwood Group. The Board of Directors authorized Mr. Dalton
to engage Alouette Capital to serve as the Westwood Group's financial advisor to
advise the Board of Directors of strategic alternatives and, if requested, to
provide the Board of Directors with a fairness opinion. The terms of Alouette
Capital's engagement were finalized in an engagement letter, dated as of January
11, 2001.
In addition, at this meeting, the Board of Directors authorized Mr. Dalton,
to engage an independent third party appraiser to conduct an appraisal of the
Westwood Group's real estate as an initial step to assist the Board of Directors
in determining the valuation of the Westwood Group.
The Westwood Group engaged RM Bradley & Co., Inc., an independent
third-party valuation and consulting services company located in Boston,
Massachusetts, on January 24, 2001 in order to appraise the Westwood Group's
real estate. RM Bradley is in the business of providing commercial and
residential brokerage, property management, valuation and consulting services to
a number of local and national clients. The Westwood Group had engaged RM
Bradley in 1998 in connection with its prior credit facility, and, therefore,
was familiar with RM Bradley's work, and believed that its familiarity with the
real property made this a cost effective engagement. In consideration for its
appraisal, the Westwood Group agreed to pay RM Bradley a fee of $7,675.
At the Westwood Group's instruction, this appraisal valued the real
property as vacant land, taking into account the costs of demolition for the
racetrack, grandstand, facilities and buildings located on the site, in
determining the market value of the property. No other limitations were imposed
by the Westwood Group on the scope of RM Bradley's analysis in rendering its
appraisal. The property was valued using a sales comparison methodology, in
which the appraiser compared the site to similar properties that had been
recently sold or were for sale in the proximate geographical area for the period
of February, 1999 to September, 2000. The following commercial land sales were
used as comparisons: (i) 101 American Legion Highway, Revere, MA, sold April 27,
1999 for $1,900,000 at $662,945 per acre; (ii) 80 Railway Avenue, Revere, MA,
sold on April 29, 1999 for $2,300,000 at $573,280 per acre; (iii) 204 Maple
Street, Chelsea, MA, sold on July 16, 1999 for $1,200,000 at $703,936 per acre;
(iv) Route 3A and Field Street, Quincy, MA, sold on August 19, 1999 for
$3,500,000 at $554,324 per acre; (v) 1690-1710 Revere Beach Parkway, Everett and
Chelsea, MA, sold on May 16, 2000 for $5,725,000 at $829,710 per acre; (vi) 153
Andover Street, Danvers, MA, sold on February 10, 2000 for $9,949,000 at
$407,103 per acre; (vii) 465 Centre Street, Quincy, MA, sold on September 5,
2000 for $17,450,000 at $1,246,429 per acre; (viii) 90 Pleasant Valley Street,
Methuen, MA, sold on February 12, 1999 for $6,000,000 at $392,362 per acre; (ix)
74 and 100 Foley Street, Somerville, MA, sold on September 8, 1999 for
$19,500,000 at $1,176,826 per acre; (x) End of Griffin Way, Chelsea, MA, sold on
March 24, 2000 for $5,584,000 at $382,204 per acre; and (xi) 222 Lee Burbank
Highway, Revere, MA, sold on January 28, 2000 for $3,188,000 at $1,582,213 per
acre.
In connection with its appraisal, RM Bradley inspected both the buildings
and the site with a representative of the Westwood Group. Furthermore, RM
Bradley reviewed the general market conditions, local supply and demand
characteristics, economic trends in the Boston area, zoning, property tax, and
highest and best use of the land as vacant. RM Bradley conducted market data
through discussions with municipal employees, interviews with commercial
brokers, property managers and brokers, discussions with other appraisers and a
review of real estate journals. RM Bradley also attempted to confirm all
comparable transactions with a principal or broker involved in the transaction.
Based on the comparable land sales method described above, RM Bradley
appraised the real property at $11,500,000, which was based on approximately
27.3 acres of usable land valued at $420,000 per acre. This
17
appraisal was prepared in accordance with the Uniform Standards of Professional
Appraisal Practice, as adopted by the Appraisal Foundation, and the professional
standards and ethical rules of the Appraisal Institute.
On February 13, 2001, the Board of Directors convened again to explore
various strategic alternatives. All three directors were present at this
meeting. The Westwood Group's outside corporate counsel and representatives of
Alouette Capital were also present at this meeting. Mr. Dalton orally reported
that the Westwood Group's real property located at 190 V.F.W. Parkway, Revere,
Massachusetts was appraised by RM Bradley at $11,500,000.
In addition, at Mr. Sarkis' request, a representative of Alouette Capital
then made a presentation as to the potential strategic alternatives available to
the Westwood Group, namely a cash-out merger, a tender offer and a reverse stock
split. In addition, the Alouette Capital representative reviewed with the Board
various methodologies available to the Board in order to determine the valuation
of the Westwood Group, including a comparable company analysis, free cash flow
analysis and an asset based analysis.
The Westwood Group's counsel then provided an overview of the fiduciary
obligations of the Board and the controlling stockholders in any type of going
private transaction.
The Board of Directors discussed the fact that the Westwood Group was under
a financial burden as a result of being a public corporation, and that the SEC
required disclosure of financial and other matters placed the Westwood Group at
a disadvantage with respect to its privately-owned competitors. Consequently,
the Board determined that it was prudent to consider taking the company private.
The Board then discussed the three potential methods to take the Westwood
Group private, namely a cash-out merger, the commencement of a tender offer, or
a reverse stock split. An issuer tender offer to repurchase shares of
outstanding Common Stock was dismissed because its results would be too
unpredictable. Due to its voluntary nature, the Board could not be certain a
sufficient number of stockholders would participate in a tender offer to reduce
the holders of Common Stock to fewer than 300. A merger and/or sale of the
Westwood Group was also determined not to be a viable option due to the
anticipated cost of acquiring all of the Westwood Group's outstanding stock
(other than stock held by officers and directors) which would be cost
prohibitive in light of the Westwood Group's current financial condition. In
addition, the Westwood Group had not been approached by a suitable merger
candidate nor did the Board believe that the value of the consideration that a
potential acquirer would likely offer to the Westwood Group stockholders would
reflect an appropriate return of their investment. In the Board's view, of the
three approaches, the reverse stock split was the most appealing since it would
be cost effective, the outcome was certain, and it would provide smaller,
unaffiliated stockholders with an expeditious and beneficial mechanism for
liquidating their equity interests. In light of the foregoing, the Board,
instructed Mr. Dalton, to explore, with the assistance of counsel, a reverse
stock split and determine the detailed steps that would have to be taken in
order to effect a reverse stock split.
The Board of Directors convened again on May 2, 2001. All three directors
were present at the meeting. The Westwood Group's outside corporate counsel was
also present at the meeting and made a brief presentation to the Board reviewing
the advantages and disadvantages discussed above of the reverse stock split and
each of the other alternatives. Members of the Board asked a number of questions
of counsel and Mr. Dalton, in his capacity as President, concerning the steps
required to be taken to implement the reverse stock split, the cost of this type
of transaction as compared to the other alternatives that were considered, and
the anticipated reaction of stockholders (both those whose entire interest would
be repurchased in the transaction and those who would remain stockholders
following the transaction) to the transaction.
A representative of Alouette Capital was also present at this meeting and
briefly reviewed the previously discussed methods available to the Board to
value the Westwood Group for purposes of a going private transaction.
The Board of Directors further discussed implementing a reverse stock split
combining shares of outstanding Common Stock and Class B Common Stock at a ratio
of 1,500 to 1 as a means of going private, subject to receipt by the Westwood
Group of a written opinion by Alouette Capital with respect to the fairness of
the price to be paid per share to the record holders from a financial point of
view. The Board determined
18
based on the number of stockholders holding a nominal number of shares that the
reverse stock split ratio of 1,500 for 1 was the appropriate ratio to ensure the
reduction in the number of record holders to fewer than 300 persons. The Board
determined that the Westwood Group did not have the financial resources to
provide complete liquidity to the stockholders holding more than 1,500 shares
immediately prior to the reverse stock split. However, in order to provide these
remaining stockholders with some economic benefit, the Board proposed that upon
the completion of the reverse stock split, the Westwood Group would conduct a
tender offer to provide the remaining holders of Common Stock and Class B Common
Stock (other than officers and directors) with an opportunity to receive a cash
payment equal to that amount a stockholder holding 1,500 shares would receive in
connection with the reverse stock split in exchange for one resulting share of
either Common Stock or Class B Common Stock. The Board tentatively concluded
that the Westwood Group should proceed with 1,500 for 1 reverse stock split and
subsequent tender offer.
The Board directed Mr. Dalton, with the assistance of counsel, to begin
preparing the necessary documentation in connection with the proposed reverse
stock split, and requested that Alouette Capital prepare a written report
discussing its financial analysis under each of the various valuation
methodologies to be presented at the next board meeting.
Subsequent to the May 2nd meeting, the Board of Directors postponed any
further action relating to a potential going private transaction in order to
allow Mr. Dalton to focus its time and energy to lobby and work with the
Massachusetts state legislature to ensure the extension of the legislation
permitting the simulcast broadcasting of thoroughbred races at the Westwood
Group's Wonderland racetrack. The Board believed that it was prudent to wait to
proceed with the going private transaction until final passage of this
legislation because proceeding with a going private transaction concurrently
with its efforts to lobby for the passage of the legislation might hamper the
effectiveness of such lobbying efforts. The simulcast legislation was enacted on
November 17, 2001. See "Reasons for Purpose of the Reverse Stock Split."
Subsequent to the passage of the new simulcast legislation, the Board of
Directors determined that it was in the stockholders' best interest to focus on
its operations in light of this new legislation rather than proceeding with a
going private transaction in the hope that this legislation would possibly
enhance the overall value of the company. In addition, during the first half of
2002, Mr. Dalton spent considerable time on negotiating the refinancing of the
Westwood Group's credit facility. These negotiations resulted in the
consummation of a new $6,500,000 credit facility with Boston Federal Savings
Bank in September of 2002. One of the several objectives of the refinancing was
to cause funds to be available to undertake a repurchase of Common Stock should
the Board of Directors decide to do so.
In connection with the refinancing, at the request of Boston Federal
Savings Bank, RM Bradley conducted an appraisal on the company's real property.
The Westwood Group, at the direction of Boston Federal Savings Bank, paid RM
Bradley a fee of $6,500 for its services in connection with this new appraisal.
Boston Federal Savings Bank instructed RM Bradley to value the real estate
as if the land was vacant, taking into account the costs of demolition for the
racetrack, grandstand, facilities and buildings located on the site, in
determining the market value of the property. No other limitations were imposed
on the scope of RM Bradley's analysis in rendering its appraisal. For its
appraisal, RM Bradley inspected both the buildings and the site with a
representative of the Westwood Group. Furthermore, RM Bradley reviewed the
general market conditions, local supply and demand characteristics, economic
trends in the Boston area, zoning, property tax, and highest and best use of the
land as vacant. RM Bradley conducted market data through discussions with
municipal employees, interviews with commercial brokers, property managers and
brokers, discussions with other appraisers and a review of real estate journals.
RM Bradley also attempted to confirm all comparable transactions with a
principal or broker involved in the transaction.
The commercial land sales compared for this report (some of which were the
same properties compared in the previous appraisal report) were as follows: (i)
101 American Legion Highway, Revere, MA, sold on April 27, 1999 for $1,900,000
at $662,945 per acre; (ii) Long Pond Road, Plymouth, MA, sold on February 1,
2001 for $7,200,000 at $485,502 per acre; (iii) Route 1, Saugus, MA, offered on
June 1, 2001 for $10,000,000 at $1,000,000 per acre; (iv) Route 3A and Field
Street, Quincy, MA, sold on August 19, 1999 for $3,500,000 at $554,324 per acre;
(v) 1690 Revere Beach Parkway, Everett and Chelsea, MA, sold on May 16, 2000, at
19
$5,725,000 at $829,710 per acre; (vi) 153 Andover Street, Danvers, MA, sold on
February 10, 2000 for $9,949,000 for $407,079 per acre; (vii) 465 Centre Street,
Quincy, MA, sold on September 5, 2000 for $17,480,000 at $1,246,429 per acre;
(viii) Westgate Mall, Brockton, MA, sold on April 1, 2000 for $11,000,000 at
$687,071 per acre; (ix) 74 and 100 Foley Street, Somerville, MA, sold on
September 8, 1999 for $19,500,000 at $1,176,826 per acre; (x) End of Griffin
Way, Chelsea, MA, sold on March 24, 2000 for $5,584,000 at $382,204 per acre;
and (xi) 222 Lee Burbank Highway, Revere, MA, sold on January 28, 2000 for
$3,188,000 at $1,582,213 per acre.
This appraisal appraised the real property at $13,650,000, which was based
on approximately 26.8 acres of usable land valued at $510,000 per acre. The
increase in the per acre price from the 2001 appraisal report is due to the
increase in the per acre price of the comparable sales analyzed a year and a
half later. This appraisal resulted in an increased valuation of the site of
$2,150,000 from the appraisal performed in 2001 using the sales comparison
methodology it had used in connection with the prior appraisal. This appraisal
was prepared in accordance with the Uniform Standards of Professional Appraisal
Practices, as adopted by the Appraisal Foundation and the Professional Standard
and ethical rules of the Appraisal Institution.
In the course of the first ten months after the passage of the new
simulcast legislation, the Westwood Group did not observe a significant
financial impact on its overall racing operation and, consequently, in the
Board's opinion, this statute had little to no positive impact on stockholder
value. Accordingly, in September of 2002, the Board of Directors determined that
it continued to be in the best interest of its stockholders to proceed with the
going private transaction. In addition, the Westwood Group was in a better
financial position to move forward with a going private transaction at this time
because under the terms of its new credit facility funds were specifically
available to repurchase shares of its capital stock in such a transaction.
On September 17, 2002, the Board of Directors again met to discuss
proceeding with the proposed reverse stock split. All three directors were
present at the meeting. The Westwood Group's outside corporate counsel and
representatives of Alouette Capital attended this meeting as well. The Board
again discussed how the burdens and expenses of being a public company greatly
outweighed any positive aspects in light of the overall declining revenues and
financial condition of the Westwood Group, and that the Westwood Group should
not continue to be a public company. The members of the Board also agreed that
there was no indication from the Massachusetts state legislature that gaming
legislation would be passed anytime in the near future. Consequently, it was
determined that it was in the best interest of all stockholders to proceed with
the reverse stock split in the manner tentatively agreed upon at the May 2nd
board meeting. At this meeting, Alouette Capital presented its written valuation
report describing the three types of methodologies it employed to evaluate the
fair market per share value of outstanding shares of the Westwood Group's
capital stock, namely (i) the capitalization of free cash flow of the Westwood
Group, (ii) the earnings and multiple comparisons to a group of selected
publicly traded companies having certain similar financial characteristics to
those of the Westwood Group, and (iii) an evaluation of the assets and
liabilities of the Westwood Group on a liquidated basis. Based upon these three
analyses, Alouette Capital advised the Board that the per share implied
valuation range for the shares of the Westwood Group's capital stock was between
$1.77 and $3.99.
The Board was also presented with the appraisal described above conducted
by RM Bradley for the company's real property that was performed in connection
with refinancing of its mortgage debt, which appraised the real property at
$13,650,000.
Following the Board's discussion of Alouette Capital's valuation analysis,
its review of most recent real estate appraisal, and in consideration of the
fact that the burdens and expenses of being a public company greatly outweigh an
positive aspects in light of the overall declining revenues and financial
condition of the Westwood Group, the Board unanimously authorized a 1,500-for-1
reverse stock split with a per share purchase price equal to $4.00. The $4.00
per share amount exceeds the highest per share price in Alouette Capital's
implied per share valuation range by $.01 per share. The Board determined that
the $4.00 per share price was fair to unaffiliated stockholders whose stock
would be redeemed pursuant to the reverse stock split from a financial point of
view and the unaffiliated stockholders who tender one share in connection with
the subsequent tender offer. In addition, the Board determined that the reverse
stock split would be fair to
20
unaffiliated stockholders who would retain an equity interest in the Westwood
Group subsequent to the consummation of the reverse stock split.
The Board also unanimously approved that once a reverse stock split was
completed, it would then conduct a tender offer in order to provide the
remaining holders of Common Stock and Class B Common Stock (other than officers
and directors) with an opportunity to receive a cash payment equal to $6,000 for
one share post-reverse stock split of either Common Stock or Class B Common
Stock. The Board directed Mr. Dalton to proceed to seek stockholder approval of
the reverse stock split.
Subsequent to September 17, 2002 meeting, management, together with the
Westwood Group's counsel and Alouette Capital, finalized the proxy statement and
related Schedule 13E-3 Transaction Statement. A definitive proxy statement was
mailed to stockholders on February 13, 2003 in anticipation of a March 19, 2003
meeting of the stockholders.
On March 6, 2003, the Westwood Group received an inquiry from the
Securities Division of the Office of the Secretary of The Commonwealth of
Massachusetts. According to the Securities Division, it had received an
anonymous letter from a stockholder of the Westwood Group raising certain
allegations concerning the proposed reverse stock split. The Westwood Group's
counsel answered all of the Securities Division's questions and provided the
requested materials.
On March 18, 2003, which was one day prior to the scheduled meeting to
approve the proposed reverse stock split, the Westwood Group received an
Administrative Complaint and Ex Parte Motion for a Temporary Order to Cease and
Desist from the Securities Division. The Administrative Complaint claimed that
the Westwood Group failed to disclose certain information to the stockholders in
the prior proxy statement, which the Securities Division alleged to be
"material." Specifically, the Securities Division alleged that the Westwood
Group failed to disclose (i) the existence of loans from the principal of
Alouette Capital to the Westwood Group and Mr. Sarkis; (ii) that Alouette
Capital was not a registered broker dealer, and (iii) the extent of the Westwood
Group's lobbying activities with respect to the passage of gaming legislation.
The stockholders' meeting scheduled for March 19, 2003 to approve the proposed
going private transaction was adjourned in order to permit the Westwood Group to
address this matter, and the stockholders' vote was never taken.
On April 1, 2003, a class action complaint was filed by a stockholder of
the Westwood Group against the Westwood Group and its Board of Directors in the
Court of Chancery in the State of Delaware seeking to enjoin the proposed
reverse stock split on the basis that is not fair to the stockholders and that
the proxy statement omits information alleged to be "material."
As a result of the Administrative Complaint filed by the Securities
Division, the proposed 1500-to-1 reverse stock split was indefinitely suspended.
On April 8, 2003, the Westwood Group filed an answer in response to the
Securities Division's complaint, which denied each of the allegations set forth
in the complaint, and between April and June 2003, the Westwood Group and the
Securities Division negotiated a settlement.
On June 16, 2003, the Westwood Group executed an Offer of Settlement and a
Consent Order was issued. The principal elements of the settlement were as
follows:
(i) The Westwood Group would not commit any future violations of
chapter 110A of Massachusetts General Laws and the corresponding
regulations promulgated thereunder;
(ii) The Westwood Group paid the sum of $10,000 to offset the cost of
the Securities Division's investigation;
(iii) If the Westwood Group retains a fairness opinion provider as
part of any proposed going private transaction, the Westwood Group would
engage a fairness opinion provider that is independent, unaffiliated, and
free from all material conflicts of interest;
(iv) The Westwood Group would not, within the next twelve months,
enter into, effect or consummate with its then existing stockholders a
going private transaction where the common stock of
21
Westwood Group is valued as a per share price of less than $4.00, however,
it could seek review of this provision through petition to the Director of
the Securities Division and he/she may grant such relief at his/her sole
discretion, provided that such relief shall not be unreasonably withheld;
(v) The Westwood Group would include all material facts, consistent
with the SEC's rules, considered by the Board of Directors in reaching its
fairness determination regarding any proposed going private transaction and
would present a fair and balanced representation of the potential expansion
of gaming legislation in Massachusetts consistent with all applicable SEC
rules;
(vi) The Westwood Group would make available to any fairness opinion
provider retained by the Board of Directors to determine the fairness of
any proposed going private transaction, any and all current gaming-related
reports and materials prepared for the Westwood Group by any consultant,
including any financial projections;
(vii) The Westwood Group would present to the Securities Division any
draft of an amendment to the existing February 13, 2003, Proxy Statement or
any other filing under the SEC's Regulation M-A contemporaneously with
submission of the same to the SEC for review;
(viii) The Westwood Group would require approval of any proposed going
private transaction by majority of (a) the unaffiliated stockholders of the
outstanding shares of Common Stock, and (b) the unaffiliated stockholders
of the Class B Common Stock;
(ix) The Westwood Group would value the stock based upon a range
deemed to be fair by the new fairness opinion provider; and
(x) The Westwood Group would include provisions that would pay former
stockholders whose shares have been purchased through the transaction an
additional premium, earn out, or the like, should legislation be enacted
into law, within one (1) year of the stockholders vote approving the
transaction, authorizing the Westwood Group to install slot machines at its
racetrack, with the amount of any payment to former stockholders to be
determined based upon the particular provisions of the statute, and
whether, in fact, the Westwood Group realizes increased revenues in
connection therewith.
On June 17, 2003, the Westwood Group filed a Motion to Dismiss the Court of
Chancery class action lawsuit for mootness on the grounds that the previously
proposed going private transaction has not and will not be completed. On October
23, 2003, the plaintiffs filed a supplemented and amended complaint with the
Court of Chancery alleging that the proposed reverse stock split described in
this proxy statement is not fair to the stockholders of the Westwood Group and
that the proxy statement omits information alleged to be "material." The
supplemented and amended complaint seeks to enjoin the proposed reverse stock
split and damages. The Westwood Group disputes all of the allegations and will
take appropriate actions address the complaint.
The officers and directors of the Westwood Group subsequently turned their
attention to considering whether the Westwood Group should attempt another going
private transaction within the parameters of the settlement with the Securities
Division. In connection therewith, on July 17, 2003, the Board of Directors
appointed Joseph M. Cassin to the Board of Directors. Mr. Cassin is a senior
partner is the law firm of Cassin, Cassin & Joseph, LLP in New York, New York.
He has been practicing law for thirty-six years and founded Cassin, Cassin &
Joseph, LLP, which specializes in real estate transactions, in 1986.
At the same time of Mr. Cassin's appointment to the Board, pursuant to the
requirements of the Westwood Group's settlement with the Securities Division,
the Board engaged Schroeder & Co. to render a fairness opinion from a financial
point of view of the consideration to be paid to the holders of the Westwood
Group's Common Stock and Class B Common Stock in a potential new going-private
transaction. Schroeder & Co. is an independent, third-party private investment
bank which provides financial advice in connection with mergers and acquisition
and evaluates businesses and securities. For its services, Schroeder & Co. will
be paid an aggregate fee of $55,000. In addition, the Board directed management
to provide Schroeder & Co. with all reports prepared in connection with the
previous proposed going-private transaction, including the two real estate
appraisals; Alouette Capital's previous fairness opinion and related report
delivered to the Board of
22
Directors; local and national newspaper stories reporting the expansion of
gaming in and outside Massachusetts; written report prepared by Cummings
Associates on the behalf of the Westwood Group over the previous two year
period; and all recently filed quarterly and annual reports of the Westwood
Group.
On July 21, 2003, the Board of Directors met to discuss the possibility of
proceeding with a new going private transaction. All four directors were present
in person or by telephone at this meeting. The Westwood Group's outside
corporate counsel and Fred Schroeder, the principal of Schroeder & Co. attended
as well. At the beginning of the meeting, Mr. DiMare tendered his resignation as
director because he felt that he could not continue devoting sufficient time and
attention to the Westwood Group due to his other business commitments.
Mr. Dalton, in his capacity as President of the Westwood Group, presented
the Board with preliminary financial results from the most recently completed
fiscal year and fiscal quarter, which indicated that the Westwood Group
continued to experience a decline in financial results. The Board of Directors
discussed the ongoing trends of revenue declining 25% and expenses declining 25%
over the course of the past nine fiscal years from 1994-2002. In addition, the
Board reviewed the results for the second quarter of 2003, with operating
revenue down approximately $930,000 from 2002 and operating expenses increasing
approximately $360,000 from 2002. In addition, Mr. Dalton provided an update on
the status of gaming in Massachusetts and told the Board that there has been no
reported action with respect to expanding legalized gaming in Massachusetts
taken by the state legislature since the Spring of 2003. The Board discussed at
length how the financial burdens of maintaining the Westwood Group's public
company status far outweighed any tangible benefits it received as a public
company in light of the overall declining revenues and financial condition of
the Westwood Group. See "Reasons for and Purposes of the Reverse Stock Split".
The Board determined that this financial burden, coupled with the continued
challenges that the Westwood Group faced in competing with its competitors and
battling opponents of greyhound racing, negatively impacted the overall
financial outlook of the Westwood Group. Accordingly, the Board decided to
proceed to review and discuss possible strategic alternatives available to the
Westwood Group. The Board of Directors, for the benefit of Mr. Cassin, then
discussed the alternatives available to the Westwood Group to reduce the number
of stockholders below 300. See "Alternatives Considered" and the description
under the February 13, 2001 meeting under "Background of the Proposed Reverse
Stock Split". The Board reconfirmed that the analyses and reasons for
implementing the prior going private transaction were still relevant, and were
even more so in light of the Westwood Group's current financial position. The
Board determined to proceed with a new reverse stock split going private
transaction pursuant to the terms contained in the Securities Division consent
order, including, (i) not effecting a going private transaction at a valuation
of less than $4.00 per share unless it sought review from the Securities
Division, (ii) requiring the approval of a majority of the unaffiliated
stockholders, and (iii) offering a contingent cash payment to those stockholders
whose stock would be redeemed in the event that slot machines are permitted at
Wonderland racetrack facility within one calendar year of the date of the
stockholders' meeting to approve the going private transaction.
Mr. Schroeder of Schroeder & Co. then presented his initial analysis to the
Board, which is set forth under the caption "Fairness Opinion of Schroeder &
Co." In performing his analyses and in arriving at its opinion of the fairness
of the proposed transaction to unaffiliated stockholders, Mr. Schroeder advised
the Board that he made assumptions about general business and economic
conditions, specific industry conditions, and other matters relevant to the
Westwood Group. He explained to the Board that the most significant assumption
made was that the greyhound racing and simulcast businesses at the Wonderland
racetrack facility would continue to experience declining revenue and decreased
profitability. Moreover, he advised the Board that he could not make any
assumptions in his analysis with respect to possible enactment of legislation in
Massachusetts to expand legalized gaming or its possible financial impact on the
Westwood Group. Mr. Schroeder explained that, in his view, the probability,
nature and timing of such legislation, its potential financial impact on the
Westwood Group and the requirements in capital investment, taxes, and other
possible conditions that might be imposed on the Westwood Group by such
legislation were not predictable at that time. After his presentation, the Board
requested that Mr. Schroeder continue his analysis based on his initial report,
and the Board requested that Mr. Dalton provide him with additional materials to
review prior to the next board meeting.
23
The Board then ratified the engagement of RM Bradley, which had been
engaged by the Westwood Group to conduct a new appraisal of the Westwood Group's
real estate for a fee of $6,500. RM Bradley has previously provided appraisals
to the Westwood Group in connection with its credit facility and the previously
proposed going private transaction. At the Westwood Group's instruction, RM
Bradley's appraisal valued the real property as vacant land, taking into account
the costs of demolition for the racetrack, grandstand, facilities and buildings
located on the site, in determining the market value of the property. No other
limitations were imposed by the Westwood Group on the scope of RM Bradley's
analysis in rendering its appraisal. The property was valued using a sales
comparison methodology, in which the appraiser compared the site to similar
properties that had been recently sold or were for sale in the proximate
geographical area for the period of April 1999 to March 2003. The following
commercial land sales were used as comparisons: (i) 101 American Legion Highway,
Revere, MA, sold April 27, 1999 for $1,900,000 at $662,945 per acre; (ii) Route
3A and Field Street, Quincy, MA, sold on August 19, 1999 for $3,500,000 at
$554,324 per acre; (iii) 1690 Revere Beach Parkway, Everett and Chelsea, MA,
sold on May 16, 2000 for $5,725,000 at $829,710 per acre; (iv) 153 Andover
Street, Danvers, MA, sold on February 10, 2000 for $9,949,000 at $407,103 per
acre; (v) 465 Centre Street, Quincy, MA, sold on September 5, 2000 for
$17,450,000 at $1,246,429 per acre; (vi) 74 and 100 Foley Street, Somerville,
MA, sold on September 8, 1999 for $19,500,000 at $1,176,826 per acre; (vii) End
of Griffin Way, Chelsea, MA, sold on March 24, 2000 for $5,584,000 at $382,204
per acre; (viii) 222 Lee Burbank Highway, Revere, MA, sold on January 28, 2000
for $3,188,000 at $1,582,213 per acre; (ix) Route 1, Saugus, MA, offering price
of $10,000,000 at $1,000,000 per acre; (x) Westgate Mall, Brockton, MA, leased
on April 1, 2000 for $11,000,000 at $687,071 per acre; (xi) Long Pond Road,
Plymouth, MA, sold on February 1, 2001 for $7,200,000 at $485,502 per acre; and
(xii) Rear Lee Burbank Highway and Tomasello Road, Revere, MA, sold on March 31,
2003 for $10,000,000 at $358,295 per acre.
In connection with its appraisal, RM Bradley inspected both the buildings
and the site with a representative of the Westwood Group. Furthermore, RM
Bradley reviewed the general market conditions, local supply and demand
characteristics, economic trends in the Boston area, zoning, property tax, and
viewing the highest and best use of the land as vacant. RM Bradley conducted
market data through discussions with municipal employees, interviews with
commercial brokers, property managers and brokers, discussions with other
appraisers and a review of real estate journals. RM Bradley also attempted to
confirm all comparable transactions with a principal or broker involved in the
transaction. Based on the comparable land sales method described above, RM
Bradley appraised the real property at $13,700,000, which was based on
approximately 26.76 acres of usable land valued at $511,000 per acre. This
appraisal was prepared in accordance with the Uniform Standards of Professional
Appraisal Practice, as adopted by the Appraisal Foundation, and the professional
standards and ethical rules of the Appraisal Institute.
At the conclusion of this meeting, the Board decided to continue discussion
of with the proposed going-private transaction in more detail at the next Board
meeting.
On July 28, 2003, the Board of Directors held a telephonic Board meeting in
which all three directors, Messrs. Sarkis, Dalton and Cassin, participated. The
Westwood Group's outside corporate counsel and Mr. Schroeder also participated.
The Board continued to discuss the Westwood Group's declining financial position
and the potential going private transaction. The Board also discussed what ratio
it would utilize in a potential reverse stock split. In its prior attempt to
take the Westwood Group private by means of a reverse stock split, the Board
proposed a 1,500-to-1 ratio, which would have redeemed the highest number of
stockholders from the funds then available to the Westwood Group. The Board
reflected on the Westwood Group's current financial state, and determined that
it would be prudent to discuss and evaluate other ratios that would bring the
total number of record holders below 300, but would reduce the amount of cash
that the Westwood Group would need in order to redeem these stockholders. The
Board decided to discuss the ratio further at another board meeting the
following day.
On July 29, 2003, the Board held another telephonic meeting, in which all
three directors, Messrs. Sarkis, Dalton and Cassin, participated. The Westwood
Group's outside corporate counsel and Mr. Schroeder also participated. The Board
again discussed how the burdens and expenses of being a public company greatly
outweighed any positive aspects in light of the overall declining revenues and
financial condition of the Westwood Group, and that the Westwood Group should
not continue to be a public company. The members
24
of the Board also agreed that, to their knowledge, there was no indication that
the Massachusetts state legislature would address expanding legalized gaming
until the Fall of 2003 at the earliest.
At this meeting, Mr. Schroeder presented an oral valuation report in which
he discussed two valuation methodologies, Discounted Cash Flow Analysis and a
Market Comparison Analysis, which Schroeder & Co. did not use because the
Westwood Group's present and projected operations have resulted in negative
earnings and negative cash flows. Both methodologies require positive earnings
or cash flows as principal components of their valuation techniques. Mr.
Schroeder then described two methodologies which were employed by Schroeder &
Co. to indicate the value per share of the Westwood Group's capital stock to be
redeemed pursuant to the reverse stock split, namely (i) Enterprise Value
Analyses based upon the Westwood Group's average EBITDA over the last three
years and an Enterprise Value Analysis based upon the Westwood Group's best
EBITDA in the last five years and (ii) an evaluation of the assets and
liabilities of the Westwood Group on a liquidated basis. Based upon these
analyses, Schroeder & Co. advised the Board that the per share implied valuation
range for the shares of the Westwood Group's capital stock to be redeemed from
the unaffiliated stockholders was between $1.16 and $2.05. Mr. Schroeder advised
the Board that recent public market trading prices per share as reported by the
Pink Sheets did not appear to be a reflection of the value of the Westwood
Group's Common Stock based on the nature of the trading. In 2003, the stock
traded on each of two days for the months of January, February, March, May, and
June and on three days in April. On one day in January, the market price of the
common stock ranged from $4.50 per share to $8.00 per share on volume of 1,300
shares. In February, the market price fell 59%, from $.50 per share to $3.10 per
share, on successive trades twelve days apart. In May, the market price fell to
$2.70 per share on successive trades of 1,000 shares each twenty days apart. The
stock has not had any activity since June 20, 2003 when 100 shares were traded
at $4.60 per share. A more detailed discussion of Schroeder & Co.'s valuation
report is set forth below under the section entitled "Fairness Opinion of
Schroeder & Co."
Following the Board's discussion of Schroeder & Co.'s valuation analysis,
its review of most recent real estate appraisal, and in consideration of the
fact that the burdens and expenses of being a public company greatly outweigh
any positive aspects in light of the overall declining revenues and financial
condition of the Westwood Group, the Board unanimously approved the reverse
stock split with a per share purchase price equal to $4.00. The $4.00 per share
amount represented a substantial premium over Schroeder & Co.'s implied per
share valuation range. Based on the factors described below in the section
entitled "Fairness of the Reverse Stock Split to Unaffiliated Stockholders Being
Redeemed in Connection with the Reverse Stock Split," the Board determined that
the $4.00 per share price was fair to unaffiliated stockholders whose stock
would be redeemed pursuant to the reverse stock split from a financial point of
view and the unaffiliated stockholders who tender one share in connection with
the subsequent tender offer. In addition, by offering $4.00 per share, the Board
would not have to delay the proposed transaction further by petitioning the
Securities Division and would offer the stockholders a substantial premium for
their shares over Schroeder & Co.'s valuation range. In addition, based upon the
factors described in the section below entitled "Fairness of the Reverse Stock
Split to Unaffiliated Stockholders Retaining their Interest in the Westwood
Group," the Board determined that the reverse stock split would be fair to
unaffiliated stockholders who would retain an equity interest in the Westwood
Group subsequent to the consummation of the reverse stock split.
The Board discussed, in light of the Westwood Group's deteriorating
financial condition, the expenses incurred in connection with the Securities
Division settlement, the costs and expenses involved in its prior attempt to
take the Westwood Group private, and based on the number of stockholders holding
a nominal number of shares, that the reverse stock split ratio of 500-for-1 was
the appropriate ratio to ensure the reduction in the number of record holders to
fewer than 300 persons in the most cost-effective means possible. The Board
determined that the Westwood Group did not have the financial resources to
provide complete liquidity to the stockholders holding more than 500 shares
immediately prior to the reverse stock split. The Board concluded that the
Westwood Group should proceed with the 500-for-1 reverse stock split.
In addition, the Board also determined that, in order to comply with the
consent order of the Securities Division, it would also offer a contingent cash
payment to the stockholders being redeemed. The directors discussed employing a
contingent cash payment in which each record holder who will be redeemed as a
result of the proposed reverse stock split will be entitled to receive an
additional cash payment, if within one calendar
25
year from the date of the stockholders' meeting to be scheduled to approve the
proposed reverse stock split, the Massachusetts state legislature enacts
legislation that expands legalized gaming in The Commonwealth of Massachusetts
and such legislation authorizes the Westwood Group to install slot machines at
its Wonderland racetrack facility. If such legislation is enacted, the Board of
Directors of the Westwood Group will engage an independent financial advisor,
and in consultation with this advisor, would determine the valuation of the
Westwood Group in light of such legislation, and based upon such valuation will
pay each redeemed record holder any increase in value above the share valuation
paid in connection with the reverse stock split, which would be payable at such
time and in such manner as determined by the Board.
The Board unanimously approved that, once a reverse stock split was
completed, it would then conduct a tender offer in order to provide the
remaining holders of Common Stock and Class B Common Stock (other than officers
and directors) with an opportunity to receive a cash payment equal to $2,000 for
one share post-reverse stock split of either Common Stock or Class B Common
Stock.
On August 13, 2003, the Board of Directors held another telephonic Board
meeting in which all three directors, Messrs. Sarkis, Dalton and Cassin
participated. The Westwood Group's outside corporate counsel and Mr. Schroeder
also participated. In this meeting, Mr. Schroeder informed the Board that,
subsequent to the July 29, 2003 board meeting, further analysis indicated that
the gross per share valuation under the liquidation analysis presented to the
Board at that meeting changed from $2.73 to $3.44 which when subjected to a 25%
minority discount resulted in a valuation of $2.58 rather than $2.05. Mr.
Schroeder explained that upon consultation with the Westwood Group's
accountants, the tax on gain on sales figure in this analysis needed to be it
reduced from the original figure used by Schroeder & Co. In addition, upon
review of the final written appraisal report of RM Bradley dated July 16, 2003,
demolition costs were taken into account by RM Bradley in its appraisal
methodology of the Westwood Group's real estate such that these costs did not
need to be accounted for separately in this analysis.
Mr. Schroeder confirmed that this modification to the liquidation analysis
did not alter its previously delivered opinion that the $4.00 per share cash
payment to be made to unaffiliated stockholders who will be redeemed pursuant to
the proposed reverse stock split and those unaffiliated stockholders who choose
to tender one share in the proposed subsequent tender offer is fair from a
financial point of view.
The Board unanimously agreed that the revised liquidation analysis did not
change in any way the Board's previous determination that the $4.00 per share
cash payment to be made to unaffiliated stockholders who will be redeemed
pursuant to the proposed reverse stock split and those unaffiliated stockholders
who choose to tender one share in the proposed subsequent tender offer is fair
from a financial point of view. At the conclusion of the meeting, the Board
unanimously agreed to continue to proceed with the proposed going private
transaction.
FAIRNESS OPINION OF SCHROEDER & CO.
The Westwood Group engaged Schroeder & Co. to provide financial assistance
and advice with respect to this proposed reverse stock split and to render a
written opinion as to the fairness of the transaction price from a financial
point of view, to the holders of the Westwood Group's Common Stock or Class B
Common Stock whose stock is being redeemed pursuant to the reverse stock split
and to the stockholders who tender one share in connection with the subsequent
tender offer. Other than this engagement, Schroeder & Co. has not provided
investment banking or financial advisory services to the Westwood Group or any
of its officers, directors or their respective affiliates.
Schroeder & Co. is a private investment bank, which evaluates businesses
and their securities, provides financial advice in connection with mergers and
acquisitions and conducts valuations for estate, corporate and other purposes.
Mr. Schroeder is the President of Schroeder & Co. and a former Executive Vice
President of the financial services holding company whose principal subsidiary
was First of Michigan Corporation, a securities broker/dealer. The Westwood
Group selected Schroeder & Co. as its financial advisor based primarily on the
experience of Schroeder & Co. in the valuation of businesses and their
securities and in particular, its knowledge of and experience with small public
companies, such as the Westwood Group. Schroeder & Co. is not a registered
broker/dealer.
26
The Westwood Group did not impose any limitations on the scope of Schroeder
& Co.'s investigation or the procedures followed by it in rendering its opinion.
On July 29, 2003, Schroeder & Co. rendered its oral opinion, which was
subsequently confirmed in a writing, to the Board of Directors of the Westwood
Group to the effect that, as of that date, the price of $4.00 is fair, from a
financial point of view, to the holders of the Westwood Group's Common Stock or
Class B Common Stock whose stock is being redeemed pursuant to the reverse stock
split and the stockholders who tender one share in connection with the
subsequent tender offer.
THE FULL TEXT OF SCHROEDER & CO.'S WRITTEN OPINION, DATED JULY 29, 2003, IS
ATTACHED AS EXHIBIT B TO THIS PROXY STATEMENT. YOU SHOULD READ THAT OPINION FOR
A DISCUSSION OF THE PROCEDURES FOLLOWED AND FACTORS CONSIDERED IN CONNECTION
WITH THE DELIVERY OF SCHROEDER & CO.'S OPINION. THE FOLLOWING IS A SUMMARY OF
THAT OPINION AND THE METHODOLOGY THAT SCHROEDER & CO. USED TO RENDER ITS
FAIRNESS OPINION.
This opinion does not constitute a recommendation to any stockholder of the
Westwood Group as to how such stockholder should vote on any matter relating to
the proposed reverse stock split. Schroeder & Co.'s opinion relates solely to
the fairness, from a financial point of view, of the consideration to be
received by the holders in exchange for shares of Common Stock or Class B Common
Stock being redeemed as a result of the proposed reverse stock split. Schroeder
& Co. consented to the reproduction of its fairness opinion and fairness opinion
outline pursuant to this proxy statement. The unaffiliated holders of the
Westwood Group's Common Stock or Class B Common Stock may, however, rely upon
Schroeder & Co.'s fairness opinion in making their investment decision.
Schroeder & Co.'s advisory services and opinion were provided for the
information and assistance of the Board of Directors in connection with its
consideration of the reverse stock split proposal. Schroeder & Co. was not
requested to opine as to, and its opinion does not address, the underlying
business decision of the Board of Directors to proceed with the reverse stock
split.
In arriving at its opinion and in performing its related financial
analysis, Schroeder & Co. reviewed among other things:
- The Westwood Group's proposed Certificate of Amendment;
- The Westwood Group's annual reports on Form 10-K for the past five fiscal
years ended December 31, 2002;
- The Westwood Group's quarterly report on Form 10-Q for the quarter ended
March 31, 2003;
- Other communications and information provided by the Westwood Group,
including background company and industry information;
- Market price data for the Westwood Group's stock for the past 5 years;
- Financial analysis and forecasts prepared by the Westwood Group's
management;
- Cummings Associates report, dated December 6, 2002, and pro formas and
presentations prepared for the Westwood Group and for others, dated
February, March, April, May and June, 2003; and
- The Appraisal Reports of RM Bradley & Co., Inc., dated January 21, 2001,
July 25, 2002 and July 16, 2003.
On June 10, 2003, Mr. Schroeder had a meeting in person with Messrs. Dalton
and Sarkis during which they discussed the Westwood Group's business,
opportunities and prospects. In addition, Mr. Dalton gave Mr. Schroeder a tour
of the Wonderland facility. On July 21, 2003, Mr. Schroeder returned to
Massachusetts in order to participate in a meeting of the Board of Directors.
See the description under the caption "Background of the Proposed Reverse Stock
Split." Throughout the weeks of June 22, June 29, July 7, July 14 and July 21,
2003, Messrs. Schroeder and Dalton had frequent daily telephone conversations
regarding such matters as the financial condition of the Westwood Group, the
prospects of the Westwood Group, the real
27
estate valuations at the Wonderland racetrack facility, financial statistics
regarding the Westwood Group and competitors of the Westwood Group and other
gaming facilities and their financial conditions.
On July 25, 2003, Mr. Schroeder had a telephonic meeting with Will
Cummings, a principal of the Cummings Associates, in which Mr. Cummings provided
Mr. Schroeder with a general overview of the gaming industry and the current
status of gaming in the Commonwealth of Massachusetts. On this same date, Mr.
Schroeder had a telephonic meeting with Kevin Considine, an attorney and
legislative agent for the Westwood Group, in which Mr. Considine discussed the
Commonwealth of Massachusetts' budget for the 2004 fiscal year and the possible
consequences that the expansion of legalized gaming may have on Massachusetts'
four racetracks.
In addition, Schroeder & Co. examined certain publicly available business
and financial information relating to industries in which the Westwood Group
operates. Schroeder & Co. reviewed the financial terms of the reverse stock
split proposal to holders of the Westwood Group's Common Stock or Class B Common
Stock whose stock is being redeemed pursuant to the reverse stock split and the
stockholders who tender one share in connection with the subsequent tender offer
in relation to, among other things, current historical market prices and trading
volumes of its common stock; historical and projected financial results and
other operating data; and the Westwood Group's historical and projected
capitalization and financial condition. The Westwood Group provided Schroeder &
Co. with the forecasted statement of operations for the fiscal year ending
December 31, 2003, which included forecasted operating revenues of $14,015,000,
forecasted operating expenses of $15,265,000, forecasted income (loss) from
operations of ($1,250,000), forecasted other expenses of $379,000, forecasted
income (loss) before tax of ($1,629,000), forecasted income tax of $50,000 and a
forecasted net loss of ($1,679,000). In addition, Schroeder & Co. reviewed the
financial terms of certain recent business combinations; and performed such
other studies and analyses as it considered appropriate.
In arriving at its opinion, Schroeder & Co. assumed and relied upon the
accuracy and completeness of the financial and other information used by
Schroeder & Co. without assuming any responsibility for independent verification
of that information, and further relied upon assurances of the Westwood Group's
management that it was not aware of any fact or circumstances that would make
information inaccurate or misleading. With respect to financial projections, the
Westwood Group advised Schroeder & Co. that the financial projections were
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of its management as to the future financial performance.
Accordingly, Schroeder & Co. assumed that the Westwood Group would perform
substantially in accordance with those projections.
In connection with rendering its opinion, Schroeder & Co. performed certain
analyses as described below. Schroeder & Co. considered four methods to evaluate
the Common Stock to be redeemed: Discounted Cash Flow Analysis; Market
Comparison Analysis; EBITDA Enterprise Value Analysis; and Liquidation Analysis.
The Westwood Group's operations in 2002 and for the twelve months ended March
31, 2003 produced operating losses and negative cash flows. Management's
projections indicate these conditions are expected to prevail for the balance of
2003. At the present time, there is no indication when or if the operations of
the Westwood Group will return to a positive cash flow. These negative results
and uncertain future prospects prohibit the use of Discounted Cash Flow as a
method of analysis. Negative earnings also disallow Market Comparison Analysis
since various earnings measurements are essential components of market price
comparisons. With the constraints imposed by the Westwood Group's negative
operating results, Schroeder & Co. selected two methods to evaluate the Common
Stock to be redeemed pursuant to the reverse split: An Enterprise Value Analysis
based on average EBITDA over the last three years and on the Westwood Group's
highest EBITDA in the last five years and a Liquidation Analysis of the assets
and liabilities of the Westwood Group.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial and comparative analyses
and the application of those methods to the particular circumstances and
therefore, is not readily susceptible to summary description. Furthermore, in
arriving at its opinion, Schroeder & Co. considered the results of all of its
analyses and did not attribute any particular weight to any analysis or factor
considered by it. Accordingly, Schroeder & Co. believes that its analyses must
be considered as a whole and that considering any portion of those analyses and
factors, without considering all
28
analyses and factors as a whole, could create a misleading or incomplete view of
the process underlying its opinion.
In its analyses, Schroeder & Co. made assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond control. The principal and only material assumption made by
Schroeder & Co. with respect to its analyses was that greyhound racing and
simulcast businesses at the Wonderland racetrack would continue to experience
declining revenue and, consequently, a decrease in profitability. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth in the estimates. In addition, analyses relating to
the value of businesses do not purport to be appraisals or to reflect the prices
at which businesses actually may be sold.
Schroeder & Co.'s opinion was necessarily based upon economic, financial,
market and other conditions as they existed on, and could be evaluated as of the
date of its opinion. In rendering its opinion, Schroeder & Co. did not give any
material weight to the book value of Westwood's Common Stock. Based upon the
Westwood Group's balance sheet as of June 30, 2003, the net worth of the
Westwood Group was negative and the book value per share would not represent a
positive value. Schroeder & Co. disclaimed any undertaking or obligation to
advise any person of any change in any fact or matter affecting its opinion
which may come or be brought to its attention after the date of its opinion.
Set forth below is a discussion of each of the selected financial analyses
that Schroeder & Co. presented to the Board at the July 29, 2003 meeting, as
updated at the August 13, 2003 meeting. Schroeder & Co. considered two methods
to evaluate the fair market value of the shares, enterprise value analysis and
an evaluation of the assets and liabilities of the Westwood Group on a
liquidated basis. This discussion summarizes all of the procedures involving
financial analysis selected and followed by Schroeder & Co. in rendering this
opinion.
EBITDA Based Enterprise Value Analysis. Enterprise Value is a company's
worth as derived by comparison to values expressed in transactions in the
current merger and acquisition marketplace. Enterprise value in this analysis is
a function of a multiple applied to a company's earnings before interest, taxes,
depreciation and amortization (called "EBITDA") to establish a price, after
certain adjustments, at which a merger would take place. Market data demonstrate
a general downward trend in EBITDA multiples in acquisition transactions over
the past five years from approximately 9.4 times EBITDA in 1997 to approximately
5.7 time EBITDA in 2002 for transactions under $100 million in value. At the
same time, total middle-market transactions, up to $1 billion in transaction
value, saw a decrease in EBITDA multiples from 10.7 in 1997 to 6.9 in 2002
indicating that smaller transactions generally took place at lower multiples.
The Westwood Group's EBITDA for the most recent year ended December 31,
2002 and for the twelve months ended March 31, 2002 were both negative making it
impossible to calculate a positive Enterprise Equity Value from these most
current financial results. To compensate for these circumstances, Schroeder &
Co. calculated an average EBITDA for the years 2000, 2001, and 2002 to produce
an estimated Enterprise Value which reflects the Westwood Group's average
earnings power over the last three years. Various discounts ranging from 25% to
45% would be appropriate to reflect the fact that minority shares do not have
the ability to transfer control of the Westwood Group to an acquiror and that
minority shares lack the voting power to affect the decision to transfer control
to a third party. Since Value per Share from the three year average EBITDA
analysis is negative, no discount was applied.
29
ENTERPRISE VALUE
FISCAL 2000-2002 AVERAGE
<Table>
<Caption>
(IN THOUSANDS EXCEPT
PER SHARE DATA)
Average EBITDA(a)........................................... $ 656
Multiple.................................................... 5.0x
Enterprise Value............................................ $ 3,280
Less Net Debt (3.31.03)(b).................................. $ 4,888
Enterprise Equity Value..................................... $ (1,608)
Fully Diluted Shares Outstanding............................ 1,570,725
Value per Share............................................. $ Negative
</Table>
- ---------------
<Table>
(a) EBITDA 2000........................................................ $ 921
2001........................................................ 1,135
2002........................................................ (87)
------
$1,969
/3
------
Average EBITDA..................................................... $ 656
</Table>
<Table>
(b) Net Debt Calculation
Current maturities of LTD.............................. $ 103,027
Long Term Debt......................................... 5,848,244
Other Long Term Liabilities............................ 951,952
----------
Total Long Term Debt................................... 6,903,223
Less
Notes Receivable Officers.............................. 1,092,847
Cash From Option/Warrants Exercises.................... 922,500
----------
Net Debt............................................... 4,887,876
</Table>
An analysis was performed using the Westwood Group's highest EBITDA in the
last five years (1998). This analysis resulted in a per share value of $1.55
which resulted in $1.16 per share after a 25% discount, the lowest in the range
of discounts mentioned above.
30
BEST CASE EBITDA ENTERPRISE VALUE ANALYSIS
<Table>
<Caption>
(000'S)
-----------
EBITDA(c)................................................... $ 1,465
Multiple(d)................................................. 5x
Enterprise Value............................................ $ 7,325
Less Net Debt (3.31.03)..................................... $ 4,888
Enterprise Equity Value..................................... $ 2,437
Fully Diluted Shares........................................ 1,570,725
Equity Per Share............................................ $1.55/Share
After 25% Discount.......................................... $1.16/Share
</Table>
- ---------------
(c) Best EBITDA in last five years (1998); resulting from Operating Revenue of
$18,971; Operating Revenue in 2002 was $15,791, a decrease of 17%.
(d) Multiple of 5 is at top of 4 to 5 range appropriate for this size
transaction. Given Revenue and Earnings trends over the last 5 years, a
multiple of 4 is much more likely in a EBITDA based sale transaction.
LIQUIDATION ANALYSIS
If the majority of the stockholders, of the Westwood Group were to choose
not to continue to operate the Westwood Group as a going concern and to
undertake an orderly liquidation, the probable results per share of this action
are detailed below. The most recent real estate appraisal dated July 16, 2003
performed by RM Bradley indicated a value of $13.7 million for the approximately
26.76 acres of usable property after removal of all physical structures. The
appraisal indicated that a marketing period of six months to a year might be
necessary to complete a sale. The analysis includes an estimate of commissions
($685,000), taxes on PP&E gain ($817,999) and cash losses during the marketing
period (approximately $450,000 for six months based on management's twelve month
financial forecast for the year ended December 31, 2003.) Current assets were
reduced by certain prepaid expenses while other assets and intangibles were
eliminated from Other Assets. Property, plant and equipment were reflected at
the RM Bradley appraisal value.
The resultant value per share, $3.44, was subjected to a minority discount
of 25%.
31
<Table>
<Caption>
AS OF MARCH 31, 2003 (000'S)
- -------------------- ----------
ASSETS
Current Assets.............................................. $ 1,608
Property Plant & Equipment.................................. 13,700
Other Assets................................................ 0
----------
Total Assets................................................ $ 15,308
LIABILITIES
Current Liabilities......................................... $ 2,076
Long Term Debt.............................................. 5,848
Other Long Term Debt........................................ 952
----------
Total Liabilities........................................... $ 8,876
Stockholders Equity......................................... 6,432
----------
Total Liabilities & Stockholders Equity..................... $ 15,308
Equity Value of Net Assets.................................. $ 6,432
Plus
Proceeds from Option & Warrant Exercise..................... 923
----------
Equity Value of Net Assets.................................. $ 7,355
Plus Option/Warrant Proceeds................................
Less
Cash Loss During Marketing Period (6 mos.).................. $ 450
Commissions on Sale......................................... 685
Taxes on Gain on Sale....................................... 818
----------
Net Proceeds to Stockholders................................ $ 5,402
Fully Diluted Shares Outstanding............................ 1,570,725
Net Assets Per Share........................................ $ 3.44
After 25% Discount.......................................... $ 2.58
</Table>
In performing its analyses and in arriving at its opinion of the fairness
of the proposed transaction, Schroeder & Co. made assumptions about general
business and economic conditions, specific industry conditions, and other
matters relevant to the Westwood Group. The most significant assumption was that
the greyhound racing and simulcast businesses at the Wonderland racetrack would
continue to experience declining revenue and decreased profitability. In making
such assumption, no consideration was given to the probability, nature or timing
of the possible enactment of legislation in Massachusetts to expand legalized
gaming or its possible effect on the Westwood Group or its operations.
Based upon and subject to the foregoing and based upon other matters
considered relevant, such as the current financial position of the Westwood
Group, the current and historical market prices and trading volume of the
Westwood Group's common stock and the outlook of greyhound racing and the
simulcast business generally, it is Schroeder & Co.'s opinion that, as of July
29, 2003, the price of $4.00, is fair, from a financial point of view to, the
holders of the Westwood Group's Common Stock or Class B Common Stock whose stock
is being redeemed pursuant to the reverse stock split and the stockholders who
tender one share in connection with the subsequent tender offer.
THE EFFECTS OF THE REVERSE STOCK SPLIT
The reverse stock split will reduce the number of record stockholders from
approximately 421 to approximately 54. Termination of registration of the Common
Stock under the 1934 Act would substantially reduce the information required to
be furnished by the Westwood Group to its stockholders and to the
32
Commission and would make provisions of the 1934 Act, such as the short-swing
profit recovery provisions of Section 16(b) of the 1934 Act in connection with
stockholders meetings and the related requirement of an annual report to
stockholders, no longer applicable. Accordingly, for a total expenditure by the
Westwood Group of up to approximately $414,900, the Westwood Group will
eliminate the estimated cost and expense of being a public company of
approximately $185,000 on an annual basis at annual expense levels, which are
anticipated to increase in the future. The Westwood Group intends to apply for
termination as soon as practicable following completion of the reverse stock
split.
The effect of the reverse stock split on a stockholder will depend on the
number of shares that such stockholder owns. For a stockholder holding 500 or
more shares of either Common Stock or Class B Common Stock, all shares of their
stock will be converted into one or more shares of Common Stock or Class B
Common Stock, as the case may be, on a 500 for one basis with fractional shares
resulting for any number of shares that are not divisible by 500. Such remaining
stockholders will be able to participate in the proposed tender offer to take
place provided the proposed reverse stock split is consummated. For stockholders
holding less than 500 shares of either Common Stock or Class B Common Stock, all
shares of either Common Stock or Class B Common Stock, as the case may be, will
be exchanged for a cash payment. No affiliated stockholder of the Westwood Group
holds less than 500 shares of Common Stock or Class B Common Stock. Stockholders
holding stock in their "street name" through a nominee, such as a bank or
broker, should contact their nominee to determine how the reverse stock split
will affect them because nominees may have certain required procedures that a
stockholder must follow.
The reverse stock split will slightly increase the percentage ownership of
each of Messrs. Sarkis, Dalton and Cassin. Mr. Sarkis' percentage of beneficial
ownership of Common Stock will increase approximately 2.0%, and his percentage
ownership of Class B Common Stock will increase approximately 0.01%. Mr.
Dalton's percentage of beneficial ownership of Common Stock will increase
approximately 1.2%. Mr. Cassin's percentage of beneficial ownership of Common
Stock will increase approximately 0.6%. See "Security Ownership of Beneficial
Owners and Management." Because each of Messrs. Sarkis, Dalton and Cassin will
not be redeeming shares of Common Stock and/or Class B Common Stock in
connection with the reverse stock split, each will not recognize any gain or
loss for federal income tax purposes. See "Certain Federal Income Tax
Consequences." The effects of the reverse stock split as of and for the period
ending June 30, 2003 on each of Messrs. Sarkis, Dalton and Cassin's interest in
the net book value of the Westwood Group is ($63,049) or (3.3%), ($0) or (0%)
and ($0) or (0%), respectively. The effects of the reverse stock split for the
same period on each of Messrs. Sarkis, Dalton and Cassin's interest in the net
earnings of the Westwood Group is ($24,322) or (3.3%), ($0), or (0)%, and ($0)
or (0%), respectively.
POTENTIAL DETRIMENTS OF THE REVERSE STOCK SPLIT TO STOCKHOLDERS; ACCRETION IN
OWNERSHIP AND CONTROL OF CERTAIN STOCKHOLDERS
The stockholders owning fewer than 500 shares of either Common Stock or
Class B Common Stock immediately prior to the effective time of the reverse
stock split will, after the reverse stock split takes place, no longer have any
equity interest in the Westwood Group and therefore will not participate in its
future potential earnings or growth. It is expected that all but 54 holders of
Common Stock and Class B Common Stock will be cashed out in the reverse stock
split. It will not be possible for cashed out stockholders to re-acquire an
equity interest in the Westwood Group unless they purchase an interest from the
remaining stockholders.
The reverse stock split will require stockholders who own less than 500
shares of either Common Stock or Class B Common Stock to involuntarily surrender
their shares for cash. These stockholders will not have the ability to continue
to hold their shares until they determine to sell their shares at a price of
their choosing. The ownership interest of the smaller stockholders will be
terminated as a result of the reverse stock split, but the Board concluded that
the completion of the reverse stock split will be an overall benefit to these
stockholders because of the illiquidity issues discussed above.
Potential detriments to the Westwood Group stockholders who remain as
stockholders if the reverse stock split is effected include decreased access to
information and decreased liquidity. If the reverse stock split is
33
effected, the Westwood Group intends to terminate the registration of its Common
Stock under the 1934 Act. As a result of the termination, the Westwood Group
will no longer be subject to the periodic reporting requirements and the proxy
rules of the 1934 Act. Assuming the completion of the reverse stock split and
termination of the Westwood Group's public company status, the Westwood Group
intends to initiate a tender offer as previously described. The Westwood Group
does not foresee any reason that it will not promptly initiate the proposed
tender offer subsequent to the consummation of the reverse stock split.
EFFECT OF THE PROPOSED REVERSE STOCK SPLIT ON OPTION HOLDERS
The number of shares underlying each outstanding stock option will be
decreased by a factor of 500, and the exercise price of each outstanding stock
option will be increased by a factor of 500 as a result of the reverse stock
split. As of the record date, there are options granted to purchase an aggregate
of 117,500 shares of Common Stock which are held by four option holders: Charles
Sarkis, Richard Dalton, A. Paul Sarkis and Joseph M. Cassin.
FINANCIAL EFFECT OF THE REVERSE STOCK SPLIT
The reverse stock split and the use of up to approximately $414,900 of cash
to complete the reverse stock split, which includes legal costs and other
expenses related to the transaction, are not expected to have any material
effect on the Westwood Group's capitalization, liquidity, results of operations
or cash flow. The payments to record holders of fewer than 500 shares of Common
Stock or Class B Common Stock will be made from funds designated under the
Westwood Group's credit facility with Boston Federal Savings Bank for this
purpose and the balance from general working capital.
In addition to receiving the cash payment of $4.00 per share, each record
holder being redeemed in connection with the proposed reverse stock split will
be entitled to receive an additional cash payment if, within one calendar year
from the date of this meeting, the Massachusetts state legislature enacts
legislation that expands legalized gaming in The Commonwealth of Massachusetts
and such legislation authorizes the Westwood Group to install slot machines at
its Wonderland racetrack facility. If such legislation is enacted, the Board of
Directors of the Westwood Group will engage an independent financial advisor,
and in consultation with this advisor, will determine the valuation of the
Westwood Group in light of such legislation, and based upon such valuation, will
pay each redeemed record holder any increase in value above the $4.00 per share
cash payment received in connection with the reverse stock split, which will be
payable at such time and in such manner as determined by the Board of Directors.
At this time, the Westwood Group cannot estimate what the aggregate cash payment
would be upon the expansion of gaming, if any.
PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information presents the effect on the
Westwood Group's historical financial position of the reverse stock split and
the cash payment of $160,000 to record holders of less than 500 shares
attributable to the reverse stock split. The unaudited condensed pro forma
consolidated balance sheet as of June 30, 2003 reflects the transaction as if it
occurred on the balance sheet date. The unaudited condensed pro forma
consolidated statements of income/operations for the year ended December 31,
2002 and the six months ended June 30, 2003 reflect the transaction as if it
occurred at the beginning of each of the periods presented.
The unaudited condensed pro forma consolidated balance sheet is not
necessarily indicative of what the Westwood Group's financial position would
have been if the reverse stock split had been effected on the date indicated, or
will be in the future. The information shown on the unaudited condensed pro
forma consolidated statements of income/operations is not necessarily indicative
of the results of operations.
34
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED BALANCE SHEET
JUNE 30, 2003
<Table>
<Caption>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
ASSETS
CURRENT:............................................ $(160,000)(a)
Cash and cash equivalents........................... $ 479,292 250,000(c) $ 314,392
(254,900)(f)
Restricted cash..................................... 277,439 277,439
Escrowed cash....................................... 174,897 174,897
Prepaid expenses and other current assets........... 292,937 292,937
Notes receivable from officers -- current........... 598,646 598,646
----------- --------- -----------
Total current assets........................... 1,823,211 (164,900) 1,658,311
PROPERTY AND EQUIPMENT, NET......................... 4,522,938 4,522,938
OTHER ASSETS, net of amortization of $83,037........ 242,279 242,279
----------- --------- -----------
Total assets................................... $ 6,588,428 $(164,900) $ 6,423,528
=========== ========= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities............ $ 2,294,697 $ 254,900(e) $ 2,294,697
(254,900)(f)
Outstanding pari-mutuel tickets..................... 451,039 451,039
Current maturities of long-term debt................ 104,710 88,700(c) 193,410
----------- --------- -----------
Total current liabilities...................... 2,850,446 88,700 2,939,146
LONG-TERM DEBT, less current maturities............. 5,821,427 161,300(c) 5,982,727
OTHER LONG-TERM LIABILITIES......................... 918,906 918,906
----------- --------- -----------
Total liabilities.............................. 9,590,779 250,000 9,840,779
----------- --------- -----------
STOCKHOLDERS' DEFICIENCY:
Common stock, $.01 par value; authorized 3,000,000
shares; 1,944,409 and 3,889 shares issued...... 19,444 (19,405)(a) 39
Class B common stock, $.01 par value, authorized
1,000,000 shares; 912,615 and 1,825 shares
issued......................................... 9,126 (9,108)(a) 18
Additional paid-in capital.......................... 13,379,275 28,513(a) 13,407,788
Accumulated deficit................................. (7,949,129) (254,900)(e) (8,204,029)
Other comprehensive loss............................ (496,285) (496,285)
Treasury stock, at cost 1,593,799 and 3,268......... (7,964,782) (160,000)(a) (8,124,782)
----------- --------- -----------
Total stockholders' deficiency................. (3,002,351) (414,900) (3,417,251)
----------- --------- -----------
Total liabilities and stockholders'
deficiency................................... $ 6,588,428 $(164,900) $ 6,423,528
=========== ========= ===========
</Table>
See accompanying notes to the unaudited condensed pro forma consolidated
financial statements.
35
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2002
<Table>
<Caption>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
OPERATING REVENUES:
Pari-mutuel commissions............................. $12,822,610 $ $12,822,610
Admissions.......................................... 1,560,020 1,560,020
Other............................................... 1,411,168 1,411,168
----------- ----------- -----------
Total operating revenues............................ 15,793,798 15,793,798
----------- ----------- -----------
OPERATING EXPENSES:
Wages, taxes and benefits......................... 6,373,593 6,373,593
Purses............................................ 3,527,732 3,527,732
Cost of food and beverage......................... 511,658 511,658
Administrative and operating...................... 5,468,127 (185,000)(b) 5,283,127
Depreciation and amortization..................... 641,504 641,504
----------- ----------- -----------
Total operating expenses............................ 16,522,614 (185,000) 16,337,614
----------- ----------- -----------
LOSS FROM OPERATIONS................................ (728,816) 185,000 (543,816)
----------- ----------- -----------
OTHER EXPENSE:
Interest expense, net............................. (375,068) (13,600)(d) (388,668)
Other expense, net................................ (31,348) (31,348)
----------- ----------- -----------
Total other expense, net....................... (406,416) (13,600) (420,016)
----------- ----------- -----------
Loss before provision for income taxes.............. (1,135,232) 171,400 (963,832)
PROVISION FOR INCOME TAXES.......................... 62,039 62,039
----------- ----------- -----------
NET LOSS............................................ $(1,197,271) $ 171,400 $(1,025,871)
BASIC AND DILUTED PER SHARE DATA:
Net loss.......................................... $ (.95) $ (419.41)(a)
=========== ===========
Shares used in computing loss per share........... 1,263,225 (1,260,779) 2,446
=========== =========== ===========
</Table>
See accompanying notes to the unaudited condensed pro forma consolidated
financial statements.
36
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003
<Table>
<Caption>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
OPERATING REVENUES:
Pari-mutuel commissions............................. $ 5,900,383 $ $ 5,900,383
Admissions.......................................... 66,525 66,525
Other............................................... 1,175,640 1,175,640
----------- ----------- -----------
Total operating revenues............................ 7,142,548 7,142,548
----------- ----------- -----------
OPERATING EXPENSES:
Wages, taxes and benefits......................... 3,252,277 3,252,277
Purses............................................ 1,582,767 1,582,767
Cost of food and beverage......................... 185,543 185,543
Administrative and operating...................... 2,696,924 (91,000)(b) 2,605,924
Depreciation and amortization..................... 337,982 337,982
----------- ----------- -----------
Total operating expenses............................ 8,055,493 (91,000) 7,964,493
----------- ----------- -----------
LOSS FROM OPERATIONS................................ (912,945) 91,000 (821,945)
----------- ----------- -----------
OTHER EXPENSE:
Interest expense, net............................. (201,768) (7,500)(d) (218,298)
Other expense, net................................ (10,000) (10,000)
----------- ----------- -----------
Total other expense, net....................... (211,768) (7,500) (228,268)
----------- ----------- -----------
Loss before provision for income taxes.............. (1,124,713) 83,500 (1,050,213
PROVISION FOR INCOME TAXES.......................... 33,500 33,500
----------- ----------- -----------
NET LOSS............................................ $(1,158,213) $ 83,500 $(1,083,713)
=========== =========== ===========
BASIC AND DILUTED PER SHARE DATA:
Net loss.......................................... $ (0.92) $ (443.06)(a)
Shares used in computing loss per share........... 1,263,225 (1,260,779) 2,446
=========== =========== ===========
</Table>
See accompanying notes to the unaudited condensed pro forma consolidated
financial statements.
37
NOTES TO THE UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed pro forma consolidated financial
statements (the "pro forma financial statements") and related notes are
unaudited. In the opinion of management, the pro forma financial statements
include all adjustments necessary for a fair presentation of the Westwood
Group's financial position and results of operations for the periods presented.
These financial statements should be read in conjunction with the financial
statements and accompanying notes included in the Westwood Group's Annual Report
on Form 10-K for the fiscal year ended December 31, 2002 and the Westwood
Group's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, each
as filed with the Securities and Exchange Commission and attached as Exhibits C
and D to this proxy statement, respectively.
In accordance with the rules and regulations of the Securities and Exchange
Commission, unaudited financial statements may omit or condense certain
information and disclosures normally required for a complete set of financial
statements prepared in accordance with generally accepted accounting principles.
However, the Westwood Group believes that the notes to the financial statements
contain disclosures adequate to make the information presented not misleading.
The pro forma financial statements are prepared in conformity with
generally accepted accounting principles which require management to make
estimates that affect the reported amounts of assets, liabilities, revenues and
expenses, and the disclosure of contingent assets and liabilities. Actual
results could differ from these estimates.
The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the future financial position
or future results of operations of the Westwood Group.
2. PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the historical
financial statements of the Westwood Group based upon assumptions made by
management for the purpose of preparing the unaudited Pro Forma Statements of
Income/Operations and the Pro Forma Balance Sheet.
a) To record the effects of the reverse stock split and payment for
the purchase of 40,000 shares at $4.00 per share. The 40,000 shares being
acquired does not include up to an aggregate of 21,000 shares of Common
Stock and 3,500 shares of Class B Common Stock which may be purchased in a
subsequent tender offer. In addition, subsequent to the reverse stock
split, earnings per share will be retroactively restated for all periods
presented to reflect the stock split as if it occurred at the beginning of
the earliest period presented.
b) To record the estimated cost savings resulting from not being a
public company. These savings include the following items:
<Table>
<Caption>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
2002 2003
------------ ----------
Audit costs associated with Form 10-K procedures and
reporting;................................................ $ 20,000 $
Costs associated with review of Forms 10-Q;................. 30,000 15,000
Legal costs associated with being an SEC Reporting
Company;.................................................. 90,000 45,000
Printing costs associated with filing of Forms 10-K and
10-Q;..................................................... 25,000 15,000
Transfer Agent costs; and................................... 15,000 12,000
Miscellaneous............................................... 5,000 4,000
-------- -------
Total....................................................... $185,000 $91,000
======== =======
</Table>
38
These costs as listed above are directly related to the cost of being a
public company. Recurring costs consist of the cost of an audit of approximately
$50,000 and legal fees of approximately $50,000 per year which are considered to
be normal costs for services to a non-public company. These costs are included
in the historical statement of operations for the periods presented.
c) To record borrowings under the Westwood Group's credit facility to
finance the transaction. The credit facility provides for borrowings up to
$6.5 million, which includes $250,000 to be used for the going private
transaction. The credit facility bears interest at 6.5% and, with the
additional proposed $250,000 of borrowings, will be payable in monthly
installments of $42,164, with a final payment of $5,944,177 on September 1,
2005.
d) To record interest on borrowings used to finance the transaction.
Deferred debt expenses is being amortized on a straight line basis over the
thirty-four month life of the loan.
e) To accrue the unrecorded costs of the going private transaction.
The unrecorded costs consist of the following:
<Table>
Legal fees............................................ $100,000
Transfer and exchange agent fees...................... 15,000
Fees for fairness opinion............................. 55,000
Printing and mailing costs............................ 50,000
Commission filing fees................................ 30
Accounting fees....................................... 27,000
Miscellaneous......................................... 7,870
--------
Total................................................. $254,900
========
</Table>
The fees for legal and accounting are based on estimates provided by the
Westwood Group's legal counsel and accountants. The fees for the fairness
opinion and printing costs were negotiated with the vendors. Transfer agent
and exchange agent fees are estimated based on estimates from the Westwood
Group's transfer agent. Miscellaneous fees include all other costs not
included in the other categories above and are management's best estimate.
These estimated costs do not include fees previously incurred in the
Westwood Group's earlier attempt to go private.
f) To record payment of the costs of the going private transaction.
These pro forma financial statements do not include any adjustments for the
contingent payout since it is not estimatable.
The unaudited pro forma financial statements should be read in conjunction
with the historical financial statements and accompanying footnotes of the
Westwood Group, which are incorporated by reference into this proxy statement.
See "Incorporation of Certain Documents by Reference." The pro forma changes
indicated above are in accordance with paragraph 12 of Accounting Principles
Board Opinion No. 6.
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE REVERSE STOCK SPLIT
The Westwood Group and each of Messrs. Sarkis, Dalton and Cassin,
individually as filing persons, believes that the reverse stock split is fair to
the Westwood Group unaffiliated stockholders being redeemed pursuant to the
reverse stock split and the unaffiliated stockholders who will retain an equity
interest in the Westwood Group subsequent to the consummation of the reverse
stock split. The discussion below analyzes all of the material factors, both
positive and negative, considered by each of the filing persons in reaching its
fairness determination. All references to considerations and conclusions by the
Board as to the substantive fairness and to factors considered by the Board
apply to Messrs. Sarkis, Dalton and Cassin individually as well. Each of Messrs.
Sarkis, Dalton and Cassin adopts the Board's analysis set forth below as his
own. The Board and each of Messrs. Sarkis, Dalton and Cassin, individually as
filing persons, also believes that the process by which the transaction is to be
approved is fair to unaffiliated stockholders being redeemed pursuant to the
39
reverse stock split and the unaffiliated stockholders who will retain an equity
interest in the Westwood Group subsequent to the consummation of the reverse
stock split, and each adopts the Board's analysis of the procedural fairness set
forth below as his own. The Board recommends that the stockholders vote for
approval and adoption of the amendment and the payment of cash to record holders
of fewer than 500 shares of Common Stock or Class B Common Stock as described
above. Each member of the Board and each officer of the Westwood Group who owns
shares of Common Stock or Class B Common Stock have advised the Westwood Group
that he intends to vote his shares in favor of the reverse stock split.
FAIRNESS OF THE REVERSE STOCK SPLIT TO UNAFFILIATED STOCKHOLDERS BEING
REDEEMED IN CONNECTION WITH THE REVERSE STOCK SPLIT
The Board of Directors unanimously approved the reverse stock split and
recommends the reverse stock split to the Westwood Group's stockholders for
approval. In determining the cash consideration to be paid to record holders of
fewer than 500 shares of Common Stock or Class B Common Stock, the Board of
Directors reviewed and considered: (1) the lack of a trading market for the
Westwood Group's shares; (2) the valuation advice and fairness opinion of
Schroeder & Co.; (3) the current market price of the Common Stock and the lack
of liquidity thereof; (4) historical market prices of the Common Stock over the
last two years; (5) the purchase prices paid in the most recent public
transactions in the Common Stock; (6) the lack of dividends declared or paid on
the Common Stock and the restriction on payment of dividends in light of the
Class B Common Stock; (7) the opportunity presented by the reverse stock split
for the record holders owning fewer than 500 shares of Common Stock and/or Class
B Common Stock to liquidate their holdings without incurring brokerage costs,
particularly given the relatively illiquid market of the Common Stock; (8) the
future cost savings that will inure to the benefit of the Westwood Group and its
continuing stockholders as a result of the Westwood Group deregistering its
Common Stock under the 1934 Act; (9) the competitive disadvantage the Westwood
Group suffers from being required to disclose information that its competitors
do not disclose in that, to its knowledge, most of the Westwood Group's
competitors are privately held; (10) appraisal reports prepared by RM Bradley &
Co., Inc., dated as of January 21, 2001, July 25, 2002, and July 16, 2003; (11)
the Offer of Settlement with the Securities Division and the related consent
order; and (12) the continuing deterioration of the financial condition of the
Westwood Group. The Board of Directors did not assign any specific weight to
these factors, however in their considerations individual members of the Board
of Directors may have given differing weights to different factors. Each member
of the Board of Directors considered each of the positive and negative factors
listed above and discussed in more detail below in reaching the determination
that the proposed reverse stock split is fair to unaffiliated stockholders whose
stock is being redeemed pursuant to the reverse stock split.
Fairness Opinion.
Once the Board determined that taking the Westwood Group private was in the
best interests of the Westwood Group unaffiliated stockholders whose stock is
being redeemed pursuant to the reverse stock split and those unaffiliated
stockholders who tender one share in connection with the subsequent tender
offer, the Board engaged Schroeder & Co. to perform various financial analyses
as discussed is greater detail below under the caption, "Fairness Opinion of
Schroeder & Co." Schroeder & Co. used two methods to evaluate the per share
price of the Westwood Group's equity: (i) EBITDA based Enterprise Value
Analysis, which resulted in a per share valuation of $1.16 per share; and (ii)
evaluation of the assets and liabilities of the Westwood Group on a liquidated
basis, which resulted in a per share valuation of $2.58 per share. The Board
adopted these analyses as its own and came to the conclusion that $4.00 per
share is fair to the stockholders, including unaffiliated stockholders whose
stock is being redeemed pursuant to the reverse stock split and those holders
who tender one share in connection with the subsequent tender offer.
Lack of Liquidity and Current and Historical Trading Prices.
The Board of Directors reviewed the Westwood Group's historical market
price of the shares of stock as traded on the Pink Sheets. Based on this
information, the Board took into consideration that during the five year period
between September 1997 and August 2002, the Westwood Group's Common Stock traded
on only
40
thirty-three days, with the highest trading price taking place in February, 1999
at a price of $3.50 per share. During 2002, the Westwood Group's Common Stock
traded on only thirteen days prior to the initial public filings made in
connection with the proposed reverse stock split, with the highest trading price
at $1.25 per share. During the 2003 calendar year to date, to the Board's
knowledge, there were public trades of Common Stock on only twenty days through
October 28, 2003, with per share price ranges from $2.70 to $8.00 and an
aggregate trading volume of 20,600 shares. Therefore, unaffiliated stockholders
who hold less than 500 shares of Common Stock or Class B Common Stock
immediately prior to the reverse stock split are receiving a premium for the
shares to the low end of this trading range pursuant to the reverse stock split
as well as providing liquidity to these stockholders without incurring brokerage
costs.
Moreover, unaffiliated stockholders may elect to remain stockholders of the
Westwood Group by acquiring sufficient shares so that they hold at least 500
shares of either Common Stock or Class B Common Stock in their account
immediately prior to the reverse stock split, which allows them to control the
decision as to whether to remain stockholders after the reverse stock split is
effected or to receive cash consideration offered in connection with the reverse
stock split.
The Westwood Group and each of Messrs. Sarkis, Dalton and Cassin,
individually as filing persons, took note of the recent purchases of its Common
Stock ranging from $2.70 to $8.00 per share. The Board believes that this
increase in stock price is due to the increased publicity the Westwood Group
received in local newspapers in connection with the consent order issued by the
Securities Division and subsequent settlement, as described previously herein.
The increase is not due to any improved financial performance of the Westwood
Group, and, therefore, the filing persons determined that the increase in the
recent share prices of its Common Stock was not meaningful and does not alter
the analysis or their conclusion that the proposed reverse stock split is fair
to the unaffiliated stockholders of the Westwood Group. The Westwood Group and
each of Messrs. Sarkis, Dalton and Cassin, individually as filing persons, do
not believe that the recent share prices are representative of the Common
Stock's fair market value because of the lack of liquidity of the Company. In
addition, the Westwood Group's Common Stock is lightly traded, and therefore, a
few trades have a disproportionate impact on trading price. Furthermore, each of
the filing persons presume that the increase in the recent share prices of the
Westwood Group's Common Stock is in response to the public filings made with
respect to the contemplated reverse stock split and believe that purchases of
shares of Common Stock based on the size of the trades were most likely made by
stockholders who hold less than 500 shares of Common Stock who do not wish to be
cashed out in the proposed reverse stock split.
In addition, the Board considered factors that went against determining
that the proposed reverse stock split is fair to unaffiliated stockholders who
are being redeemed in connection with reverse stock split. First, of all, after
the reverse stock split is completed, it is anticipated that there will be no
public market for the Westwood Group's Common Stock, and therefore, stockholders
will not be able to liquidate their shares on the public market. However,
because there were only fourteen days to date during 2003 on which trades
occurred, the current public market is already illiquid. Therefore, the
increased illiquidity of Westwood Group stock will have little impact on the
stockholders who will retain their shares upon the completion of the proposed
reverse stock split.
Net Book Value.
The net book value of the Westwood Group is negative, and therefore, the
Board did not believe it to be a meaningful indicator as to the value of the
Westwood Group.
Going Concern Value.
The Board concluded that the going concern value of the Westwood Group was
equivalent to the valuation obtained by Schroeder & Co. in applying the
enterprise value analysis and that such analysis was appropriately factored into
Schroeder & Co.'s analyses.
41
Liquidation Value.
The Board concluded that the liquidation value of the Westwood Group's
assets was appropriately factored into Schroeder & Co.'s analysis of the assets
and liabilities of the Westwood Group on a liquidated basis.
Purchase Prices Paid in Previous Purchases of Common Stock.
During the past two years, none of Messrs. Sarkis, Dalton or Cassin nor the
Westwood Group purchased shares of the Westwood Group's Common Stock. Therefore,
this factor was not relevant in the Board's fairness determination.
Firm Offers to Acquire Control of The Westwood Group.
During the past two years, the Westwood Group has not received any offers
for the merger, consolidation of the Westwood Group with or into another
company, or the sale or transfer of all or substantially all of the Westwood
Group's assets, or a purchase of the Westwood Group's securities by another
person that would enable such other person to exercise control of the Westwood
Group. Therefore, this factor was not relevant in the Board's fairness
determination.
Lack of Dividends.
The Westwood Group has not declared or paid dividends on the Common Stock
during 2002, 2001, 2000, 1999, or 1998, and the Board does not anticipate
declaring a dividend in the near future. In addition, the Westwood Group has not
paid a cash dividend on its Class B Common Stock to date, and the Board does not
anticipate declaring such a dividend in the near future. Therefore, the Board
determined that there has been no benefit to unaffiliated stockholders from a
dividend standpoint, and any unaffiliated stockholder being redeemed in
connection with the reverse stock split will not likely be relinquishing future
dividends.
Contingent Cash Payment.
If gaming is expanded in Massachusetts within one year from the date of the
stockholders' meeting and the legislation authorizes the Westwood Group to
install slot machines at its Wonderland racetrack facility, the Board will
engage an independent financial advisor, and in consultation with this advisor,
will determine the valuation of the Westwood Group, and based on such valuation,
will pay each redeemed record holder any increase in value above the $4.00 paid
in connection with the reverse stock split. Therefore, the Board determined that
this contingent cash payment provides the unaffiliated stockholders with the
opportunity to benefit from legalized gaming if such legislation is enacted in
Massachusetts in the next year.
FAIRNESS OF THE REVERSE STOCK SPLIT TO UNAFFILIATED STOCKHOLDERS RETAINING
THEIR INTEREST IN THE WESTWOOD GROUP
Fairness Opinion.
The Board adopted Schroeder & Co.'s analyses described in the previous
section under "Fairness Opinion of Schroeder & Co." as its own and came to the
conclusion that $4.00 per share is fair from a financial point of view to those
unaffiliated stockholders retaining an interest in the Westwood Group with
respect to their tendering of one share in connection with the proposed
subsequent tender offer. Schroeder & Co.'s fairness opinion is not relevant to
and does not address fairness with respect to those unaffiliated stockholders
who will retain an interest in the Westwood Group, except with respect to such
stockholders tendering one share in the proposed tender offer.
Lack of Liquidity and Current and Historical Trading Prices.
As a part of its consideration, the Board also examined the negative
consequences to these unaffiliated stockholders following the reverse stock
split by holding shares of Common Stock, which will no longer be publicly
traded. The Board, however, considered this to be a minor consequence due to the
fact that the
42
Westwood Group's Common Stock is currently only traded on the Pink Sheets
infrequently and at minimal volume, and is thus already relatively illiquid due
to the lack of a meaningful trading market as described under this heading in
the previous section. The Board determined that the likely increase in
illiquidity was insignificant compared to the previously discussed benefits that
these unaffiliated stockholders and the Westwood Group would gain by going
private.
Net Book Value.
The net book value of the Westwood Group is negative, and therefore, the
Board did not believe it to be a meaningful indicator as to the value of the
Westwood Group.
Going Concern Value.
The Board's analysis with respect to those unaffiliated stockholders
retaining an interest in the Westwood Group with respect to their tendering of
one share in connection with the proposed subsequent tender offer is described
in the previous section under "Going Concern Value." The Board did not believe
that this factor is relevant to fairness with respect to those unaffiliated
stockholders who will retain an interest in the Westwood Group, except with
respect to their tendering of one share in the subsequent proposed tender offer.
Liquidation Value.
The Board concluded that the liquidation value of the Westwood Group's
assets was appropriately factored into Schroeder & Co.'s analysis of the assets
and liabilities of the Westwood Group on a liquidated basis with respect to the
unaffiliated stockholders who will retain an interest in the Westwood Group with
respect to their tendering of one share in connection with the subsequent
proposed tender offer. The Board did not believe that this factor is relevant to
fairness with respect to those unaffiliated stockholders who will retain an
interest in the Westwood Group except with respect to such stockholders
tendering one share in the subsequent proposed tender offer.
Purchase Prices Paid in Previous Purchases of Common Stock.
During the past two years, none of Messrs. Sarkis, Dalton or Cassin nor the
Westwood Group purchased shares of the Westwood Group's Common Stock. Therefore,
this factor was not relevant in the Board's fairness determination.
Firm Offers to Acquire Control of the Westwood Group.
During the past two years, the Westwood Group has not received any offers
for the merger, consolidation of the Westwood Group with or into another
company, or the sale or transfer of all or substantially all of the Westwood
Group's assets, or a purchase of the Westwood Group's securities by another
person that would enable such other person to exercise control of the Westwood
Group. Therefore, this factor was not relevant in the Board's fairness
determination.
Stockholder Rights.
The Board examined the fact that the proposed reverse stock split will not
materially change the rights, preferences or limitations of those unaffiliated
stockholders who will retain an interest in the Westwood Group subsequent to the
consummation of the reverse stock split. Unaffiliated stockholders who are
retaining an equity interest in the Westwood Group will have a slight increase
in their percentage of ownership. In addition, these unaffiliated stockholders
have some control as to whether they will retain an interest in the Westwood
Group after the completion of the reverse stock split. Just as unaffiliated
stockholders who hold less than 500 shares of Common Stock may purchase
additional shares to bring their holdings to greater than 500 shares, these
unaffiliated stockholders may sell shares of Common Stock to bring their equity
interest to below 500 shares, and, therefore, be in a position to be cashed out
pursuant to the reverse stock split.
43
Termination of Publicly Available Information.
Upon completing the reverse stock split and termination of the Westwood
Group's status as a public company, it will no longer be required to file
periodic reports. Consequently, the unaffiliated stockholders who will be
retaining an equity interest in the Westwood Group will not have available to
them the information regarding the Westwood Group's operations and results that
are currently available to them without formally requesting the same from the
Westwood Group. The Board did not find that this consequence of the reverse
stock split affected the transaction's fairness because these unaffiliated
stockholders still retain the right to obtain certain information from the
Westwood Group under Delaware law. Under Delaware law, a stockholder has the
right to request in writing to inspect a company's books and records and receive
copies thereof for any purpose reasonably related to such person's interest as a
stockholder. At this time, the Westwood Group has yet to determine subsequent to
the reverse stock split becoming effective what if any information it will
provide to unaffiliated stockholders beyond such requirements of Delaware law.
Post-Reverse Stock Split Tender Offer.
Unlike the unaffiliated stockholders being cashed out pursuant to the
proposed reverse stock-split, the unaffiliated stockholders remaining
stockholders after the reverse stock split will not have the opportunity to be
cashed out in full. The Board, however, considered the reverse stock split to be
fair to these unaffiliated stockholders because these stockholders will be able
to tender one share in exchange for a cash payment as a part of the proposed
tender offer. The Westwood Group does not have the funds necessary to complete a
tender offer of all of the outstanding shares of Common Stock and Class B Common
Stock, and therefore, this was one of the factors in determining to effect a
reverse stock split as a means of going private. By allowing these unaffiliated
stockholders to tender one share of either Common Stock or Class B Common Stock,
the tender offer allows these unaffiliated stockholders, if they choose, to
receive a cash payment in exchange for tendering one share equal to the amount
that will be received by an unaffiliated stockholder holding 500 or less shares
in connection with the reverse stock split. Despite the fact that these
unaffiliated stockholders will not be able to receive cash for all of their
shares on equal terms as those unaffiliated stockholders being redeemed in
connection with the reverse stock split, the Board has determined that the
reverse stock split is fair to these unaffiliated stockholders because the
tender offer provides them with some liquidity.
Future Cost Savings.
The Westwood Group currently spends approximately $185,000 annually to
comply with public company requirements, as well as other substantial indirect
costs, such as the executive time expended to prepare and review filings. There
are 310 stockholders who hold 100 shares or less of stock of the Westwood Group,
which comprises less than 1% of the outstanding capital stock. The
administrative burden and cost to the Westwood Group to remain a public company,
which is described in greater detail under the caption, "Reasons for the Reverse
Stock Split," provides no material benefit to the Westwood Group. The future
cost savings of being a private company will benefit the remaining unaffiliated
stockholders.
Expansion of Gaming.
If gaming is expanded in Massachusetts, the unaffiliated stockholders
remaining stockholders after the reverse stock will benefit from future
potential earnings and growth of the Westwood Group. Therefore, while the
unaffiliated stockholders remaining stockholders after the reverse stock split
will not be granted a contingent cash payment as the redeemed stockholders will
receive, the remaining stockholders will receive a similar benefit as the
redeemed stockholders by holding an equity interest in the Westwood Group.
PROCEDURAL FAIRNESS TO ALL UNAFFILIATED STOCKHOLDERS
Each of the members of the Board of Directors also determined that the
reverse stock split is procedurally fair to all unaffiliated stockholders. The
Board did not retain an unaffiliated representative to act on behalf of the
unaffiliated stockholders. Retaining an unaffiliated representative would be an
added expense of the reverse stock split transaction. In addition, the Board of
Directors did not appoint a special committee of the
44
Board given the current composition of the Board, however, the directors
unanimously agreed that the reverse stock split is in the best interests of the
Westwood Group and its stockholders. Despite the fact that certain procedural
safeguards were not employed by the Board, the Board determined that the reverse
stock split is procedurally fair to the unaffiliated stockholders because of the
safeguards that it did put into place, namely, requiring unanimous board
approval, requiring a majority of the votes entitled to be cast at the meeting
by the unaffiliated holders of the issued and outstanding Common Stock and Class
B Stock (each voting as a separate class) to vote in favor of the reverse stock
split, the use of an independent financial advisor, Schroeder & Co., to provide
an opinion as to the fairness from a financial point of view of the $4.00 per
share price to be paid to unaffiliated stockholders whose stock is being
redeemed pursuant to the reverse stock split and the unaffiliated holders who
participate in the subsequent tender offer, and by utilizing three separate
appraisals of its real property conducted by an independent real estate
appraiser, RM Bradley. See "Background of the Proposed Reverse Stock Split." In
addition, unaffiliated stockholders are in a position to control whether or not
they remain stockholders after the reverse stock split by acquiring sufficient
shares so that they hold at least 500 shares immediately prior to the reverse
stock split or selling sufficient shares so that they hold less than 500 shares
immediately prior to the reverse stock split.
CONDUCT OF THE WESTWOOD GROUP'S BUSINESS AFTER THE REVERSE STOCK SPLIT
The Westwood Group expects its business and operations to continue as they
are currently being conducted and, except as disclosed below, the reverse stock
split is not anticipated to have any effect upon the conduct of the business. If
the reverse stock split is consummated, all persons beneficially owning fewer
than 500 shares of Common Stock or Class B Common Stock at the effective time of
the reverse stock split will no longer have any equity interest in, and will not
be stockholders of, the Westwood Group and therefore will not participate in its
future potential or earnings and growth, except to the extent provided by the
contingent cash payment.
If the reverse stock split is effected, the Westwood Group believes that,
based on the Westwood Group's stockholder records, approximately 45 stockholders
will remain as holders of Common Stock, beneficially owning 100% of the
outstanding Common Stock, and fewer than nine will remain as holders of Class B
Common Stock, beneficially owning 100% of the outstanding Class B Common Stock.
These individuals, who now own approximately 90% of the fully diluted Common
Stock, will own approximately 100% of the fully-diluted Common Stock after the
reverse stock split. See "Security Ownership of certain Beneficial Owners and
Management." If the reverse stock split is effected, members of the Board and
executive officers of the Westwood Group will own approximately 6.1% of the
Common Stock and 88% of the Class B Common Stock.
The Westwood Group plans, as a result of the reverse stock split, to become
a privately held company. The registration of the Common Stock under the 1934
Act will be terminated. In addition, because the Common Stock will no longer be
publicly held, the Westwood Group will be relieved of the obligation to comply
with the proxy rules of Regulation 14A under Section 14 of the 1934 Act, and its
officers and directors and stockholders owning more than 10% of the Common Stock
will be relieved of the stock ownership reporting requirements and "short swing"
trading restrictions under Section 16 of the 1934 Act. Further, the Westwood
Group will no longer be subject to the periodic reporting requirements of the
1934 Act and will cease filing information with the Commission. Among other
things, the effect of this change will be a savings to the Westwood Group in not
having to comply with the requirements of the 1934 Act.
As stated throughout this proxy statement, the Westwood Group believes that
there are significant advantages in effecting the reverse stock split and "going
private" and the Westwood Group plans to avail itself of any opportunities it
has as a private company, including, but not limited to, making itself a more
viable candidate with respect to a merger or acquisition transaction with any
one of its competitors or entering into some type of joint venture or other
arrangement. Although management does not presently have an interest in any
transaction nor is management currently in negotiations with respect to any
transaction, there is always a possibility that the Westwood Group may enter
into an arrangement in the future and the remaining stockholders of the Westwood
Group may receive payment for their shares in any transaction in excess of
$4.00.
45
In addition to receiving the cash payment of $4.00 per share, each record
holder being redeemed in connection with the proposed reverse stock split will
be entitled to receive an additional cash payment if, within one calendar year
from the date of this meeting, the Massachusetts state legislature enacts
legislation that expands legalized gaming in The Commonwealth of Massachusetts
and such legislation authorizes the Westwood Group to install slot machines at
its Wonderland racetrack facility. If such legislation is enacted, the Board of
Directors of the Westwood Group will engage an independent financial advisor,
and in consultation with this advisor, will determine the valuation of the
Westwood Group in light of such legislation, and based upon such valuation, will
pay each redeemed record holder any increase in value above the $4.00 per share
cash payment received in connection with the reverse stock split, which will be
payable at such time and in such manner as determined by the Board of Directors.
The valuation will be determined by taking into account such factors (among
others) as the gaming tax rate, any licensing fees and the number of slot
machines that may be authorized to be placed at the company's Wonderland
racetrack facility, each as determined by such legislation and the related
regulations, as well as the capital improvement costs that the Westwood Group
would likely need to incur and the term of such license and/or legislation. The
amount to be received by a redeemed stockholder will be calculated based upon
this valuation and such person's ownership percentage of the issued and
outstanding capital stock of the Westwood Group immediately prior to the
stockholders' meeting. The payment schedule for this contingent cash payment
will be determined at the time of the completion of the Board's valuation
analysis, taking into account the Westwood Group's ability to make such payment
out of then available funds and when it could reasonably expect to receive
additional revenue as a result of the passage of this legislation.
If the reverse stock split is completed and the Westwood Group terminates
its public company status, the Westwood Group will promptly initiate a tender
offer for shares of the Westwood Group's Common Stock and Class B Common Stock.
The tender offer price per share will be at the same $2,000 price per share
received by the stockholders of the Westwood Group in the reverse stock split.
Due to the Westwood Group's limited liquidity, the amount of Common Stock or
Class B Common Stock that any one stockholder would be permitted to tender will
be limited to one share in return for a cash payment equal to the product of (i)
500 times (ii) the $4.00 per share cash payment to be made in connection with
the reverse stock split. This ceiling would be the highest payment received by
any one stockholder as a result of the consummation of the reverse stock split.
The purpose of the tender offer is to provide some cash consideration to
stockholders of Common Stock and Class B Common Stock who will not receive a
cash payment in connection with the reverse stock split.
Other than as described in this proxy statement, neither the Westwood Group
nor its management has any current plans or proposals to effect any
extraordinary corporate transaction; such as a merger, reorganization or
liquidation; to sell or transfer any material amount of its assets; to change
its Board of Directors or management; to change materially its indebtedness or
capitalization; or otherwise to effect any material change in its corporate
structure or business.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material anticipated U.S. federal
income tax consequences of the reverse stock split. This information is not
intended as tax advice to any person, and is not a comprehensive description of
all of the tax consequences that may be relevant to holders of the Westwood
Group's Common Stock and Class B Common Stock. For example, it does not address
special rules applicable to certain persons such as stockholders who are subject
to the alternative minimum tax under the provisions of the Internal Revenue
Code; nor does the discussion address any consequences arising under the laws of
any state, locality or foreign jurisdiction.
The following discussion is based upon the Internal Revenue Code of 1986,
as amended, and the final and temporary Treasury Regulations promulgated under
it, published administrative positions of the Internal Revenue Service, and
reported judicial decisions, all as now existing and currently applicable, and
any or all of which could be changed, possibly on a retroactive basis, at any
time.
46
Each record holder of the Westwood Group who holds shares of Common Stock
or Class B Common Stock prior to the reverse stock split and who ceases to hold,
either directly, indirectly or constructively, any such shares of the Westwood
Group after the reverse stock split, will generally recognize gain or loss for
U.S. federal income tax purposes measured by the difference, if any, between (i)
the cash received by the stockholder in the reverse stock split and the fair
market value of the contingent cash payment, and (ii) the stockholder's basis in
the shares surrendered in the reverse stock split. This gain or loss will
generally be capital gain or loss for U.S. federal income tax purposes if the
shares were held as a capital asset and generally will be long-term capital gain
or loss if the stockholder's holding period in the shares is more than one year
at the time of the reverse stock split.
Depending upon the eventual amount of any contingent cash payment, a
stockholder could generally recognize additional gain or loss in the future to
the extent the contingent cash payment is more or less than the fair market
value ascribed to the contingent cash payment in determining gain or loss on the
shares surrendered in the reverse stock split.
A stockholder may be able to use the open transaction or similar method of
reporting gain or loss. Generally, under the open transaction or similar method,
gain will be recognized on the date of the reverse stock split if the cash
received exceeds the stockholder's basis in the shares surrendered in the
reverse stock split, and if the contingent cash payment is made, gain will be
recognized if the payment exceeds the stockholder's remaining tax basis and loss
will be recognized if the stockholder's remaining tax basis is greater than the
contingent cash payment.
Regardless of the method of reporting the recognition of gain or loss, part
of the contingent cash payment may be characterized as ordinary income on a
discounted basis using interest rates prescribed by the government. Such
ordinary income may have to be reported before the contingent cash payment is
actually paid if the amount of the contingent cash payment is fixed before it is
paid. Any amounts treated as ordinary income will reduce the amount of gain or
increase the amount of loss otherwise recognized by the stockholder.
The Board believes that the reverse stock split will qualify as a
tax-deferred recapitalization to the Westwood Group and to the stockholders who
remain stockholders of the Westwood Group pursuant to Section 368(a)(1)(E) of
the Internal Revenue Code of 1986, as amended.
Accordingly, each stockholder who receives Common Stock, Class B Common
Stock or both incident to the reverse stock split, but no cash, will not
recognize any gain or loss for federal income tax purposes.
The holding period of the Common or Class B Common shares of the Westwood
Group received by a stockholder incident to the reverse stock split will include
the holding period of the Common or Class B Common, as the case may be, shares
surrendered therefor. In general, the aggregate tax basis of the Common or Class
B Common shares of the Westwood Group received by a stockholder incident to the
reverse stock split will equal the aggregate tax basis of the Common or Class B
Common, as the case may be, shares surrendered therefor.
Each stockholder who is to receive cash in the reverse stock split will be
required to furnish the stockholder's social security number or taxpayer
identification number. Failure to provide this information may result in backup
withholding.
EACH STOCKHOLDER IS URGED TO CONSULT WITH THE STOCKHOLDER'S OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT IN LIGHT OF
THE STOCKHOLDER'S OWN PARTICULAR CIRCUMSTANCES.
FINANCING OF THE REVERSE STOCK SPLIT
The Board estimates that the total cost to the Westwood Group of the
reverse stock split for payment of the fractional share interests and the
estimated transactional fees and expenses will be approximately $414,900. The
Westwood Group intends to finance the reverse stock split with $250,000
available under its credit facility with Boston Federal Savings Bank and the
balance from general working capital.
47
The credit facility was entered into on September 3, 2002 by and among
Boston Federal Savings Bank, a financial institution with offices in Burlington,
Massachusetts, Wonderland Greyhound Park, Realty, LLC, a Delaware limited
liability company and a wholly-owned indirect subsidiary of the Westwood Group
as borrower and the Westwood Group as guarantor of the loan. The credit facility
is in the amount of $6,500,000, which bears interest at a rate of 6.5% per annum
and is secured by a mortgage on the land at 190 V.F.W. Parkway, Revere,
Massachusetts. The credit facility's maturity date is September 1, 2005. As of
June 30, 2003, the Westwood Group has drawn down a total of $6,000,000 and all
or a portion of the remaining $500,000 of the loan proceeds will be disbursed
upon satisfaction of certain conditions. $250,000 (of the remaining $500,000)
may be drawn down only in the event the Westwood Group undertakes to purchase
stock from stockholders pursuant to the reverse stock split and that the
remaining $250,000 will be used for working capital. Under the credit facility,
the borrower agrees to maintain certain financial ratios and debt coverage
requirements and to deliver certain financial information to the lender during
the term of the loan. In addition, the borrower agrees not to further encumber,
sell or transfer the property and to not incur additional indebtedness. Pursuant
to the credit facility, borrower agrees to pay lender an annual fee in the
amount of 1% per annum of amount of money loaned and a one-time payment of
$65,000 as a non-refundable commitment fee. There are no plans or arrangements
to re-finance or repay the loan at the current time. An aggregate of $98,000
would be required to complete the intended tender offer of 21,000 shares of
Common Stock and 3,500 shares of Class B Common Stock at $4.00 per share. The
Westwood Group will finance the payment of shares pursuant to the tender offer
with available funds under the credit facility with Boston Federal Savings Bank
and the balance from general working capital.
COSTS OF THE REVERSE STOCK SPLIT
The following is an estimate of the costs incurred or expected to be
incurred by the Westwood Group in connection with the reverse stock split. The
estimate of costs below does not include fees previously incurred with the
Westwood Group's earlier attempt to take the Westwood Group private at the end
of 2002 and the beginning of 2003, which totaled approximately $411,330. Final
costs of the transaction may be more or less than the estimates shown below. The
Westwood Group will be responsible for paying these costs. Please note that the
following estimate of costs does not include the cost of redeeming shares of
those stockholders holding less than 500 shares pursuant to the reverse stock
split.
<Table>
Legal Fees.................................................. $100,000
Transfer and exchange agent fees............................ 15,000
Fees for fairness opinion................................... 55,000
Printing and mailing costs.................................. 50,000
Commission filing fees...................................... 30
Accounting fees............................................. 27,000
Miscellaneous............................................... 7,870
--------
Total....................................................... $254,900
========
</Table>
48
THE COMPANY
The Westwood Group, Inc. was incorporated in Delaware in 1984 as the
successor to racing and restaurant operations which commenced in 1935 and 1968,
respectively. The Westwood Group operates Wonderland Greyhound Park, Inc., a
pari-mutuel greyhound racing facility located in Revere, Massachusetts. Until
July, 1997, the Westwood Group also operated a pari-mutuel harness racing
facility located in Foxboro, Massachusetts. The Westwood Group'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. In addition to the racetrack, the Westwood Group
maintains and operates two full service restaurants, a sports bar and other
concession facilities at the racetrack to serve patrons of Wonderland Park. The
racetrack facility can accommodate 10,000 patrons. The average attendance per
day in 2002 was approximately 801 persons. The total attendance for the 2002
year was approximately 260,000 persons. The complex encompasses a total of
approximately 35 acres, including paved and lighted parking which has capacity
for approximately 2,300 cars.
Wonderland was originally opened in 1935 and has operated continuously from
the same location since that time. Wonderland is authorized to conduct up to 520
live matinee and evening performances during any calendar year. In addition to
conducting 324 live racing performances during 2002, Wonderland provided its
patrons with simulcast wagering from 52 various greyhound, thoroughbred and
harness tracks throughout the country. In addition, Wonderland broadcasts its
simulcast signal to 90 locations throughout the country.
The Westwood Group is continuing its efforts to penetrate new markets into
which it can broadcast its signal and to develop new ways to provide quality
racing entertainment to its on-track patrons. The Westwood Group's annual
revenues are mainly derived from the commissions that it receives from wagers
made by patrons during its racing performances and from admission and concession
charges at these performances. Wagers at Wonderland are placed under the
pari-mutuel wagering system, under which the winning bettors in each race divide
the total amount bet on the race 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 state regulatory commission in the jurisdiction of the
individual racetrack. In addition, the net pari-mutuel commission varies based
upon the type of wager. Finally, the Westwood Group generates commission revenue
from other tracks for all amounts wagered on its product at their facility.
These commissions vary based upon contractual arrangements. The average gross
pari-mutuel commission at Wonderland was approximately 24%, of each $1.00
wagered on track during 2002, 2001, and 2000, 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 0.5%
each is deposited into the Greyhound Adoption Trust Fund and the Promotional
Trust Fund.
The Commonwealth of Massachusetts State Racing Commissioners, 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.
The Westwood Group's principal executive offices are located at 190 V.F.W.
Parkway Revere, Massachusetts 02151, and its telephone number is (781) 284-2600.
49
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected consolidated financial data is presented in addition
to the selected consolidated financial data incorporated by reference to page 7
of the Westwood Group's Annual Report on Form 10-K for the year ended December
31, 2002 and the information included in the Westwood Group's Form 10-Q for the
six months ended June 30, 2003.
<Table>
<Caption>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- --------------
1998 1999 2000 2001 2002 2002 2003
----- ------ ------ ----- ------ ----- ------
(IN THOUSANDS EXCEPT RATIO OF EARNINGS TO FIXED CHARGES)
OPERATING DATA
Ratio of earnings to fixed charges(1)......... 1.71 -- -- 2.69 -- 1.35 --
Amount of deficiency.......................... $ -- $1,862 $ 756 $ -- $1,135 $ -- $1,125
</Table>
<Table>
<Caption>
AS OF
AS OF DECEMBER 31, JUNE 30,
----------------------------------------------- ----------
1998 1999 2000 2001 2002 2003
------- ------- ------- ------- ------- ----------
(IN THOUSANDS EXCEPT BOOK VALUE (DEFICIENCY) PER SHARE)
BALANCE SHEET DATA
Working capital deficiency...................... $(3,381) $(1,543) $(2,186) $(1,201) $ (376) $ (1,027)
Total assets.................................... $13,369 $ 9,413 $ 7,780 $ 6,913 $ 7,127 $ 6,588
Long-term debt.................................. $ 5,551 $ 4,392 $ 4,096 $ 3,772 $ 5,531 $ 5,821
Stockholders' Equity (deficiency)............... $ 466 $(1,259) $(1,772) $ (405) $(1,844) $ (3,002)
Book value (deficiency) per share(2)............ $ 0.37 $ (1.00) $ (1.40) $ (0.32) $ (1.46) $ (2.38)
Pro forma book value (deficiency) per
share(3)...................................... $(1,397.08)
</Table>
- ---------------
(1) For purposes of calculating the ratio of earnings to fixed charges, (a)
earnings consist of earnings before income taxes plus fixed charges and (b)
fixed charges consist of interest expense, amortization of deferred
financing costs and one-third of rental expense, which is the portion we
consider representative of the interest factor.
(2) Computation is based on shares outstanding.
(3) Reflects the pro forma adjustments as shown on the accompanying unaudited
condensed pro forma consolidated financial statements and notes thereto.
50
PRICE RANGE OF COMMON STOCK; DIVIDENDS; TRADING VOLUME
Except for limited or sporadic transactions, there is no established public
trading market for the Common Stock or Class B Common Stock of the Westwood
Group. The Common Stock is traded on the pink sheets. The following table sets
forth for the periods indicated the high and low bid prices for the periods
provided.
<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- -------- -------
Fiscal year ended December 31, 2003
(through October 28, 2003)
High........................................ $8.00 $6.50 $6.00
Low......................................... $3.10 $2.70 $4.85
Fiscal year ended December 31, 2002
High........................................ $0.80 $1.10 $1.25 $ 7.00
Low......................................... $0.80 $0.80 $0.80 $ 0.51
Fiscal year ended December 31, 2001
High........................................ $0.75 $1.00 No Sales $ 0.85
Low......................................... $0.75 $0.75 No Sales $ 0.85
Fiscal year ended December 31, 2000
High........................................ $1.00 $1.01 $1.20 $ 1.50
Low......................................... $1.00 $1.00 $0.50 $ 0.50
Fiscal year ended December 31, 1999
High........................................ $3.50 No Sales $3.00 $1.125
Low......................................... $3.50 No Sales $3.00 $1.125
</Table>
The Westwood Group is not aware of any purchases or sales involving its
Common Stock since October 20, 2003.
As of October 31, 2003, the Westwood Group had approximately 421 holders of
record of its Common Stock and 11 holders of record of its Class B Common Stock.
No dividends have been declared by the Westwood Group on its Common Stock
during 2002, 2001, 2000, 1999, or 1998, and no dividends have been declared to
date in 2003 by the Westwood Group. The Westwood Group has not paid a cash
dividend on its Class B Common Stock to date. The Westwood Group does not intend
to pay cash dividends on either Common Stock or Class B Common Stock in the
immediate future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMMON STOCK
The following tables sets forth information, as of October 31, 2003, with
respect to the beneficial ownership of the Westwood Group's Common Stock by each
director, by all directors and officers of the Westwood Group as a group and by
persons known by the Westwood Group to own beneficially more than 5%
51
of the outstanding Common Stock. Unless otherwise noted, these stockholders have
full voting and investment power with respect to the shares listed as
beneficially owned by them.
<Table>
<Caption>
AMOUNT AND PERCENT OF PERCENT OF
NATURE OF OUTSTANDING OUTSTANDING
BENEFICIAL PRE-REVERSE POST-REVERSE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) STOCK SPLIT STOCK SPLIT
- ------------------------------------ ------------ ----------- ------------
DIRECTORS AND OFFICERS:
Joseph M. Cassin............................... 25,000(2) 6.65% 7.26%
Cassin, Cassin & Joseph, LLP
711 Third Avenue
New York, New York 10017
Richard P. Dalton.............................. 52,350(3) 13.38% 14.57%
The Westwood Group, Inc.
190 VFW Parkway
Revere, MA 02151
Charles F. Sarkis.............................. 831,866(4) 70.75% 72.72%
Back Bay Restaurant Group, Inc.
284 Newbury St
Boston, MA 02116
All Directors and Officers as a group
(three (3) persons)......................... 909,216(5) 73.28% 75.20%
======= ===== =====
Holders of more than 5%, not included above
Paul J. DiMare................................. 103,300(6) 29.41% 32.34%
Pauline F. Evans............................... 26,122(7) 7.44% 8.18%
Joseph J. O'Donnell............................ 22,669(8) 6.45% 7.10%
A. Paul Sarkis................................. 49,139(9) 12.29% 13.35%
</Table>
- ---------------
(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 the
person has the right to acquire within 60 days, including by conversion of
the 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 the person or group, but are not
deemed to be outstanding for the purposes of computing the percentage owned
by any other person or group.
(2) Includes presently exercisable options to purchase 25,000 shares.
(3) Includes presently exercisable options to purchase 40,000 shares.
(4) Consists of 804,616 shares issuable upon conversion of the shares of Class B
Common Stock beneficially owned by Mr. Sarkis, 7,250 shares of Common Stock,
as well as presently exercisable options to purchase 20,000 shares. (See
footnote (2) to the table below showing beneficial ownership of Class B
Common Stock.)
(5) Includes presently exercisable options to purchase 85,000 shares and 804,616
shares issuable upon conversion of shares of Class B Common Stock, held by
all directors and officers as a group.
(6) Includes 92,500 shares held of record by DiMare Homestead, Inc. over which
Mr. DiMare has voting and investment power. Mr. DiMare's address is P.O. Box
9000460, Homestead, FL 33090. Mr. DiMare was a director of the Westwood
Group until July 21, 2003.
(7) Ms. Evans' address is 3600 Galt Ocean Drive, Fort Lauderdale, Florida 33308.
(8) Mr. O'Donnell's address is c/o Boston Concessions Group, Inc., 111 6th
Street, Cambridge, Massachusetts 02141.
52
(9) Includes 530 shares held of record, 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. Mr. Sarkis'
address is 599 East Sixth St., Apt. 1, South Boston, MA 02127. Mr. Sarkis is
a former Director and officer of the Westwood Group.
(B) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF CLASS B COMMON STOCK
The following table sets forth certain information, as of October 31, 2003
with respect to the beneficial ownership of the Westwood Group's Class B Common
Stock by each Director, and named Executive Officer and by all Directors and
officers of the Westwood Group as a group and by persons known by the Westwood
Group to own beneficially more than 5% of the outstanding Class B Common Stock.
Unless otherwise noted, the stockholders have full voting power and investment
power with respect to the shares listed as beneficially owned by them.
<Table>
<Caption>
SHARES OF
CLASS B PERCENT OF PERCENT OF
COMMON STOCK CLASS CLASS
BENEFICIALLY PRE-REVERSE POST-REVERSE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) STOCK SPLIT STOCK SPLIT
- ------------------------------------ ------------ ----------- ------------
Joseph M. Cassin................................ 0 0.00% 0.00%
Cassin, Cassin & Joseph, LLP
711 Third Avenue
New York, New York 10017
Richard P. Dalton............................... 0 0.00% 0.00%
The Westwood Group, Inc.
190 VFW Parkway
Revere, MA 02151
Charles F. Sarkis............................... 804,616(2) 88.22% 88.23%
Back Bay Restaurant Group, Inc.
284 Newbury St
Boston, MA 02116
All Directors and Officers as a group
(three (3) persons)........................... 804,616(2) 88.22% 88.23%
======= ===== =====
</Table>
- ---------------
(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 the person has the right to acquire within 60 days.
(2) Includes shares held by Sarkis Management Corporation, which is wholly-owned
by Mr. Sarkis. Mr. Sarkis disclaims beneficial ownership of these shares.
OTHER INFORMATION CONCERNING THE COMPANY AND AFFILIATES
In May 1994, the Westwood Group purchased all restaurant and concession
operations at Wonderland from Back Bay Restaurant Group, Inc. for a sales price
of $770,000. Included in the term note of $970,000 were additional amounts owed
to Back Bay Restaurant Group for costs incurred under a Cross Indemnification
Agreement amounting to $200,000, and interest expense of approximately $58,000
for the years ended December 31, 1999 and 1998. On September 24, 1999, the
Westwood Group entered into a stock repurchase agreement with Back Bay
Restaurant Group, Inc., pursuant to which Back Bay Restaurant Group repurchased
222,933 shares of its common stock from the Westwood Group in exchange for the
cancellation of this promissory note.
Concurrently with entering into the stock purchase agreement with Back Bay
Restaurant Group, the Westwood Group entered into a stock purchase agreement
with Charles F. Sarkis, pursuant to which Mr. Sarkis purchased 450,518 shares of
common stock of Back Bay Restaurant Group, Inc. in return for a
53
promissory note in the amount of $2,703,108. This note bears interest of 9.5%.
$500,927 was paid on November 4, 1999, $500,000 was paid on December 16, 1999,
$351,554 was paid on January 31, 2000, $338,000 was paid on December 1, 2000,
and $350,000 was paid on August 17, 2001. In consideration of Mr. Sarkis'
prepayment of $62,000 due under this promissory note on March 22, 2002 and his
$300,000 working capital loan to the Westwood Group made in March, 2002 (which
was repaid in connection with the Westwood Group's refinancing in September
2002), the Westwood Group agreed to defer payment in the amount of $466,164 due
from Mr. Sarkis on December 31, 2002 until June 30, 2003. Mr. Sarkis made this
deferred payment on June 30, 2003. Additionally, Mr. Sarkis prepaid $140,000 on
September 29, 2003. The balance of $358,295 under this promissory note and all
accrued interest thereon will be paid on December 1, 2003.
As of June 30, 2003, there are additional loans outstanding to
officers/stockholders in the aggregate amount of $106,198. Notes receivable and
related interest, in the amount of $45,698 is due from Charles Sarkis and
$60,500 is due from Richard P. Dalton. These loans are payable over five years
and bear interest at 8.0% per annum.
In October 1999, the Westwood Group received a letter of credit for working
capital purposes from the Anglo Irish Bank securitized by Mr. Charles Sarkis'
property located on Boylston Street in Boston, Massachusetts. Subsequently, Mr.
Sarkis refinanced the Boylston Street property and loaned the Westwood Group
$500,000, which amount was designated to be used for the 1998 and 1999
outstanding pari-mutual tickets due to The Commonwealth of Massachusetts. In
addition, under the terms of the loan agreement between the Westwood Group and
Mr. Sarkis, the Westwood Group offset the first payment due from Mr. Sarkis
under the promissory note issued on September 24, 1999 against this $500,000
loan.
Prior to 1995, the Westwood Group engaged a firm to assist management in
the planning and execution of a financial and operational reorganization of the
Westwood Group. As compensation for its services, the Westwood Group agreed to a
success fee, in addition to the basic fee, to grant options to acquire common
stock totaling 6% of the total of the Westwood Group's capital stock at $3.00
per share. The success fee also stipulated that Michael S. Fawcett, a principal
of that firm, who was a director of the Westwood Group at the time would be
required to return options to purchase 25,000 shares of the Westwood Group's
common stock if the success fee option is exercised. The Westwood Group has not
granted the success fee option to date.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Representatives of the Westwood Group's independent certified public
accountants, BDO Seidman, LLP, are expected to be present at the special
meeting.
OTHER MATTERS
The Board does not know of other matters which are likely to be brought
before the special meeting. However, in the event that any other matters
properly come before the special meeting, the persons named in the enclosed
proxy are expected to vote the shares represented by the proxy on those matters
in accordance with their best judgment.
PROPOSALS OF STOCKHOLDERS
In the event that the reverse stock split is not affected, the Westwood
Group intends to hold its 2003 Annual Meeting of Stockholders in 2003. In order
to be eligible for inclusion in the Westwood Group's proxy materials for the
2003 Annual Meeting of Stockholders, any stockholder proposal to take action at
that meeting must be received at the Westwood Group's principal executive
offices, 190 V.F.W. Parkway, Revere, Massachusetts, 02151, by November , 2003.
Proposals submitted by a stockholder of the Westwood Group for consideration at
the 2003 Annual Meeting of stockholders outside the processes of SEC Rule 14a-8
will not be considered at such meeting unless the Secretary of the Westwood
Group has received written notice of the matter proposed to be presented from
the stockholder on or prior to November , 2003. The proxies for the 2003
Annual Meeting may confer discretionary authority on the proxy holders with
respect to any proposal submitted after the dates set forth above.
54
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Westwood Group,
File No. 000-01590, are incorporated by reference in this proxy statement,
except for any discussion therein of the "safe harbor" protections for
forward-looking statements provided under The Private Securities Litigation
Reform Act of 1995: (i) the Annual Report on Form 10-K for the fiscal year ended
December 31, 2002, (ii) the Amendment to the Annual Report on Form 10-K/A for
the fiscal year ended December 31, 2002, and (iii) the Quarterly Report on Form
10-Q for the quarter ended June 30, 2003.
The Westwood Group's Annual Report on Form 10-K and Form 10-K/A for the
fiscal year ended December 31, 2002 and the Westwood Group's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003 are attached to this proxy
statement as Exhibits C and D, respectively.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this proxy statement to the extent that a statement contained
herein modifies or supersedes the statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this proxy statement.
AVAILABLE INFORMATION
The Westwood Group is subject to the informational requirements of the 1934
Act and in accordance with the 1934 Act files reports, proxy statements and
other information with the Commission. These reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. Copies of this material can also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In addition,
these reports, proxy statements and other information are available from the
Edgar filings obtained through the Commission Internet Website
(http://www.sec.gov).
55
EXHIBIT A
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
OF THE WESTWOOD GROUP INC.
A-1
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
OF THE WESTWOOD GROUP INC.
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
The Westwood Group, Inc., a Delaware corporation (the "Corporation"), does
hereby certify as follows:
FIRST: The following language is added to the end of Section A of
Article FOURTH of the Certificate of Incorporation of The Westwood Group,
Inc.:
"At the effective time of this amendment, each share of Common
Stock, par value $.01 per share, authorized immediately prior to the
effectiveness of this amendment will be reclassified into one-five
hundredth of one fully paid and non-assessable share of Common Stock,
par value $.01 per share, so that every five hundred shares of Common
Stock authorized immediately prior to the effectiveness of this
amendment will be combined together to form one full share of Common
Stock, par value $.01. At the effective time of this amendment, each
share of Class B Common Stock, par value $.01 per share, authorized
immediately prior to the effectiveness of this amendment will be
reclassified into one-five hundredth of one fully paid and
non-assessable share of Class B Common Stock, par value $.01 per share,
so that every five hundred shares of Class B Common Stock authorized
immediately prior to the effectiveness of this amendment will be
combined together to form one full share of Class B Common Stock, par
value $.01. The Corporation will make a cash payment of $4.00 per share
to record holders of fewer than 500 shares of the Common Stock and Class
B Common Stock immediately prior to the effectiveness of this amendment.
To the extent necessary, certificates for fractional shares of Common
Stock and Class B Common Stock will be issued by reason of this
amendment."
SECOND: The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
Signed and attested to on , 2003.
THE WESTWOOD GROUP, INC.
By:
------------------------------------
Name: Richard P. Dalton
Title: President
A-2
EXHIBIT B
OPINION OF SCHROEDER & CO.
DATED JULY 29, 2003
B-1
SCHROEDER & CO.
FISHER MEWS -- 377 FISHER ROAD
GROSSE POINTE, MI 48230
July 29, 2003
Board of Directors
The Westwood Group, Inc.
190 VFW Parkway
Revere, Massachusetts 02151
Gentlemen:
You have requested our opinion, from a financial point of view, of the
consideration to be received by the unaffiliated holders of the Common Stock or
Class B Common Stock of The Westwood Group, Inc. (the "Company") whose stock is
being redeemed pursuant to the reverse stock split approved by the Company's
Board of Directors on July 29, 2003 (the "Reverse Stock Split") and by the
unaffiliated holders who tender one share in connection with the subsequent
tender offer.
Pursuant to the Reverse Stock Split, and subsequent to shareholder
approval, the Company will adopt a Certificate of Amendment to its Certificate
of Incorporation providing for (a) a one-for-500 reverse stock split of the
Company's Common Stock and Class B Common Stock and (b) a cash payment of $4.00
per pre-split share of the Company's Common Stock and Class B Common Stock for
all fractional interests held by shareholders who hold less than one share as a
result of the Reverse Stock Split.
In connection with rendering our opinion, we have, among other things:
a) reviewed the Certificate of Amendment;
b) reviewed the Annual Reports on Form 10-K of the Company as filed with
the Securities and Exchange Commission for the last five fiscal years
ended December 31, 2002;
c) reviewed the Quarterly Report on Form 10-Q of the Company as filed with
the Securities and Exchange Commission dated March 31, 2003;
d) reviewed certain financial analyses and forecasts prepared by the
Company's management;
e) performed various valuation analyses as we deemed appropriate including
a Liquidation Analysis of the Company's assets subject to its
liabilities;
f) held discussions with certain senior officers and other representatives
and advisors of the Company concerning the business, opportunities and
prospects of the Company;
g) reviewed the Cummings Associates report, dated December 6, 2002, and pro
formas and presentations prepared for the Westwood Group and for others,
dated February, March, April, May and June, 2003;
h) reviewed the Appraisal Reports of RM Bradley & Co., Inc., dated January
21, 2001, July 25, 2002 and July 16, 2003; and
i) attended meeting of the Company's Board of Directors and participated in
telephonic meetings of the Company's Board of Directors.
We reviewed the financial terms of the Reverse Stock Split in relation to,
among other things, current and historical market prices and trading volumes of
the Company's common stock; historical and projected earnings, losses and other
operating data of the Company; and historical and projected capitalization and
financial condition of the Company. In addition, we have reviewed the financial
terms of certain recent business combinations and have performed such other
studies and analyses as we considered appropriate.
B-2
In arriving at our opinion, no consideration was given to the probability,
nature or timing of the possible enactment of legislation in Massachusetts to
expand legalized gaming or its possible effect on the Westwood Group or its
operations.
We have relied upon the accuracy and the completeness of all the financial,
accounting and other information discussed with or reviewed by us and have
assumed such accuracy and completeness for purposes of rendering this opinion.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the Reverse Stock Split and such opinion
does not constitute a recommendation to any shareholder as to how such
shareholder should vote on any matter relating to the Reverse Stock Split. Our
opinion relates solely to the fairness, from a financial point of view, of the
Consideration to be received by holders of the Company's Common Stock and Class
B Common Stock in exchange for fractional shares redeemed as a result of the
Reverse Stock Split. No opinion is expressed or implied as to the structure,
terms, merits or any other aspect of the Reverse Stock Split.
Our opinion and any additional material provided to the Board of Directors
in connection with the opinion may not be published or otherwise used or
referred to without our prior written consent except for necessary filings by
the Company with the Securities and Exchange Commission.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
price of $4.00 is fair from a financial point of view to the unaffiliated
holders of the Common Stock or Class B Common Stock of the Westwood Group, Inc.
whose stock is being redeemed pursuant to the Reverse Stock Split and to those
unaffiliated holders who tender one share in connection with the subsequent
tender offer.
Very truly yours,
/s/ SCHROEDER & CO.
B-3
EXHIBIT C
ANNUAL REPORT ON FORM 10-K AND 10-K/A
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
C-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<Table>
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</Table>
COMMISSION FILE NUMBER 0-1590
THE WESTWOOD GROUP, INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 04-1983910
(state or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
</Table>
190 V.F.W. PARKWAY
REVERE, MA 02151
(Address of principal executive offices, including zip code)
781-284-2600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF CLASS
-----------
Common Stock-$.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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) 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. [X]
Indicate by check mark whether the registrant is an accelerated filed (as
defined in Rule 12b-24 of the Act). Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 17, 2002 was:
<Table>
<Caption>
TOTAL NO. OF SHARES OF
PRICING OF COMMON STOCK HELD BY AGGREGATE
VOTING STOCK NON-AFFILIATES MARKET VALUE
------------ ---------------------- ------------
$0.80 228,310(2) $182,648.00
</Table>
(1) Reflects the price of shares of Common Stock, par value $0.01 per share,
traded on June 17, 2002, which is the last date the stock was traded prior
to the end of the most recently completed second fiscal quarter. The
registrant's Common Stock was removed from quotation through the NASDAQ
system on July 29, 1988. There is no established trading market for the
Company's 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 March 31, 2003 was as follows:
Common Stock, $.01 par value: 351,210
Class B Common Stock, $.01 par value: 912,015
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C-2
THE WESTWOOD GROUP, INC.
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 10-K
TABLE OF CONTENTS
<Table>
PART I
Item 1. Business.................................................... C-5
Item 2. Description of Property..................................... C-8
Item 3. Legal Proceedings........................................... C-8
Item 4. Submission of Matters to a Vote of Securities Holders....... C-9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... C-10
Item 6. Selected Financial Data..................................... C-11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... C-13
Item 7A Quantitative and Qualitative Disclosures about Market
Risk........................................................ C-19
Item 8. Financial Statements and Supplementary Data................. C-20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... C-39
PART III
Item 10. Directors and Executive Officers of the Registrant.......... C-39
Item 11. Executive Compensation...................................... C-40
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. C-40
Item 13. Certain Relationships and Related Transactions.............. C-43
PART IV
Item 14. Controls and Procedures..................................... C-43
Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... C-44
Signatures............................................................ C-46
Certification......................................................... C-47
Exhibit Index
Exhibit 21.1 List of Subsidiaries
Exhibit 23.1 Consent of Independent Auditors
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
</Table>
C-3
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Annual Report on Form 10-K. Certain statements contained throughout this Annual
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.
References to "we," "us," "our," the "Company," "Westwood" or the "Westwood
Group" refer to The Westwood Group, Inc., and in some cases, its subsidiaries,
as well as all predecessor entities. Our principal executive offices are located
at 190 V.F.W. Parkway, Revere, Massachusetts, 02151, and our telephone number is
(781) 284-2600.
C-4
PART I
ITEM 1. BUSINESS
(A) GENERAL
The Westwood Group, Inc. 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 ("Wonderland" or
"Wonderland Park"), a pari-mutuel greyhound racing facility located in Revere,
Massachusetts. Until July 1997, the Company also operated a pari-mutuel harness
racing facility located in Foxboro, Massachusetts. (See Item 3, "Legal
Proceedings").
(B) BUSINESS SEGMENTS
The Company operates solely in the pari-mutuel greyhound racing industry.
(C) DESCRIPTION OF BUSINESS
The Company's wholly-owned subsidiary, Wonderland Greyhound Park, Inc.,
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.
In addition to the racetrack, the Company maintains and operates two (2)
full service restaurants, a sports bar and other concession facilities at the
racetrack to serve patrons of Wonderland Park. The racetrack facility can
accommodate 10,000 patrons. The average attendance per day in 2002 was
approximately 801 persons. The total attendance for the year was approximately
260,000 persons. The complex encompasses a total of approximately thirty-five
(35) acres, including paved and lighted parking which has capacity for
approximately 2,300 cars.
Wonderland was originally opened in 1935 and has operated continuously from
the same location since that time. Wonderland is authorized to conduct up to 520
live matinee and evening performances during any calendar year. In addition to
conducting 324 live racing performances during 2002, Wonderland provided its
patrons with simulcast wagering from 52 various greyhound, thoroughbred and
harness tracks throughout the country. Wonderland also broadcasts its simulcast
signal to 90 locations throughout the country. The Company is continuing its
efforts to penetrate new markets into which it can broadcast its signal and to
develop new ways to provide quality racing entertainment to its on-track
patrons. See "Government Regulation" below for a discussion of simulcast
legislation.
The Company's annual revenues are mainly derived from the commissions that
it receives from wagers made by patrons 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 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 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. Finally, the Company
generates commission revenue from other tracks for all amounts wagered on its
product at their facilities. These commissions vary based upon contractual
arrangements.
The average gross pari-mutuel commission on live racing at Wonderland was
approximately 24% of each $1.00 wagered on track during 2002, 2001 and 2000. 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 0.5% each is deposited into the Greyhound Adoption Trust Fund and
Promotional Trust Fund.
C-5
The Commissioners of 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., was evicted from the Foxboro Raceway. (See Item 3, "Legal Proceedings").
As such, its operating results are reflected as discontinued operations.
In February 1998, the Company executed an Assignment for the Benefit of
Creditors for Foxboro Park, Inc., Foxboro Harness, Inc. and Foxboro
Thoroughbred, Inc. The assignment was executed to provide a mechanism for the
liquidation of its assets and the distribution of proceeds to its creditors.
(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 state
lottery, two (2) 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.
Furthermore, Wonderland is at a competitive disadvantage when compared with
other New England greyhound racetracks in that the simulcast legislation only
permits Wonderland to offer a very limited amount of simulcasting from
thoroughbred racetracks due to its proximity to the Suffolk Downs thoroughbred
racetrack.
In August 2000, animal rights activists were able to obtain the necessary
number of signatures in order to place a binding initiative petition to ban all
wagering on greyhound racing within Massachusetts effective June 1, 2001 on the
November 2000 Massachusetts ballot. If the initiative had passed, it would have
prohibited both live and simulcast wagering at The Westwood Group's Wonderland
racetrack facility, thus, in all likelihood, shutting down its principal
business. The campaign to defeat the ballot initiative was conducted jointly
with the dogtrack in Raynham, Massachusetts through a Ballot Question Committee
established in accordance with the campaign finance laws of Massachusetts.
Richard P. Dalton, The Westwood Group's President and Chief Executive Officer,
served as the chairman of the committee. This initiative was narrowly defeated
in the November 7, 2000 election. Despite the defeat of the initiative, the
animal rights activists remain active in their attempts to cause the Wonderland
racetrack to be permanently closed. Moreover, the advertising campaign directed
at banning greyhound racing has negatively affected the image of greyhound
racing.
(E) GOVERNMENT REGULATION
Wonderland operates under an annual license granted after application to,
and public hearings by, the Massachusetts State 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 Massachusetts
State Racing Commission licenses certain key officials employed by Wonderland.
The failure to receive or retain the annual racing license would have a material
adverse effect on our business.
Alcoholic beverage control regulations require 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
C-6
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 have a
material adverse effect on the Company's results of operations.
During 2001, the Company and the owners of other area racetracks worked to
enact legislation which would permit the Company and the other greyhound track
to continue to provide simulcast broadcasting of thoroughbred racing on a much
more frequent basis, as well as providing for a decrease in the pari-mutuel
taxes paid to the Commonwealth and that the funds available from the pari-mutuel
tax decrease be made available for increases in purses and the Greyhound Capital
Improvement and Promotional Trust Funds as well as the establishment of a
Greyhound Adoption Fund and the implementation of an off-track betting system.
On November 17, 2001, the "Act Providing for Improvements to the Horse and
Greyhound Racing Industry in the Commonwealth and the Regulation Thereof" was
signed into law by the then acting governor of Massachusetts. Under this
statute, the Company and the other area racetracks are permitted to continue to
provide simulcast broadcasting of thoroughbred racing to their patrons until
December 2005. The new legislation also provides that the Company is required to
pay premiums for the right to simulcast out-of-state thoroughbred and harness
racing ranging from 3% to 7% for the benefit of the purse accounts at the
Commonwealth's two commercial horse racetracks. In addition to the extension and
expansion of simulcast broadcasting, this statute provides for a "purse pool,"
which will be funded by taxes, fees and assessments with a minimum of $400,000
being credited to the purse accounts of each racetrack with any remaining
portion being apportioned among the racetracks pursuant to a formula to be
devised by the State Racing Commission. All unclaimed simulcast wagers collected
at each racetrack are to be deposited with the Massachusetts State Racing
Commission for payment to the purse accounts of the individual racetracks
responsible for such unclaimed wagers. During 2001, the Company received a
one-time grant of $300,035 from the Commonwealth for the purpose of funding
capital improvements and repairs to its facility and equipment. Finally, the
statute authorizes account wagering at each of the individual racetracks and
establishes a nine member special commission to study the feasibility of an
off-track betting program in Massachusetts.
Despite the enactment of this legislation and the potential for increase in
cash flow from such legislation, management does not believe that this
legislation in its current state has or will materially benefit the Company's
overall racing operations.
Management has worked diligently over the past decade in attempting to
convince the governors and the Massachusetts state legislature of the need to
allow the Commonwealth's commercial racetracks to offer their patrons expanded
gaming opportunities. While various legislation was introduced, including for
the upcoming legislative session, the Massachusetts state legislature took no
action on gaming in the years 2000, 2001, and 2002. On October 3, 2002, the then
acting Governor of Massachusetts issued an executive order establishing an
exploratory commission to study and report on the potential impact, both
positive and negative, of the potential expansion of legalized gaming in
Massachusetts. This commission held public hearings in four locations throughout
the Commonwealth and reported its findings to the Governor on December 31, 2002.
The work of this commission was divided among four subcommittees. Each
subcommittee was assigned to focus exclusively on the potential regulatory,
economic development, fiscal or social and cultural impact of the expansion of
gaming, respectively. The report describes the findings of each subcommittee
with respect to each area to which it was assigned. This commission's report did
not recommend that the Governor and/or the state legislature enact legislation
that would expand gaming, but instead focuses on the various ways that the
expansion of legalized gaming could possibly impact, both negatively and
positively, the Commonwealth and its citizens.
C-7
Management is unable to predict what, if any, impact this report will have
on the overall prospects for the enactment of legislation in Massachusetts to
expand legalized gaming. There is no assurance that the release of this report
will prompt or thwart the introduction or enactment of such legislation. This is
not the first time a commission of this type had been formed. Over the past
decade, when similar commissions have proposed the introduction of gaming
legislation, numerous bills have been introduced, but legislation has never been
enacted despite being supported of by the then Governor of The Commonwealth of
Massachusetts and certain state legislators. Moreover, there is no assurance
that newly elected Governor Romney or the state legislature will adopt the
findings of this commission.
According to published newspaper accounts, Governor Romney has directed his
Chief of Commerce and Labor, Robert Pozen, to conduct an independent analysis of
the possible expansion of gaming, which is not anticipated to be completed until
some time in the spring of 2003. In addition, according to such newspaper
accounts, Governor Romney is considering introducing legislation to allow video
slot machines at two to four unspecified sites in the Commonwealth with
five-year licenses to be auctioned to the highest bidders. In a recent hearing
of the Government Regulations Committee of the Massachusetts House of
Representatives, Mr. Pozen, on behalf of the Romney administration, stated that
7,200 slot machines at three unspecified sites could raise as much as $300
million annually in additional state tax revenues. At this same hearing, a
number of other of gaming-related proposals were discussed. According to
published newspaper accounts, on April 15, 2003, the House of Representatives
will debate two gaming bills related to permitting slot machines at the
Commonwealth's four racetracks and authorizing slot machines and full-scale
casinos. According to newspaper accounts, the Government Regulations Committee
has recommended that both gaming bills be defeated.
If Governor Romney and/or the state legislature determines to introduce or
enact legislation in 2003 to expand gaming, the process to enact gaming
legislation could take a number of months, and it is impossible to predict the
nature of any such legislation and whether the Westwood Group would in fact
benefit from such legislation if ultimately enacted.
(F) EMPLOYEES
At March 31, 2003, the Company employed approximately 350 persons.
ITEM 2. DESCRIPTION OF PROPERTY
The racetrack facilities, which are located in Revere, Massachusetts,
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. Wonderland Greyhound Park is mortgaged to secure the indebtedness owed
under a term loan to the Boston Federal Savings Bank. (See Item 7, "Liquidity
and Capital Resources," and Note 3 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 involved in various legal proceedings that arise in the
ordinary course of its business.
In 1996, litigation ensued between Foxboro Realty Associates, LLC, et al.
and the Company, its subsidiary Foxboro Park, Inc., et al. in Norfolk Superior
Court in Massachusetts, over Foxboro Park's right to occupy Foxboro Raceway. The
Court issued an execution pursuant to which Foxboro Park was evicted from the
racetrack on July 31, 1997. The parties appealed to the Massachusetts Appeals
Court on January 27, 1998.
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. On
January 30, 2001, the above-mentioned cases were settled without monetary
damages to either party.
C-8
In January 2001, the Company lost at arbitration a claim brought against it
by a former totalisator vendor. The judgment amount was $468,000. This amount
has been recorded in "Other income (expense), net" as of the fourth quarter of
2000 and fully accrued in current liabilities. As of December 31, 2001, the
judgment amount, plus accrued interest thereon, totaled $538,000. The
arbitrator's decision was appealed to the United States Federal District Court
in Massachusetts and overturned. The former vendor appealed the District Court
decision to the United States Federal Circuit Court of Appeals, which upheld the
arbitrator's original decision. The case was returned to the United States
Federal District Court where a judgment was entered. The parties have negotiated
a settlement agreement which provides for an aggregate payment in the amount of
$603,534 to be paid by the Company in weekly installments ranging from $1,374 to
$2,000, with the remaining balance due and payable on April 1, 2003. The Company
paid remaining balance on September 3, 2002 in connection with entering into its
new credit facility with Boston Federal Savings Bank (See Item 7 under the
caption "Liquidity and Capital Resources" for a description of the credit
facility) with Boston Federal Savings Bank.
On March 18, 2003, the Company received an Administrative Complaint and Ex
Parte Motion for a Temporary Order to Cease and Desist from the Secretary of the
Commonwealth, Securities Division of The Commonwealth of Massachusetts, one day
prior to the date of the special meeting of the stockholders to approve a
proposed reverse stock split, which, if approved, would have resulted in the
Company changing its status from a public company to a private company (See Item
7 under the caption "Liquidity and Capital Resources" for a description of the
proposed reverse stock split). The Administrative Complaint, which was prompted
by the receipt by the Massachusetts Securities Division of an anonymous letter
from a Company stockholder, claims that the Westwood Group failed to disclose
certain information to the stockholders in the Company's Proxy Statement, which
the Division alleges to be "material." The stockholders' meeting scheduled for
March 19, 2003, in order to approve the proposed going private transaction, was
adjourned in order to permit the Company to address this matter. On April 8,
2003, the Company filed an answer in response to the Administrative Complaint
denying each of the allegations set forth in the Administrative Complaint. A
hearing to address the Ex Parte Motion for a Temporary Order to Cease and Desist
has been scheduled for the end of April 2003.
On April 1, 2003, a class action complaint was filed by a stockholder of
the Company, Joseph I. Messina, against the Westwood Group and the Company's
Board of Directors in the Court of Chancery in the State of Delaware seeking to
enjoin the proposed reverse stock split on the basis that is not fair to the
stockholders and that the proxy statement omits information that Mr. Messina
alleges to be "material". The Company disputes all of the allegations set out in
the Complaint and will take appropriate action to address this Complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2002, there were no matters submitted to a
vote of the securities holders, through the solicitation of proxies or
otherwise.
C-9
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.
The Company's Common Stock is traded on the pink sheets. The following
table sets forth for the periods indicated the high and low sales prices.
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
Fiscal year ended December 31, 2002, the sales prices per share of Common
Stock are as follows:
<Table>
<Caption>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
High............................. $0.80 $1.10 $1.25 $7.00
Low.............................. $0.80 $0.80 $0.80 $0.51
</Table>
Fiscal year ended December 31, 2001, sales prices per share of Common Stock
are as follows:
<Table>
<Caption>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
High............................. $0.75 $1.00 No Sales $0.85
Low.............................. $0.75 $0.75 No Sales $0.85
</Table>
During the first quarter of 2003 through March 17, 2003, our common stock
traded at prices ranging from a low sales price of $3.10 to a high sales price
of $8.00.
(B) APPROXIMATE NUMBER OF RECORD HOLDERS OF COMMON STOCK AND CLASS B COMMON
STOCK
<Table>
<Caption>
NUMBER OF RECORD HOLDERS
TITLE OR CLASS AS OF MARCH 31, 2003
- -------------- ------------------------
Common Stock -- par value $.01.............................. 425
Class B Common Stock -- par value $.0 ...................... 11
</Table>
(C) DIVIDEND HISTORY
No dividends were declared by the Company on its Common Stock during 2002,
2001, or 2000. 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
Common Stock or Class B Common Stock in the immediate future.
(D) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
This table provides certain information as of December 31, 2002, with
respect to our equity compensation plans:
<Table>
<Caption>
NUMBER OF SECURITIES WEIGHTED AVERAGE NUMBER OF
TO BE ISSUED UPON EXERCISE PRICE SECURITIES
EXERCISE OF OF OUTSTANDING REMAINING
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AVAILABLE FOR
WARRANTS AND RIGHTS AND RIGHTS FUTURE ISSUANCE
PLAN CATEGORY (A) (B) (C)
- ------------- -------------------- ----------------- ---------------
Equity compensation plans approved by
security holders................... 0 N/A 0
Equity compensation plans not
approved by security holders....... 113,573(1) $3.00 0
Total................................ 113,573 $3.00 0
</Table>
C-10
- ---------------
(1) Options for 92,500 shares of the Company's Common Stock were granted
pursuant to individual compensation agreements, which are described under
Item 11 under the caption "Stock Option Agreement." A former director of the
Westwood Group has the right to receive an estimated 21,073 shares of the
Company's Common Stock (See Item 13).
ITEM 6. SELECTED FINANCIAL DATA
The following data insofar as it relates to the three fiscal years ended
December 31, 2000 through December 31, 2002 has been derived from the
Consolidated Financial Statements appearing herein, including the Consolidated
Balance Sheets as of December 31, 2002 and 2001 and the related Consolidated
Statements of Operations for each of the three years in the period ended
December 31, 2002. The data insofar as it relates to the Consolidated Balance
Sheets as of December 31, 2000, 1999 and 1998 and the Consolidated Statement of
Operations for the fiscal years ended December 31, 1999 and 1998 have been
derived from our historical financial statements of those periods.
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Operating revenue................ $ 15,794 $ 16,983 $ 17,671 $ 17,545 $ 18,971
---------- ---------- ---------- ---------- ----------
Expenses:
Operating expenses............. 15,881 15,847 16,749 16,361 17,506
Depreciation and
amortization................ 642 536 524 584 700
---------- ---------- ---------- ---------- ----------
Total expenses................. 16,523 16,383 17,273 16,945 18,206
---------- ---------- ---------- ---------- ----------
Income (loss) from operations.... (729) 600 398 600 765
Interest expense, net............ (375) (515) (461) (499) (398)
Loss on sale of investment....... -- -- -- (1,809) --
Change in accounting estimate.... -- 1,058 -- -- --
Other income (expense), net(2)... (31) (21) (693) 3 525
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes.......................... (1,135) 1,122 (756) (1,705) 892
Provision for income taxes....... 62 46 93 91 83
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations before operations of
discontinued harness racing
subsidiary..................... (1,197) 1,076 (849) (1,796) 809
Gain from operations of
discontinued harness racing
subsidiary (net of income taxes
of $20,400 in 1998)............ -- 351 353 -- 1,001
---------- ---------- ---------- ---------- ----------
Net income (loss)................ $ (1,197) $ 1,427 $ (496) $ (1,796) $ 1,810
========== ========== ========== ========== ==========
Basic per share data:
Income (loss) from continuing
operations.................. $ (0.95) $ 0.85 $ (0.67) $ (1.42) $ 0.63
Income from discontinued
operations.................. -- 0.28 0.28 -- 0.81
---------- ---------- ---------- ---------- ----------
Net income (loss).............. $ (0.95) $ 1.13 $ (0.39) $ (1.42) $ 1.44
========== ========== ========== ========== ==========
Weighted average common shares
outstanding.................... 1,263,225 1,263,225 1,263,225 1,263,225 1,261,252
========== ========== ========== ========== ==========
</Table>
C-11
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
Diluted per share data:
Income (loss) from continuing
operations.................. $ (0.95) $ 0.85 $ (0.67) $ (1.42) $ 0.63
Income from discontinued
operations.................. -- 0.28 0.28 -- 0.78
---------- ---------- ---------- ---------- ----------
Net income (loss)................ $ (0.95) $ 1.13 $ (0.39) $ (1.42) $ 1.41
========== ========== ========== ========== ==========
Diluted weighted average common
shares outstanding............. 1,263,225 1,263,225 1,263,225 1,263,225 1,281,243
========== ========== ========== ========== ==========
</Table>
<Table>
<Caption>
AS OF DECEMBER 31,
-----------------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
CONSOLIDATED BALANCE SHEET DATA
Working capital (deficit).................... $ (376) $(1,201) $(2,186) $(1,543) $(3,381)
Total assets................................. 7,127 6,913 7,780 9,413 13,369
Long-term debt(1)............................ 5,531 3,772 4,096 4,392 5,551
Stockholders' equity (deficiency)............ (1,844) (405) (1,772) (1,259) 466
</Table>
- ---------------
(1) Long-term debt at December 31, 2002, 2001, 2000, 1999 and 1998 excludes $96,
$324, $295, $273 and $351, respectively, of long-term debt reclassified as
current obligations (see Note 3 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 of approximately $157,000 and $525,000 from
the Company's investment in BBRG for 1999 and 1998, respectively.
(3) Interest expense is net of interest income of $7, $7, $25, $10 and $45 for
the years ended December 31, 2002, 2001, 2000, 1999, and 1998, respectively.
C-12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations together with "Selected Financial Data" and
our financial statements and related notes appearing elsewhere in this annual
report. This discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including, but not limited to, those set forth under
"Results of Operations" and elsewhere in this annual report.
GENERAL
Wonderland currently conducts live racing seven (7) nights per week, April
through September, and six (6) nights per week throughout the rest of the year.
Wonderland also offers simulcast wagering afternoons and evenings throughout the
year. The table below illustrates certain key statistics for Wonderland for each
of the past three (3) years:
<Table>
<Caption>
2002 2001 2000
---- ---- ----
Performances................................................ 324 333 350
Simulcast days.............................................. 361 361 363
Pari-mutuel handle (millions)
Live-on track............................................. $ 16 $ 20 $ 23
Live-simulcast............................................ 30 34 40
Guest-simulcast........................................... 49 49 50
---- ---- ----
$ 95 $103 $113
==== ==== ====
Total attendance (thousands)................................ 260 290 313
==== ==== ====
Average per capita on site wagering......................... $252 $239 $233
==== ==== ====
</Table>
Wonderland has been granted a license to conduct up to 520 racing
performances during 2003.
RESULTS OF OPERATIONS
During 2001, the Company and the owners of other area racetracks worked to
enact legislation which would permit the Company and the other greyhound track
to continue to provide simulcast broadcasting of thoroughbred racing on a more
frequent basis, as well as providing for a decrease in the pari-mutuel taxes
paid to the Commonwealth and that the funds available from the pari-mutuel tax
decrease be made available for increases in purses and the Greyhound Capital
Improvement and Promotional Trust Funds as well as the establishment of a
Greyhound Adoption Fund and the implementation of an off-track betting system.
On November 17, 2001, the "Act Providing for Improvements to the Horse and
Greyhound Racing Industry in the Commonwealth and the Regulation Thereof" was
signed into law by the acting governor of Massachusetts. Under this statute, the
Company and the other area racetracks are permitted to continue to provide
simulcast broadcasting of thoroughbred racing to their patrons until December
2005. This legislation also provides that the Company is to pay premiums for the
right to simulcast interstate thoroughbred and harness racing ranging from 3% to
7% for the benefit of the purse accounts at the Commonwealth's two commercial
horse racetracks. In addition, to the extension and expansion of simulcast
broadcasting, this statute provides for a "purse pool," which will be funded by
taxes, fees and assessments with a minimum of $400,000 being credited to the
purse accounts of each racetrack with any remaining portion being apportioned
among the racetracks pursuant to a formula to be devised by the State Racing
Commission. All unclaimed simulcast wagers collected at each racetrack are to be
deposited with the Massachusetts State Racing Commission for payment to the
purse account of the individual racetracks responsible for such unclaimed
wagers. The Westwood Group also received a one-time grant of $300,035 during
2001 from the Commonwealth for the purpose of funding capital improvements and
repairs to its facility and equipment. Finally, the
C-13
statute authorizes account wagering at each of the individual racetracks and
establishes a nine member special commission to study the feasibility of an
off-track betting program in Massachusetts.
Despite the enactment of this legislation and the initial potential for an
increase in cash flow from such legislation, management does not believe that
this legislation has materially benefited the Company's overall racing
operations since November 2001.
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, the negative effect of the ballot initiative on
greyhound racing's image, 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. (See Item 1D, "Competition and Marketing").
Management has worked diligently over the past decade in attempting to
convince the Governors and the Massachusetts state legislature of the need to
allow the Commonwealth's commercial racetracks to offer their patrons expanded
gaming opportunities. While various legislation was introduced, including for
the upcoming legislative session, the Massachusetts state legislature took no
action on gaming in the years 2000, 2001, and 2002. On October 3, 2002, the then
acting Governor of Massachusetts issued an executive order establishing an
exploratory commission to study and report on the potential impact, both
positive and negative, of the potential expansion of legalized gaming in
Massachusetts. This commission held public hearings in four locations throughout
the Commonwealth and reported its findings to the Governor on December 31, 2002.
This commission's report did not recommend that the Governor and/or the state
legislature enact legislation that would expand gaming, but instead focuses on
the various ways that the expansion of legalized gaming could possibly impact,
both negatively and positively, the Commonwealth and its citizens.
According to published newspaper accounts, Governor Romney has directed his
Chief of Commerce and Labor, Robert Pozen, to conduct an independent analysis of
the possible expansion of gaming, which is not anticipated to be completed until
some time in the spring of 2003. In addition, according to such newspaper
accounts Governor Romney is considering introducing legislation to allow video
slot machines at two to four unspecified sites in the Commonwealth with
five-year licenses to be auctioned to the highest bidders. In a recent hearing
of the Government Regulations Committee of the Massachusetts House of
Representatives, Mr. Pozen, on behalf of the Romney administration, stated that
7,200 slot machines at three unspecified sites could raise as much as $300
million annually in additional state tax revenues. At this same hearing, a
number of other of gaming-related proposals were discussed. According to
published newspaper accounts, on April 15, 2003, the House of Representatives
will debate two gaming bills related to permitting slot machines at the
Commonwealth's four racetracks and authorizing slot machines and full-scale
casinos. According to newspaper accounts, the Government Regulations Committee
has recommended that both gaming bills be defeated.
If Governor Romney and/or the state legislature determines to introduce or
enact legislation in 2003 to expand gaming, the process to enact gaming
legislation could take a number of months, and it is impossible to predict the
nature of any such legislation and whether the Westwood Group would in fact
benefit from such legislation if ultimately enacted.
Operating Revenue for year ended December 31, 2002 compared to year ended
December 31, 2001
Total operating revenue including pari-mutuel commissions declined by 7% or
approximately $ 1.2 million to $15.8 million in 2002 as compared to $17.0
million in 2001. Total handle decreased by 8% in 2002 to $95 million as compared
to $103 million in 2001. Live-on track handle decreased by $4 million or 20% in
2002 to $16.0 million as compared to $20.0 million in 2001, while live-simulcast
handle decreased by $4 million or 11% in 2002 to $30 million compared to $34.0
million in 2001. Guest-simulcast handle remained unchanged from 2001 to 2002.
Wonderland had nine fewer live racing performances in 2002 for a total of
324 live performances as compared to 333 live performances in 2001, with a 10%
decrease in attendance between 2002 and 2001. Concessions revenue increased 5%
to $1.6 million in 2002 from $1.5 million in 2001. Concessions revenue consists
of food, beverage, program sales, and advertising income.
C-14
Other operating revenue declined by 29% to $1.4 million in 2002 from $2.0
million in 2001. Pari-mutuel commissions for the year ended December 31, 2002
included approximately $124,000 deposited into the Greyhound Capital
Improvements Trust Fund, $80,000 into the Greyhound Adoption Fund, and $204,000
into the Greyhound Promotional Trust Fund. During same period of 2001, such
amounts were $244,000, $0, and $246,000, respectively. These funds are
maintained through remittance by Wonderland of a percentage of the handle that
is retained by Wonderland after payment to bettors. Reimbursement is
periodically approved by The Commonwealth of Massachusetts to the extent that
the trust fund balance equals or exceeds the reimbursements for which the
Company applied.
OPERATING REVENUE FOR YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED
DECEMBER 31, 2000
Total operating revenue including pari-mutuel commissions declined by 4% or
approximately $ 700,000 in 2001 to $17.0 million as compared to $17.7 million in
2000. Total handle in 2001 was $103 million as compared to $113 million in 2000.
Live-on track handle decreased by $3 million or 13% in 2001 to $20.0 million as
compared to $23.0 million in 2000, while live-simulcast handle decreased by $6
million or 15% to $34.0 million. Guest-simulcast handle decreased by
approximately $1.0 million or 2% in 2001 to $49.0 million as compared to $50.0
million in 2000.
Wonderland had seventeen (17) fewer live racing performances in 2001 for a
total of 333 live performances as compared to 350 live performances in 2000,
with a 7% decrease in attendance between 2001 and 2000. Concessions revenue
decreased slightly to $1.5 million in 2001 from $1.6 million in 2000.
Concessions revenue consists of food, beverage, program sales, and advertising
income. Other operating revenue remained essentially unchanged compared to 2000.
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED
DECEMBER 31, 2001
Total operating expenses were $16.5 million and $16.4 million in 2002 and
2001, respectively. Purse expense declined by 7% because of the decline in
on-track handle. Purse expense is determined by contractual agreement with the
dog owners and statutory requirements of The Commonwealth of Massachusetts based
upon on-track handle. During 2002, administrative and operating expenses
increased by approximately $260,000 or 5% compared to the same period in 2001.
This increase was mainly the result of costs related to our going private
transaction.
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED
DECEMBER 31, 2000
Total operating expenses were $16.4 million and $17.3 million in 2001 and
2000, respectively. Purse expense declined by 7% because of the decline in
on-track handle. Purse expense is determined by contractual agreement with the
dog owners and statutory requirements of The Commonwealth of Massachusetts based
upon on-track handle. During 2001, administrative and operating expenses
decreased by approximately $668,000 compared to the same period in 2000. When
deduction is made for $881,000 of expenditures on the ballot initiative during
2000, baseline administrative and operating expenses show an increase of
$213,000. This increase is primarily attributable to insurance and utility
costs. (See Item 1E, "Government Regulation").
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased in 2002 as compared to 2001 by
approximately $106,000 and increased by approximately $12,000 in 2001 from 2000.
The increase during 2002 was the result of extensive capital additions to the
track facility. The Company continues to replace capital items as they become
obsolete.
INTEREST EXPENSE
Interest expense during 2002 declined by approximately $140,000 as the
result of lower average outstanding balances and advantageous refinancing of the
Company's long term debt.
C-15
During 2001, interest expense increased by approximately $54,000 as
compared to 2000. The increase was the result of interest accrued on a
litigation settlement with a totalisator vendor whose amount became known at the
end of 2001.
OTHER INCOME (EXPENSE)
During 2001, the Company realized $1,058,007 in income from a change in
accounting estimate related to a long-term liability. In the event that the
Company had not realized this $1,058,007, its income from continuing operations
would have been $18,000 in 2001.
In January 2001, the Company lost at arbitration a claim brought against it
by a former totalisator vendor. The judgment amount was $468,000. This amount
was recorded as "other expense" during the year ended December 31, 2000.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes was less than the statutory
federal tax rate of 34% during 2002, 2001, and 2000 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 $62,000
in 2002, $46,000 in 2001, and $94,000 in 2000 consists of 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
(2) evenings and two (2) matinees per week, while simulcasting afternoons and
evenings through July 1997. (See Item 3, "Legal Proceedings;" and Note 4 of
Notes to Consolidated Financial Statements). In 2001 and 2000, the Company
recognized gains of $351,000 and $353,000 resulting from the reduction of
liabilities related to discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, the Company had a working capital deficit of
approximately $376,000, and a stockholders' deficit of approximately $1.8
million. 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 cash and cash equivalents totaled approximately $114,000 at
December 31, 2002, compared with $12,000 at December 31, 2001. The Company
generated a cash deficit from operations of approximately $ 520,000 during 2002
as compared to a deficit of $143,000 during 2001. Non-cash items included in the
Company's net loss in 2002 consist of depreciation and amortization expense of
$642,000. Changes in working capital accounts including restricted cash,
accounts payable and other accrued liabilities generated approximately $275,000
of cash in 2002. Net cash used in investing activities in 2002 of approximately
$405,000 primarily represents additions to property, plant and equipment.
On September 3, 2002, Wonderland Greyhound Park Realty, LLC, a subsidiary
of the Company, entered into a $6,500,000 Loan, Reimbursement and Security
Agreement with Boston Federal Savings Bank. This loan is collateralized by a
mortgage on all real and personal property located at Wonderland Greyhound Park.
A portion of the proceeds from this loan transaction was used to refinance the
Company's then existing credit facility with Century Bank and Trust Company. The
Company is the guarantor of the loan from Boston Federal Savings Bank. Financing
activities in 2002 generated approximately $1.0 million of cash in the course of
the refinancing of the Company's long-term debt.
The Company is currently undertaking a capital improvements program to
improve its track and patron facilities. It is anticipated that these
expenditures will be fully funded by the Capital Improvement Trust Fund and a
grant program contained in the racing legislation enacted in November 2001. The
Company received a short-term working capital advance from Charles F. Sarkis,
Chairman of the Company, of $300,000 in March
C-16
2002. This funding accrued interest at a rate of 12% and was repaid with a
portion of the proceeds received in connection with the loan transaction with
Boston Federal Savings Bank.
The Company believes that it will generate enough cash from operations to
satisfy its anticipated obligations during 2003.
On February 13, 2003, the Company filed a Definitive Proxy Statement and an
accompanying Schedule 13E-3 with the Securities and Exchange Commission in order
to effectuate a 1,500 for 1 reverse stock split of its capital stock. If the
proposed reverse stock split had been approved by a majority of the voting power
of the Company's stockholders, then holders of less than 1,500 shares
immediately prior to such meeting would have been cashed out at a per share
purchase price equal to $4.00, thereby reducing the number of its stockholders
to under 300 and, consequently, allowing the Company to change its status from a
public company to a private company. This would have relieved the Company of the
administrative burden and cost and competitive disadvantages associated with
filing reports and otherwise complying with the requirements of registration
under the Federal securities laws and to permit small stockholders to receive
liquidity for their shares without having to pay brokerage commissions. The
proposed reverse stock split would have (i) caused the Westwood Groups to redeem
shares held by approximately 400 holders of record of Common Stock, (ii)
retained record holders who hold 1,500 or more shares of Common Stock or Class B
Common Stock, (iii) reduced the number of shares, on a pro-rata basis, held by
the holders of record who hold 1,500 or more shares of Common Stock or Class B
Common Stock, and (iv) changed the percent of outstanding Common Stock held by
the remaining stockholders to 100%. Assuming the completion of the proposed
reverse stock split and change in its status from a public company to a private
company, the Company would have promptly thereafter initiated a tender offer for
additional shares of its capital stock in order to provide those stockholders
who would not have received a cash payment in connection with the proposed
reverse stock split the opportunity to tender one post-reverse stock split share
in return for $6,000, which amount reflects the highest payment to be received
by any stockholder as a result of the consummation of the proposed reverse stock
split.
The special meeting of the Company's stockholders scheduled for March 19,
2003 was adjourned so that the Company could address allegations raised by the
Massachusetts Securities Division in an Administrative Complaint and a lawsuit
brought by a stockholder in Delaware Chancery Court (See Item 3, "Legal
Proceedings"). Accordingly, the proposed going private transaction was not
consummated.
RACING SUBSIDIARY
In order to meet the requirements for renewal of racing licenses in 2004,
the Company's racing subsidiary must demonstrate that among other criteria, it
is a financially stable entity, capable of disposing of its obligations on an
annual basis. Although management is optimistic that it will be able to
demonstrate sufficient financial stability in the application for a 2004 racing
license, the Company cannot assure you that the Racing Commission will continue
to grant a license to conduct racing on the schedule presently maintained at
Wonderland. In the event that the Company is not successful in obtaining a year
2004 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.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are disclosed in the Notes to the Financial
Statements in this annual report. The more critical of these policies are
described in the following paragraphs below.
C-17
REVENUE RECOGNITION
The Company's annual revenues are mainly derived from the net commission
that it receives from wagers made by patrons during its live-on track racing
performances, live and guest-simulcast racing performances and from admission
and concession charges at such performances. Inter-track receivables and
payables are dependent on the accuracy of an independent totalisator vendor.
This vendor's system has been independently reviewed and deemed reliable.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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. Estimates that could impact on the Company's
results of operations include those relating to settlement of liabilities
related to discontinued operations, contractual obligations and other accrued
expenses. Actual results could differ from those estimates.
CREDIT FACILITIES, DEBT AND LEASE PAYMENT COMMITMENTS
During 2002, we repaid our outstanding debt with Century Bank and Trust
Company with the proceeds we received from a term loan with Boston Federal
Savings Bank. Under the Boston Federal Savings Bank term loan, we can borrow up
to $6,500,000. As of December 31, 2002, we had borrowed a total $5,650,000 and
$850,000 was available for future use. Of the available amount, $600,000 may be
used for working capital purposes and $250,000 may be used to assist the Company
for transaction costs to become a private company. Borrowings under the term
loan bear interest at 6.5%. The term loan requires 34 monthly payments of
principal and interest of $38,252. The final payment of $5,356,673 is due on
September 1, 2005.
Totalisator equipment rent (which is primarily based on the handle per
performance) was approximately $335,000, $342,000 and $292,000 in 2002, 2001 and
2000, respectively. Future minimum lease payments are due at amounts calculated
as a percentage of our total handle amounts. We are also liable for numerous
operating leases for automobiles and other operating equipment. The future
minimum lease commitments relating to these noncancelable operating leases as of
December 31, 2002 are not material.
NEW ACCOUNTING STANDARDS
In April 2002, the FASB issued Statement No. 145, "Rescission of Statements
No. 4, 44 and 64, Amendment of SFAS Statement No. 13, and Technical
Corrections." SFAS 145 requires that gains and losses from extinguishment of
debt be classified as extraordinary items only if they meet the criteria in
Accounting Principles Board Opinion No. 30. Applying the provisions of Opinion
No. 30 will distinguish transactions that are unusual and infrequent and meet
the criteria for classification as an extraordinary item. SFAS No. 145 is
effective beginning January 1, 2003. Management does not believe the adoption of
SFAS No. 145 will have a significant impact on the consolidated financial
statements.
On July 30, 2002, the FASB issued Statement No. 146, "Accounting for the
Costs Associated with Exit or Disposal Activities." This statement requires
companies to recognize costs associated with exit or disposal activities only
when liabilities for those costs are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 also requires companies to
initially measure liabilities for exit and disposal activities at their fair
values. SFAS No. 146 replaces Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)"
and EITF No. 88-10, "Costs Associated with Lease Modification or Termination."
The provisions of SFAS No. 146 are effective for exit or disposal activities
that are initiated after December 31, 2002. The Company believes the adoption of
this statement will not have a material impact on its operations.
C-18
In December 2002, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure -- an amendment of SFAS Statement No. 123" ("SFAS 148"). This
statement amends SFAS 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS 148
also requires that those effects be disclosed more prominently by specifying the
form, content, and location of those disclosures. We have adopted the increased
disclosure requirements of SFAS 148 for the fiscal year ended December 31, 2002.
We will continue to use the intrinsic value method of accounting for stock-based
employee compensation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material exposure to market risk that could affect its
future results of operations and financial condition. Risks and uncertainties,
including those not presently known to us or that we currently deem immaterial,
may impair our business. The Company does not use derivative products and does
not have any material unhedged monetary assets. (See Item 7, "Liquidity and
Capital Resources").
C-19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<Table>
Report of Independent Certified Public Accountants.......... C-20
Consolidated Financial Statements:
Balance Sheets............................................ C-21
Statements of Operations.................................. C-22
Statements of Changes in Stockholders' Deficiency and
Comprehensive Income (loss)............................ C-23
Statements of Cash Flows.................................. C-24
Notes to Consolidated Financial Statements................ C-25
</Table>
C-20
REPORT OF INDEPENDENT CERTIFIED PUBLIC 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, 2002 and 2001 and the
related consolidated statements of operations, changes in stockholders'
deficiency and comprehensive income (loss) and cash flows for each of the three
years in the period ended December 31, 2002. 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 conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 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, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
/s/ BDO SEIDMAN, LLP
--------------------------------------
Boston, Massachusetts
March 26, 2003 (except for the matter discussed in Note 6
as to which the date is April 1, 2003)
C-21
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
---------------------------
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 114,327 $ 12,355
Restricted cash........................................... 376,279 345,294
Escrowed cash............................................. 294,996 180,608
Accounts receivable....................................... 20,781 42,825
Notes receivable from officers, short-term portion (Note
10).................................................... 1,137,572 468,939
Prepaid expenses and other current assets................. 134,583 136,730
------------ ------------
Total current assets................................... 2,078,538 1,186,751
------------ ------------
PROPERTY, PLANT & EQUIPMENT (NOTE 3):
Buildings and building improvements....................... 19,094,811 18,663,406
Machinery and equipment................................... 4,848,183 4,697,751
Land...................................................... 348,066 348,066
------------ ------------
24,291,060 23,709,223
Less accumulated depreciation and amortization............ (19,534,414) (18,942,335)
------------ ------------
Net property, plant and equipment...................... 4,756,646 4,766,888
------------ ------------
OTHER ASSETS:
Deferred financing costs, less accumulated amortization of
$33,214 and $121,432 at December 31, 2002 and 2001,
respectively........................................... 265,723 60,716
Notes receivable from officers, less short-term portion
(Note 10).............................................. -- 847,593
Other assets, net......................................... 26,379 51,171
------------ ------------
Total other assets..................................... 292,102 959,480
------------ ------------
Total assets.............................................. $ 7,127,286 $ 6,913,119
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities (Notes 2, 5
and 6)................................................. $ 1,749,997 $ 1,452,237
Outstanding pari-mutuel tickets........................... 608,226 611,107
Current maturities of long-term debt (Note 3)............. 96,072 324,525
------------ ------------
Total current liabilities.............................. 2,454,295 2,387,869
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 3)............ 5,531,302 3,772,186
ACCRUED EXECUTIVE BONUS, LONG-TERM PORTION.................. -- 54,352
OTHER LONG-TERM LIABILITIES (NOTES 5 AND 9)................. 985,827 1,104,145
------------ ------------
Total liabilities......................................... 8,971,424 7,318,552
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 9)
STOCKHOLDERS' DEFICIENCY (NOTE 7):
Common stock, $.01 par value; authorized 3,000,000 shares;
1,944,409 shares issued................................ 19,444 19,444
Class B common stock, $.01 par value; authorized 1,000,000
shares; 912,615 shares issued.......................... 9,126 9,126
Additional paid-in capital................................ 13,379,275 13,379,275
Accumulated deficit....................................... (6,790,916) (5,593,645)
Accumulated other comprehensive loss...................... (496,285) (254,851)
Cost of 1,593,199 common and 600 Class B common shares in
treasury............................................... (7,964,782) (7,964,782)
------------ ------------
Total stockholders' deficiency......................... (1,844,138) (405,433)
------------ ------------
Total liabilities and stockholders' deficiency......... $ 7,127,286 $ 6,913,119
============ ============
</Table>
See accompanying notes to consolidated financial statements.
C-22
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
---------------------------------------
2002 2001 2000
----------- ----------- -----------
OPERATING REVENUE:
Pari-mutuel commissions............................. $12,822,610 $13,496,411 $14,215,269
Concessions......................................... 1,560,020 1,490,150 1,565,250
Other............................................... 1,411,168 1,996,224 1,890,289
----------- ----------- -----------
Total operating revenue.......................... 15,793,798 16,982,785 17,670,808
----------- ----------- -----------
OPERATING EXPENSES:
Wages, taxes and benefits........................... 6,373,593 6,394,118 6,302,820
Purses.............................................. 3,527,732 3,807,916 4,108,685
Cost of food and beverage........................... 511,658 437,421 461,648
Administrative and operating........................ 5,468,127 5,208,220 5,876,152
Depreciation and amortization....................... 641,504 535,633 523,545
----------- ----------- -----------
Total operating expenses......................... 16,522,614 16,383,308 17,272,850
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS......................... (728,816) 599,477 397,958
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income of
approximately $7,000, $7,000 and $25,000,
respectively..................................... (375,068) (514,632) (461,078)
Other expense, net (Notes 5, 6 and 10).............. (31,348) (20,459) (692,740)
Change in accounting estimate (Note 11)............. -- 1,058,007 --
----------- ----------- -----------
Total other income (expense)..................... (406,416) 522,916 (1,153,818)
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR
INCOME TAXES........................................ (1,135,232) 1,122,393 (755,860)
PROVISION FOR INCOME TAXES (NOTE 8)................... 62,039 46,386 93,605
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS.............. (1,197,271) 1,076,007 (849,465)
GAIN FROM DISCONTINUED HARNESS RACING SUBSIDIARY (NOTE
4).................................................. -- 351,000 353,420
----------- ----------- -----------
NET INCOME (LOSS)..................................... $(1,197,271) $ 1,427,007 $ (496,045)
=========== =========== ===========
BASIC AND DILUTED PER SHARE DATA:
Income (loss) from continuing operations............ $ (.95) $ 0.85 $ (0.67)
Income from discontinued operations................. -- 0.28 0.28
----------- ----------- -----------
Net income (loss)................................ $ (.95) $ 1.13 $ (0.39)
=========== =========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING......................................... 1,263,225 1,263,225 1,263,225
=========== =========== ===========
</Table>
See accompanying notes to consolidated financial statements.
C-23
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
<Table>
<Caption>
CLASS B ADDITIONAL OTHER TOTAL
COMMON COMMON PAID-IN ACCUMULATED COMPREHENSIVE TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT LOSS STOCK (DEFICIENCY)
------- ------- ----------- ----------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1999.... $19,444 $9,126 $13,379,275 $(6,524,607) $(177,890) $(7,964,782) $(1,259,434)
Comprehensive Loss:
Net loss.................... -- -- -- (496,045) -- -- (496,045)
Pension liability
adjustment................ -- -- -- -- (16,347) -- (16,347)
------- ------ ----------- ----------- --------- ----------- -----------
Total comprehensive
loss.................... (512,392)
------- ------ ----------- ----------- --------- ----------- -----------
BALANCE, DECEMBER 31, 2000.... 19,444 9,126 13,379,275 (7,020,652) (194,237) (7,964,782) (1,771,826)
Comprehensive Income:
Net income.................. -- -- -- 1,427,007 -- -- 1,427,007
Pension liability
adjustment................ -- -- -- -- (60,614) -- (60,614)
------- ------ ----------- ----------- --------- ----------- -----------
Total comprehensive
income.................. 1,366,393
------- ------ ----------- ----------- --------- ----------- -----------
BALANCE, DECEMBER 31, 2001.... 19,444 9,126 13,379,275 (5,593,645) (254,851) (7,964,782) (405,433)
Comprehensive Loss:
Net loss.................... -- -- -- (1,197,271) -- -- (1,197,271)
Pension liability
adjustment................ -- -- -- -- (241,434) -- (241,434)
------- ------ ----------- ----------- --------- ----------- -----------
Total comprehensive
loss.................... (1,438,705)
------- ------ ----------- ----------- --------- ----------- -----------
BALANCE, DECEMBER 31, 2002.... $19,444 $9,126 $13,379,275 $(6,790,916) $(496,285) $(7,964,782) $(1,844,138)
======= ====== =========== =========== ========= =========== ===========
</Table>
See accompanying notes to consolidated financial statements.
C-24
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 13)
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-------------------------------------
2002 2001 2000
----------- ----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $(1,197,271) $ 1,427,007 $(496,045)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Gain from discontinued harness racing
subsidiary...................................... -- (351,000) (353,420)
Depreciation and amortization..................... 641,504 535,633 523,545
Change in accounting estimate..................... -- (1,058,007) --
Minimum pension liability adjustment.............. (241,434) (60,614) (16,347)
Loss on disposal of fixed assets.................. 2,552 -- --
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash.......... (30,985) 10,321 286,178
Decrease (increase) in escrowed cash............ (114,388) (100,567) 20,469
Decrease (increase) in accounts receivable...... 22,044 45,381 (47,334)
Decrease (increase) in prepaid expenses and
other current assets......................... 250,835 (28,360) 1,620
Decrease (increase) in other assets, net........ 24,792 (2,300) 9,970
Increase (decrease) in accounts payable and
other accrued liabilities.................... 297,760 (687,901) 129,405
Decrease in outstanding pari-mutuel tickets..... (2,881) (24,248) (3,105)
Decrease in accrued executive bonus, long-term
portion...................................... (54,352) (93,528) (287,935)
Increase (decrease) in other long term
liabilities.................................. (118,318) 244,631 (359,718)
----------- ----------- ---------
Net cash used in operating activities........ (520,142) (143,552) (592,717)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment........... (584,389) (120,529) (88,027)
Decrease in notes receivable, officers............... 178,960 429,812 752,025
----------- ----------- ---------
Net cash provided by (used in) investing
activities...................................... (405,429) 309,283 663,998
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt........................ 300,000 -- 338,000
Repayments of short-term debt........................ (300,000) -- (338,000)
Proceeds from debt financing......................... 5,650,000 -- --
Increase in deferred financing costs................. (254,432) -- --
Principal payments of debt........................... (4,368,025) (294,686) (273,080)
----------- ----------- ---------
Net cash provided by (used in) financing
activities...................................... 1,027,543 (294,686) (273,080)
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 101,972 (128,955) (201,799)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........... 12,355 141,310 343,109
----------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR................. $ 114,327 $ 12,355 $ 141,310
=========== =========== =========
</Table>
See accompanying notes to consolidated financial statements.
C-25
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Westwood Group, Inc. and subsidiaries (the "Company") operates in one
business segment through its pari-mutuel racing subsidiary. Wonderland Greyhound
Park ("Wonderland" or "Wonderland Park") is a pari-mutuel greyhound racing
facility located in Revere, Massachusetts. The Company also operated Foxboro
Park, a pari-mutuel harness racing facility located in Foxboro, Massachusetts
through the date of eviction in July, 1997. The Company's Foxboro harness racing
operations were discontinued during 1997.
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 2002 was approximately 801 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.
In 2002, the Company filed a Proxy Statement in order to change from public
company status to private company status (see Note 10).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Westwood
Group, Inc. 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 includes approximately $125,000 and $345,000 at December
31, 2002 and 2001, respectively, related to funds dedicated to payment of the
Company's liability for outstanding pari-mutuel tickets. Unclaimed winnings from
pari-mutuel wagering are held by Wonderland until they become payable to the
Commonwealth by the operation of unclaimed property statutes.
Restricted cash includes approximately $126,000 at December 31, 2002 which
is required to be used for the purposes of the going private transaction.
Restricted cash also includes approximately $125,000 at December 31, 2002
held as collateral for the Company's letter of credit which secures the
Company's racing bond.
ESCROWED CASH
Escrowed cash is related to the operations of Wonderland and includes
amounts held by The Commonwealth of Massachusetts in trust funds (for capital
improvements and advertising/promotion). Wonderland funds these costs and
requests reimbursement from the trust funds. Wonderland is reimbursed upon
approval by the Commonwealth.
C-26
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<Table>
<Caption>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -----------
Building and improvements................................... 30 years
Machinery and equipment..................................... 5-10 years
</Table>
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
Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Impairment charges are recorded whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets are written
down to fair value. The Company believes that no such impairment exists at
December 31, 2002. SFAS No. 144 supersedes SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." In
prior years the Company applied the provisions of SFAS 121 to evaluate
impairment. Maintenance, repairs and betterments that do not enhance the value
of or increase the life of the assets are charged to operations as incurred.
Depreciation and amortization expense (excluding amortization of deferred
charges) of approximately $592,000, $500,000 and $487,000 was recorded for the
years ended December 31, 2002, 2001 and 2000, respectively.
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized on a straight line basis over
the term of the related debt (34 months). Amortization expense for the years
ended December 31, 2002, 2001 and 2000 was approximately $49,000, $36,000 and
$36,000, respectively.
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 accounts receivable balance is
comprised principally of amounts due from other race tracks. Historically, the
Company has not incurred any significant credit related losses.
REVENUE RECOGNITION
The Company's annual revenues are mainly derived from the net commission
that it receives from wagers made by patrons during its live-on track racing
performances, live and guest simulcast racing performances and from admission
and concession charges at such performances. Inter-track receivables and
payables are dependent on the accuracy of an independent totalisator vendor.
This vendor's system has been independently reviewed and deemed reliable.
C-27
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
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 December 2002, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure -- an amendment of SFAS Statement No. 123" ("SFAS 148"). This
statement amends SFAS 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS 148
also requires that those effects be disclosed more prominently by specifying the
form, content, and location of those disclosures. We have adopted the increased
disclosure requirements of SFAS 148 for the fiscal year ended December 31, 2002.
We will continue to use the intrinsic value method of accounting for stock-based
employee compensation.
The additional disclosures required by SFAS are as follows:
<Table>
<Caption>
DECEMBER 31,
------------------------------------
2002 2001 2000
----------- ---------- ---------
Net income (loss), as reported.................. $(1,927,271) $1,427,007 $(496,045)
Add: Stock based employee compensation expense
included in reported net income (loss), net of
tax........................................... -- -- --
Deduct: Total stock based employee compensation
expense determined under the fair value based
method of all awards, net of tax.............. -- -- (42,695)
----------- ---------- ---------
Pro forma net income (loss)..................... $(1,927,271) $1,427,007 $(538,740)
=========== ========== =========
Net income (loss) per basic and dilutive shares:
As reported..................................... $ (.95) $ 1.13 $ (.39)
=========== ========== =========
Pro forma....................................... $ (.95) $ 1.13 $ (.43)
=========== ========== =========
</Table>
INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
per share is computed using the weighted average number of common shares and
potentially dilutive common shares, consisting of stock options with an exercise
price below the average market price of common shares. In 2001, the Company had
net income, however, stock options were excluded from the computation of diluted
shares because their exercise prices were above the average market price of the
common shares. The Company's stock options did not have a dilutive effect in
2002 or 2000 since the Company incurred a net loss.
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
C-28
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense was
approximately $216,000, $181,000 and $128,000 for the years ended December 31,
2002, 2001 and 2000, respectively.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified in order to
conform to the 2002 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued Statement No. 145, Pronouncements
"Rescission of Statements No. 4, 44 and 64, Amendment of SFAS Statement No. 13,
and Technical Corrections." SFAS 145 requires that gains and losses from
extinguishment of debt be classified as extraordinary items only if they meet
the criteria in Accounting Principles Board Opinion No. 30. Applying the
provisions of Opinion No. 30 will distinguish transactions that are unusual and
infrequent and meet the criteria for classification as an extraordinary item.
SFAS No. 145 is effective beginning January 1, 2003. Management does not believe
the adoption of SFAS No. 145 will have a significant impact on the consolidated
financial statements.
On July 30, 2002, the FASB issued Statement No. 146, "Accounting for the
Costs Associated with Exit or Disposal Activities." This statement requires
companies to recognize costs associated with exit or disposal activities only
when liabilities for those costs are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 also requires companies to
initially measure liabilities for exit and disposal activities at their fair
values. SFAS No. 146 replaces Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)"
and EITF No. 88-10, "Costs Associated with Lease Modification or Termination."
The provisions of SFAS No. 146 are effective for exit or disposal activities
that are initiated after December 31, 2002. The Company believes the adoption of
this statement will not have a material impact on its operations.
C-29
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31, 2002 and 2001
consisted of the following:
<Table>
<Caption>
DECEMBER 31,
-----------------------
2002 2001
---------- ----------
Accounts payable, trade..................................... $1,018,672 $ 738,988
Accrued professional fees................................... 220,358 202,609
Accrued purse liabilities................................... 215,899 57,117
Other accrued liabilities................................... 240,727 359,983
Accrued executive bonus..................................... 54,341 93,540
---------- ----------
$1,749,997 $1,452,237
========== ==========
</Table>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<Table>
<Caption>
DECEMBER 31,
-----------------------
2002 2001
---------- ----------
9.5% Century Bank and Trust Company ("Century Bank") term
loan, required 60 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............................................ $ -- $4,096,711
6.5% Boston Federal Saving Bank ("Boston Federal Savings
Bank") term loan requiring 34 monthly payments of
principal and interest of $38,252 beginning November 1,
2002 collateralized by a mortgage and security interest in
all real estate and personal property located at
Wonderland Greyhound Park. The final payment on the loan
is to be made September 1, 2005 in the amount of
$5,356,673................................................ 5,627,374 --
Less current maturities..................................... 96,072 324,525
---------- ----------
Long-term portion........................................... $5,531,302 $3,772,186
========== ==========
</Table>
At December 31, 2002, the Company had drawn down a total of $5,650,000 from
the Boston Federal Savings Bank loan and $850,000 was available for use. Of the
available amount, $600,000 may be used for working capital purposes and $250,000
may be used to assist the Company for transaction costs to become a private
company.
The Loan, Reimbursement, and Security Agreement, dated as of September 3,
2002, by and between Wonderland Greyhound Park Realty, LLC and Boston Federal
Savings Bank, contains certain restrictive covenants including the maintenance
of certain financial ratios and debt coverage requirements. As of December 31,
2002, the Company was in compliance with these covenants.
The proceeds from the Boston Federal Savings Bank loan were used to repay
off the Century Bank term loan.
C-30
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt as of December 31, 2002 are as follows:
<Table>
<Caption>
FISCAL YEAR AMOUNT
- ----------- ----------
2003........................................................ $ 96,072
2004........................................................ 102,505
2005........................................................ 5,428,797
----------
Total....................................................... $5,627,374
==========
</Table>
4. DISCONTINUED OPERATIONS
In 1996, litigation ensued between Foxboro Realty Associates, LLC, et al.
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. As a result the Company
discontinued its harness racing operations. In the fourth quarter of 2001 and
2000, the Company recognized a gain of $351,000 and $353,420, respectively,
resulting from the reduction of liabilities related to discontinued operations.
As of December 31, 2002 and 2001, there were no remaining liabilities related to
discontinued operations.
5. OTHER LONG-TERM LIABILITIES
Other long-term liabilities include approximately $417,216 and $469,000 at
December 31, 2002 and 2001, respectively, of fees owed to a law firm primarily
related to litigation in prior years. Such outstanding amounts are currently
payable at $1,000 per week. Current maturities of $52,000 are included in
accounts payable and accrued liabilities.
Also included in other long-term liabilities at December 31, 2001 is
approximately $274,000 for a settlement of liability to a former totalisator
vendor which was fully paid during 2002.
The remaining balance in other long-term liabilities consists of deferred
compensation and deferred pension payable of $96,524 and $452,659 for 2002,
respectively, and $103,999 and $257,146 for 2001, respectively, and the
long-term portion of capital lease payments (see Note 6).
6. COMMITMENTS AND CONTINGENCIES
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 its obligations on a timely basis. The racing
license has been granted for the 2003 calendar year. Although management is
optimistic that it will be able to demonstrate financial stability in their
applications for a year 2004 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 2004 racing license, the adverse impact on
the Company would be material.
LEASE COMMITMENT
Totalisator equipment rent (which is primarily based on the handle per
performance) was approximately $335,000, $342,000 and $292,000 in 2002, 2001 and
2000, respectively. Future minimum payments are due at amounts calculated as a
percentage of the Company's total handle amounts. The Company is also liable for
numerous operating leases for automobiles and other equipment. The future
minimum lease commitments relating to noncancelable operating leases as of
December 31, 2002 are immaterial.
In 2002, 2001 and 2000, the Company entered into capital leases for various
operating equipment items.
C-31
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 2002, future minimum lease payments under capital leases
were as follows:
<Table>
<Caption>
DECEMBER 31,
2002
------------
2003........................................................ $20,257
2004........................................................ 17,407
2005........................................................ 3,146
-------
Total maximum lease payments................................ 40,810
Amount representing interest................................ 3,794
-------
Present value of minimum lease payments..................... 37,016
Current portion of lease payments........................... 17,588
-------
Long-term portion of lease payments......................... $19,428
=======
</Table>
The current portion of lease payments has been recorded in accounts payable
and other accrued liabilities, while the long-term portion of capital lease
payments has been recorded in other long-term liabilities.
LITIGATION
The Company is subject to various legal proceedings that arise in the
ordinary course of its business.
In 1996, litigation ensued between Foxboro Realty Associates, LLC, et al.
and the Company, its subsidiary Foxboro Park, Inc., et al. in Norfolk Superior
Court in Massachusetts, over Foxboro Park's right to occupy Foxboro Raceway. The
Court issued an execution pursuant to which Foxboro Park was evicted from the
racetrack on July 31, 1997. The parties appealed to the Massachusetts Appeals
Court on January 27, 1998.
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.
On January 30, 2001, the above-mentioned cases were settled without
monetary damages to either party.
In January 2001, the Company lost at arbitration a claim brought against it
by a former totalisator vendor. The judgment amount was $468,000. This amount
has been recorded as "other income (expense), net" during the year ended
December 31, 2000. The related liability was fully accrued in current
liabilities. As of December 31, 2001, the judgment amount, plus accrued interest
thereon, totaled approximately $538,000. The arbitrator's decision was appealed
to the United States Federal District Court in Massachusetts and overturned. The
former vendor appealed the District Court decision to the United States Federal
Circuit Court of Appeals, which upheld the arbitrator's original decision. The
case was returned to the United States Federal District Court where a judgment
was entered. The parties negotiated a settlement agreement which provided for an
aggregate payment in the amount of $603,534. The liability was fully paid as of
December 31, 2002.
On March 18, 2003, the Company received an Administrative Complaint and Ex
Parte Motion for a Temporary Order to Cease and Desist from the Secretary of the
Commonwealth, Securities Division of The Commonwealth of Massachusetts, one day
prior to the date of the special meeting of the stockholders to approve a
proposed reverse stock split, which, if approved, would have resulted in the
Company changing its status from a public company to a private company. The
Administrative Complaint, which was prompted by the receipt by the Massachusetts
Securities Division of an anonymous letter from a Company stockholder, claims
that the Westwood Group failed to disclose certain information to the
stockholders in the Company's Proxy Statement, which the Division alleges to be
"material". The stockholders' meeting scheduled for
C-32
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
March 19, 2003 to vote to approve the proposed going private transaction was
adjourned in order to permit the Company to address this matter. On April 8,
2003, the Company filed an answer in response to the Administrative Complaint
denying each of the allegations set forth in the Administrative Complaint. A
hearing to address the Ex Parte Motion for a Temporary Order to Cease and Desist
has been scheduled at the end of April 2003.
On April 1, 2003, a class action complaint was filed by a stockholder of
the Company, Joseph I. Messina, against the Westwood Group and the Company's
Board of Directors in the Court of Chancery in the State of Delaware seeking to
enjoin the proposed reverse stock split on the basis that is not fair to the
stockholders and that the proxy statement omits information that Mr. Messina
alleges to be "material". The Company disputes all of the allegations set forth
in the Complaint and will take appropriate action to address this Complaint.
7. COMMON STOCK, STOCK OPTIONS AND GRANT PLANS
The Company has two classes of common stock. The holders of Common Stock
are entitled to one vote for each share of Common Stock, while the holders of
Class B Common Stock are entitled to ten votes for each share of Class B Common
Stock. All other powers, preferences and rights are identical for the Common
Stock and the Class B Common Stock.
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 stock options vested over five years and have a life of ten years.
The Company's stock options activity is summarized as follows:
<Table>
<Caption>
NUMBER OF EXERCISE
YEAR ENDED DECEMBER 31, 2002 SHARES PRICE
- ---------------------------- --------- --------
Balance, December 31, 1999.................................. 283,834 $3.00
Terminated/expired........................................ (26,334) 3.00
-------- -----
Balance, December 31, 2000 and 2001......................... 257,500 $3.00
Expired during 2002....................................... (165,000) 3.00
-------- -----
Balance December 31, 2002................................... 92,500 $3.00
======== =====
</Table>
The Company's total stock options outstanding of 92,500 at December 31,
2002 expire as follows: 50,000 in October 2005, and 42,500 in November 2007.
All stock options were fully vested as of December 31, 2000. As a result
there is no proforma expense for the years ended December 31, 2002 and 2001.
The assumptions used and the weighted average information for the year
ended December 31, 2000 include a risk-free rate of 7.5%; an expected dividend
yield of 2.5%; an expected life of 10 years; and an expected volatility factor
of 45%. The weighted average fair value of options granted was $5.18 per share
and the weighted average exercise price of options granted was $3.00 per share.
Additionally, the weighted average remaining contractual life of options
outstanding at December 31, 2000 was 3 years.
The effect of applying SFAS No. 123 for the year ended December 31, 2000
would have been an increase to net loss of approximately $43,000. (See Note 1
for further information.)
8. INCOME TAXES
The Company's provision for income taxes for the years ended December 31,
2002, 2001 and 2000 represents state income taxes.
C-33
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective tax rates differ from amounts computed by applying
the statutory federal income tax rate to income (loss) from continuing
operations before income taxes, as follows:
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31 2002 2001 2000
- ------------------------------ ----- ----- -----
Statutory federal income tax rate........................... (34.0)% 34.0% (34.0)%
Decrease in valuation allowance........................... 34.0 -- 34.0
Non-taxable change in estimate............................ -- (34.0) --
State income taxes........................................ 5.5 4.1 12.3
----- ----- -----
Income tax rate............................................. 5.5% 4.1% 12.3%
===== ===== =====
</Table>
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities are as follows (in thousands):
<Table>
<Caption>
DECEMBER 31, 2002 2001
- ------------ ------- -------
Net operating loss carryforwards............................ $ 2,824 $ 2,242
Fixed assets................................................ 412 394
Deferred compensation....................................... 41 44
Miscellaneous operating reserves and accruals............... 204 416
Deferred pension............................................ -- 1
Other assets................................................ 66 84
------- -------
Gross deferred assets....................................... 3,547 3,181
Less valuation allowance.................................... (3,547) (3,181)
------- -------
Net deferred assets......................................... $ -- $ --
======= =======
</Table>
The Company has operating loss carryforwards amounting to $7.1 million
which begin expiring in December of 2008. The Company has fully reserved for all
net deferred tax assets as future realization of these assets is not presently
determinable.
C-34
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. PENSION PLANS AND RETIREMENT BENEFITS
The Company contributed $90,868, $93,033 and $44,247 in 2002, 2001 and
2000, 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
$64,262, $104,962 and $123,170 in 2002, 2001 and 2000, 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, 2002 and 2001:
<Table>
<Caption>
DECEMBER 31, 2002 2001
- ------------ ----------- -----------
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits
of $1,275,141 and $1,205,017 for 2002 and 2001,
respectively.......................................... $(1,309,636) $(1,239,862)
=========== ===========
Projected benefit obligation............................... $(1,309,636) $(1,239,862)
Plan assets at fair value.................................. 856,977 982,716
Unrecognized losses........................................ -- (254,852)
Adjustment for minimum liability........................... -- 254,852
----------- -----------
Adjusted accrued pension cost (included in other long term
liabilities)............................................. $ (452,659) $ (257,146)
=========== ===========
</Table>
Net periodic pension cost included the following components:
<Table>
<Caption>
DECEMBER 31, 2002 2001 2000
- ------------ --------- --------- --------
Service cost -- benefits earned during the
period........................................... $ -- $ -- $ --
Interest cost on projected benefit obligation...... 86,633 85,485 95,619
Actual return on plan assets....................... 115,212 52,952 (8,392)
Net (gain) loss during the year, deferred for later
recognition...................................... (183,503) (139,503) (69,024)
--------- --------- --------
Net periodic pension cost (benefit)................ $ 18,342 $ (1,066) $ 18,203
========= ========= ========
</Table>
Assumptions used in accounting for the above pension information included a
discount rate of 6.75% for the year ended December 31, 2002, and 7.25% for the
years ended December 31, 2001 and 2000, and an expected long-term rate of return
of 8.5% for all years presented.
C-35
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth pension obligations and plan assets as of
December 31, 2002 and 2001:
<Table>
<Caption>
YEARS ENDED DECEMBER 31, 2002 2001
- ------------------------ ---------- ----------
Change in benefit obligation:
Benefit obligation as of January 1........................ $1,239,862 $1,302,656
Interest cost............................................. 86,633 85,485
Actuarial gain (loss)..................................... 57,930 (78,889)
Benefits paid............................................. (74,789) (69,390)
---------- ----------
Benefit obligation as of December 31........................ $1,309,636 $1,239,862
========== ==========
Change in plan assets:
Fair value as of January 1................................ $ 982,716 $1,000,096
Actual return on plan assets.............................. (115,212) (52,952)
Company contribution...................................... 64,262 104,962
Benefits paid............................................. (74,789) (69,390)
---------- ----------
Fair value as of December 31................................ $ 856,977 $ 982,716
========== ==========
</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.
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 $69,000, $71,000 and $71,000, for the years
ended December 31, 2002, 2001 and 2000, respectively.
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.
Total expense for all retirement plans of the Company for the years ended
December 31, 2002, 2001 and 2000 was approximately $224,000, $269,000 and
$278,000, respectively.
10. TRANSACTIONS WITH OFFICERS, EMPLOYEES AND RELATED PARTIES
On September 24, 1999, the Company entered into a Stock Purchase Agreement
with Charles F. Sarkis, pursuant to which Mr. Sarkis purchased 450,518 shares of
common stock of Back Bay Restaurant Group.
Upon the sale of Back Bay Restaurant Group common stock to Charles F.
Sarkis, the Company received a promissory note in the amount of $2,703,108. The
note bears interest of 9.5%. $500,927 was paid on November 4, 1999, $500,000 was
paid on December 16, 1999, $351,554 was paid on January 31, 2000, $338,000 was
paid on December 1, 2000, and $350,000 was paid August 17, 2001. The remaining
outstanding principal and accrued interest were to be paid in two installments
due on December 16, 2002 and December 16, 2003. In 2002, the note was amended,
and the December 16, 2002 payment was deferred until June 20, 2003. The balance
outstanding under the note was $932,328 and $910,004 at December 31, 2002 and
2001, respectively.
C-36
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company received a short-term working capital advance from Charles F.
Sarkis, an officer of the Company, of $300,000 in March 2002. This funding
accrued interest at the rate of 12% and was repaid in connection with the loan
transaction with Boston Federal Savings Bank.
At December 31, 2002 and 2001, there were loans outstanding to
officers/stockholders including interest, of $1,137,572 and $1,316,532. The
loans were restructured in 1999 to be payable over five years and bear interest
at 8.0% per annum. Notes receivable and related interest, in the amounts of
$932,328 and $86,608 at December 31, 2002 and $178,350 and $910,004 at December
31, 2001 are due from Charles Sarkis. Notes receivable including related
interest in the amount of $118,636 and $228,178 is due from Richard P. Dalton,
the Company's President and Chief Executive Officer at December 31, 2002 and
2001, respectively. The Dalton note was originally recorded as a note receivable
at December 31, 1998. The accrued bonus due to Mr. Sarkis of $54,341 at December
31, 2002 will be used to repay the outstanding balance on the $86,608 note
receivable balance as it becomes due. The current portion of these bonus amounts
are classified in accounts payable and other accrued liabilities at December 31,
2002.
In August 2000, animal rights activists were able to obtain the necessary
number of signatures in order to place on the November 2000 State ballot a
binding initiative petition to ban all wagering on dog racing within
Massachusetts effective June 1, 2001. The Company expended approximately
$881,000 on the campaign to defeat the ballot initiative through December 31,
2000. The campaign to defeat the ballot initiative was conducted jointly with
the dog track in Raynham, Massachusetts through a Ballot Question Committee
established in accordance with the campaign finance laws of Massachusetts. The
Company's President and Chief Executive Officer, Richard P. Dalton, served as
the chairman of this Ballot Question Committee. These funds were used primarily
for the acquisition of media time and the development and implementation of a
media campaign to promote the industry point of view.
On August 16, 2000, the Company entered into a Settlement Agreement and
Mutual Release with a stockholder of more than 5% of the Company's Common Stock
who agreed to cancel certain stock options in the Company held by him, sell his
shares of common stock in the Company to a third party and release the Company
and Charles Sarkis from certain claims in consideration for $140,755 and the
payment of his legal expenses. This amount has been recorded in "Other income
(expense), net" in the accompanying statement of operations.
On February 13, 2003, the Company filed a Definitive Proxy Statement and an
accompanying Schedule 13E-3 with the Securities and Exchange Commission in order
to effectuate a 1,500 for 1 reverse stock split of its capital stock. If the
proposed reverse stock split had been approved by a majority of the voting power
of the Company's stockholders, then holders of less than 1,500 shares
immediately prior to such meeting would have been cashed out at a per share
purchase price equal to $4.00, thereby reducing the number of its stockholders
to under 300 and, consequently, allowing the Company to change its status from a
public company to a private company. This would have relieved the Company of the
administrative burden and cost and competitive disadvantages associated with
filing reports and otherwise complying with the requirements of registration
under the Federal securities laws and to permit small stockholders to receive
liquidity for their shares without having to pay brokerage commissions. The
proposed reverse stock split would have (i) caused the Westwood Group to redeem
shares held by approximately 400 holders of record of Common Stock, (ii)
retained record holders who hold 1,500 or more shares of Common Stock or Class B
Common Stock, (iii) reduced the number of shares, on a pro-rata basis, held by
the holders of record who hold 1,500 or more shares of Common Stock or Class B
Common Stock, and (iv) changed the percent of outstanding Common Stock held by
the remaining stock-holders to 100%. Assuming the completion of the proposed
reverse stock split and change in its status from a public company to a private
company, the Company would have promptly thereafter initiated a tender offer for
additional shares of its capital stock in order to provide those stockholders
who would not have received a cash payment in connection with the proposed
reverse stock split the opportunity to tender one post-reverse stock split share
in return for $6,000,
C-37
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which amount reflects the highest payment to be received by any stockholder as a
result of the consummation of the proposed reverse stock split.
The special meeting of the Company's stockholders scheduled for March 19,
2003 to approve the proposed reverse stock split was adjourned so that the
Company could address allegations raised by the Massachusetts Securities
Division in an Administrative Complaint and a lawsuit brought by a stockholder
in Delaware Chancery Court. Accordingly, the proposed going private transaction
was not consummated.
11. CHANGE IN ACCOUNTING ESTIMATE
In the fourth quarter of 2001, the Company recognized $1,058,000 of
non-operating income as the result of a change in accounting estimate on a prior
year's long-term liability.
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for 2002
and 2001 (in thousands, except per share amounts):
<Table>
<Caption>
2002 1ST 2ND 3RD 4TH
- ---- ------ ------ ------ ------
Revenues........................................... $4,031 $4,209 $3,815 $3,739
Operating income (loss)............................ 254 113 (217) (879)
Income (loss) from continuing operations........... 73 8 (295) (983)
Net income (loss).................................. 73 8 (295) (983)
Basic and diluted income (loss) from continuing
operations per share............................. $ 0.06 $ 0.01 $(0.23) $(0.77)
Basic and diluted net income (loss) per share...... $ 0.06 $ 0.01 $(0.23) $(0.77)
</Table>
<Table>
<Caption>
2001 1ST 2ND 3RD 4TH
- ---- ------ ------ ------ ------
Revenues........................................... $4,116 $4,545 $4,243 $4,079
Operating income................................... 91 42 166 300
Income (loss) from continuing operations........... (25) (175) 1,112 164
Net income (loss).................................. (25) (175) 1,112 515
Basic income (loss) from continuing operations per
share............................................ $(0.02) $(0.14) $ 0.88 $ 0.13
Diluted income (loss) from continuing operations
per share........................................ $(0.02) $(0.14) $ 0.87 $ 0.12
Basic net income (loss) per share.................. $(0.02) $(0.14) $ 0.88 $ 0.41
Diluted net income (loss) per share................ $(0.02) $(0.14) $ 0.87 $ 0.40
</Table>
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years ended:
<Table>
<Caption>
DECEMBER 31, 2002 2001 2000
- ------------ -------- -------- --------
Interest............................................. $392,968 $427,060 $458,312
Income taxes......................................... $ 20,835 $ 48,765 $230,379
Noncash investing activities:
</Table>
The Company recorded capital lease obligations of $8,171, $31,257 and
$27,831 in 2002, 2001 and 2000, respectively.
C-38
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
Our directors and executive officers as of March 31, 2003 are as follows:
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
Charles F. Sarkis......................... 63 Chairman of the Board of Directors
Richard P. Dalton......................... 55 President, Chief Executive Officer and
Director
Paul J. DiMare............................ 60 Director
</Table>
Charles F. Sarkis has served as Chairman of the Board of Directors 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. (a restaurant holding
company), formerly a wholly-owned subsidiary of the Company, for more than six
(6) years. He also has been Chief Executive Officer of Sarkis Management
Corporation (restaurant management) for more than six (6) years.
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.
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 (6) years. He also is a director of First National
Bank of Homestead, Florida.
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.
Each of the three directors, Messrs. Sarkis, Dalton and DiMare, have been
named as defendants together with the Company in a class action law suit filed
by a stockholder of the Westwood Group in order to enjoin the Company from
completing a proposed reverse stock split for the purpose of taking the Company
private (See Item 3 under "Legal Proceedings" and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
additional information regarding the proposed reverse stock split and the class
action law suit).
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons owning more than 10% of the outstanding stock
of the Company to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and greater than 10%
holders of stock of the Company are required by the Securities and Exchange
Commission to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on the copies of such forms 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.
C-39
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 (3) years ended December 31, 2002, to each of the Company's
executive officers whose aggregate remuneration exceeded $100,000.
<Table>
<Caption>
LONG TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ------------ -------
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS SARS PAYOUTS COMPENSATION
- ------------------ ---- -------- ----- ------------ ------------ ---- ------- ------------
Charles F. Sarkis......... 2002 $250,000 -- -- -- -- -- --
Chairman of the Board 2001 $250,000 -- -- -- -- -- --
2000 $250,000 -- -- -- -- -- --
Richard P. Dalton......... 2002 $205,000 -- -- -- -- -- --
President and Chief 2001 $205,000 -- -- -- -- -- --
Executive Officer 2000 $205,000 -- -- -- -- -- --
</Table>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 2002, Messrs. Charles F. Sarkis and
Richard P. Dalton served as executive officers of the Company and as members of
the Board of Directors of the Company, which performs the functions of
Compensation Committee.
REMUNERATION OF DIRECTORS
The Company pays to each non-employee Director $2,000 per Board meeting
attended with an additional fee of $1,000 for each Audit and Compensation
Committee meeting attended.
COMPENSATION PLAN
The Company has adopted an 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 of up to 5% of income before income taxes will be available to reward an
employee's individual performance. Based on the Company's cash flow condition,
no bonuses were granted during the 2002 fiscal year. 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 AGREEMENT
During 1997, the Company issued to those certain executives, Directors and
former Directors non-qualified stock options to purchase an aggregate of 42,500
shares of the Company's common stock at an exercise price of $3.00 per share.
During 1995, the Company awarded those certain executives, Directors and former
Directors of the Company, non-qualified stock options to purchase an aggregate
of 50,000 shares of the Company's Common Stock.
C-40
AUDIT COMMITTEE
The Board of Directors of the Company performs the functions of an Audit
Committee.
YEAR-END OPTION VALUES
The table below shows year-end option values the total number of
unexercised options held at December 31, 2002. There are no unexercised
in-the-money options at the fiscal year-end. (1) No options were exercised in
the year-ended December 31, 2002.
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN THE MONEY OPTIONS
FISCAL YEAR END (#) AT YEAR END ($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Charles F. Sarkis..................... 20,000 -- -- --
Richard P. Dalton..................... 40,000 -- -- --
</Table>
- ---------------
(1) In-the-Money Options are those where the fair market value of the underlying
securities exceeds the exercise price of the option.
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 March 31, 2003,
with respect to the beneficial ownership (1) 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 five percent (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.
<Table>
<Caption>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- ----------
Directors and Officers
Richard P. Dalton........................................... 52,350(2) 13.38%
The Westwood Group, Inc.
19 V.F.W. Parkway Revere, MA 02151
Paul J. DiMare.............................................. 103,300(3) 29.41%
P.O. Box 900460
Homestead, FL 33090
Charles F. Sarkis........................................... 831,866(4) 70.75%
Back Bay Restaurant Group, Inc.
284 Newbury Street Boston, MA 02116
------- -----
All Directors and Officers as a group (three (3) persons)... 987,516(5) 81.22%
======= =====
Holders of more than 5%, not included above:
Paul F. Evans............................................... 26,122(6) 7.44%
Joseph J. O'Donnell......................................... 22,669(7) 6.45%
A. Paul Sarkis.............................................. 49,139(8) 12.29%
</Table>
- ---------------
(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
C-41
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.
(4) Consists of 804,616 shares issuable upon conversion of the shares of Class B
Common Stock beneficially owned by Mr. Sarkis, 7,250 shares of Common Stock,
as well as presently exercisable options to purchase 20,000 shares. (See
footnote (2) to the table below showing beneficial ownership of Class B
Common Stock.)
(5) Includes presently exercisable options to purchase 60,000 shares and 804,616
shares issuable upon conversion of shares of Class B Common Stock, held by
all directors and officers as a group.
(6) Ms. Evans' address is 3600 Galt Ocean Drive, Fort Lauderdale, Florida 33308.
(7) Mr. O'Donnell's address is c/o Boston Concessions Group, Inc., 111 6th
Street, Cambridge, Massachusetts 02141.
(8) Includes 530 shares held of record, 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. Mr. Sarkis'
address is 599 East Sixth St., Apt. 1, South Boston, MA 02127. Mr. Sarkis is
a former Director and officer of the Westwood Group.
(B) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF CLASS B COMMON STOCK
The following table sets forth certain information, as of March 31, 2003,
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 them.
<Table>
<Caption>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- -------------------- ----------------
Charles F. Sarkis........................................... 804,616(2) 88.00%
Back Bay Restaurant Group, Inc.
284 Newbury Street Boston, MA 02116
Richard P. Dalton........................................... 0 0.00%
The Westwood Group, Inc.
190 V.F.W. Parkway Revere, MA 02151
Paul J. DiMare.............................................. 0 0.00%
P.O. Box 900460
Homestead, FL 33090
All Directors and Officers as a Group (three persons)....... 804,616(2) 88.00%
======= =====
</Table>
- ---------------
(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. Mr. Sarkis disclaims beneficial ownership of these shares.
C-42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1994, the Westwood Group purchased all restaurant and concession
operations at Wonderland from Back Bay Restaurant Group, Inc. for a sales price
of $770,000. Included in the term note of $970,000 were additional amounts owed
to Back Bay Restaurant Group for costs incurred under a Cross Indemnification
Agreement amounting to $200,000 and interest expense of approximately $58,000
for the years ended December 31, 1999 and 1998. On September 24, 1999, the
Westwood Group entered into a stock repurchase agreement with Back Bay
Restaurant Group, Inc., pursuant to which Back Bay Restaurant Group repurchased
222,933 shares of its common stock from the Westwood Group in exchange for the
cancellation of this promissory note.
Concurrently with entering into the stock purchase agreement with Back Bay
Restaurant Group, the Westwood Group entered into a stock purchase agreement
with Charles F. Sarkis, pursuant to which Mr. Sarkis purchased 450,518 shares of
common stock of Back Bay Restaurant Group, Inc. in return for a promissory note
in the amount of $2,703,108. This note bears interest of 9.5%. $500,927 was paid
on November 4, 1999, $500,000 was paid on December 16, 1999, $351,554 was paid
on January 31, 2000, $338,000 was paid on December 1, 2000, and $350,000 was
paid on August 17, 2001. In consideration of Mr. Sarkis' prepayment of $62,000
due under this promissory note on March 22, 2002 and his $300,000 working
capital loan to the Westwood Group made in March 2002 (which was repaid in
connection with the Westwood Group's refinancing in September 2002), the
Westwood Group agreed to defer payment in the amount of $466,164 due from Mr.
Saris on December 31, 2002 until June 30, 2003. The aggregate balance due under
this promissory note as of March 31, 2003 was $954,167.
As of March 31, 2003, there are additional loans outstanding to
officers/stockholders in the aggregate amount of $157,729. Notes receivable and
related interest, in the amount of $67,872 is due from Charles Sarkis and
$89,857 is due from Richard P. Dalton. These loans are payable over five years
and bear interest at 8.0% per annum.
In October 1999, the Westwood Group received a letter of credit for working
capital purposes from the Anglo Irish Bank securitized by Mr. Charles Sarkis'
property located on Boylston Street in Boston, Massachusetts. Subsequently, Mr.
Sarkis refinanced the Boylston Street property and loaned the Westwood Group
$500,000, which amount was designated to be used for the 1998 and 1999
outstanding pari-mutuel tickets due to The Commonwealth of Massachusetts. In
addition, under the terms of the loan agreement between the Westwood Group and
Mr. Sarkis, the Westwood Group offset the first payment due from Mr. Sarkis
under the promissory note issued on September 24, 1999 against this $500,000
loan.
Prior to 1995, the Westwood Group engaged a firm to assist management in
the planning and execution of a financial and operational reorganization of the
Westwood Group. As compensation for its services, the Westwood Group agreed to a
success fee, in addition to the basic fee, to grant options to acquire common
stock totaling 6% of the total of the Westwood Group's capital stock at $3 per
share. The success fee also stipulated that Michael S. Fawcett, a principal of
that firm who was a director of the Westwood Group at the time would be required
to return options to purchase 25,000 shares of the Westwood Group's common stock
if the success fee option is exercised. The Westwood Group has not granted the
success fee option to date.
PART IV
ITEM 14. CONTROLS AND PROCEDURES
Within the ninety-day period prior to the filing date of this report, the
Company conducted an evaluation under the supervision and with the participation
of the Company's management, including the Company's Chief Executive Officer
(its principal executive officer and principal financial officer) regarding the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as defined in Rule 13a-14 of the Securities Exchange Act of 1934
(the "Exchange Act"). Based upon evaluation, the Chief Executive Officer
concluded that the Company's disclosure controls and procedures are effective in
timely
C-43
alerting them to material information relating to the Company, including its
consolidated subsidiaries, required to be included in our periodic SEC filings
is made known to them by other within those entities.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of the Company carried out its evaluation.
ITEM 15. 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 Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Deficiency
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
<Table>
3.1 Certificate of Incorporation of the Company.(1)
3.2 Amendment, dated May 15, 1987, to the Certificate of
Incorporation of the Company.(3)
3.21 Amendment, dated November 2, 1995, to the Certificate of
Incorporation of the Company.(7)
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.(3)
10.1 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.(4)
10.2 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.(4)
10.3 Collective Bargaining Agreement between the Company and
United Food and Commercial Workers' Union, Local 1445
AFL-CIO, CLC, dated June 1, 1993.(5)
10.4 Collective Bargaining Agreement between the Company and
Local 25 -- Teamsters, effective January 1, 1993.(5)
10.5 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.(6)
10.6 Collective Bargaining Agreement between Wonderland Greyhound
Park, Inc. and Local 22 -- Laborers' International Union,
dated July 1, 1993.(6)
10.7 Collective Bargaining Agreement Extension between RFSC, Inc.
and Local 26 -- Hotel and Restaurant Workers, effective
January 1, 1994.(6)
10.8 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.(6)
10.9 Amendment to Term Note between certain subsidiaries of the
Company and BBRG, dated March 17, 1995.(6)
</Table>
C-44
<Table>
10.10 Assignment for the Benefit of Creditors and Sharing
Agreement (Foxboro Harness).(8)
10.11 Assignment for the Benefit of Creditors and Sharing
Agreement (Foxboro Thoroughbred).(8)
10.12 Assignment for the Benefit of Creditors and Sharing
Agreement (Foxboro Park).(8)
10.13 Form of Executive Non-Qualified Stock Option Agreement.(8)
10.14 Form of Employee Non-Qualified Stock Option Agreement.(8)
10.15 Third Amendment to Term Note between certain subsidiaries of
the Company and BBRG, dated January 5, 1998.(8)
10.16 Voting and Shares Exchange Agreement, dated as of March 31,
1999.(9)
10.17 Stock Purchase Agreement, dated as of September 24, 1999,
between the Company and Charles Sarkis.(10)
10.18 Stock Repurchase Agreement dated as of September 24, 1999,
between the Company and BBRG.(10)
10.19 Term Loan Agreement between Wonderland Greyhound Park, Inc.
and Century Bank and Trust Company, dated June 30, 1998.(11)
10.20 Loan Reimbursement and Security Agreement between Wonderland
Greyhound Park, LLC and Boston Federal Savings Bank, dated
September 3, 2002.(12)
21.1 Subsidiaries of the Company (filed herewith).
23.1 Consent of Independent Certified Public Accountants (filed
herewith).
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
</Table>
- ---------------
(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) Filed with the Company's Annual Report on Form 10-K for 1987 and
incorporated herein by reference.
(4) Filed with the Company's Annual Report on Form 10-K for 1992 and
incorporated herein by reference.
(5) Filed with the Company's Annual Report on Form 10-K for 1993 and
incorporated herein by reference.
(6) Filed with the Company's Annual Report on Form 10-K for 1994 and
incorporated herein by reference.
(7) Filed with the Company's Annual Report on Form 10-K for 1995 and
incorporated herein by reference.
(8) Filed with the Company's Annual Report on Form 10-K for 1997 and
incorporated herein by reference.
(9) Filed with the Company's Annual Report on Form 10-K for 1998 and
incorporated herein by reference.
(10) Filed as an exhibit with Form 8-K, as filed by the Company on October 12,
1999 and incorporated herein by reference.
(11) Filed with the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by reference.
(12) Filed with the Company's Amended Quarterly Report on Form 10-Q/A for the
quarter ended September 30, 2002 and incorporated by reference.
(b) Reports on 8-K.
None.
C-45
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.
/s/ RICHARD P. DALTON
--------------------------------------
Richard P. Dalton
President, Chief Executive Officer and
Director
(Principal Executive Officer and
Principal Financial Officer)
Date: April 15, 2003
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.
/s/ CHARLES F. SARKIS
--------------------------------------
Charles F. Sarkis
Chairman of the Board
Date: April 15, 2003
/s/ RICHARD P. DALTON
--------------------------------------
Richard P. Dalton
President, Chief Executive
Officer and Director
Date: April 15, 2003
--------------------------------------
Paul J. DiMare
Director
Date:
C-46
CERTIFICATION
I, Richard P. Dalton, certify that:
1. I have reviewed this annual report on Form 10-K of The Westwood
Group, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ RICHARD P. DALTON
--------------------------------------
Richard P. Dalton
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
Date: April 15, 2003
C-47
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K/A
AMENDMENT NO. 1
<Table>
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</Table>
COMMISSION FILE NUMBER 0-1590
---------------------
THE WESTWOOD GROUP, INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 04-1983910
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</Table>
190 V.F.W. PARKWAY
REVERE, MA 02151
(Address of principal executive offices, including zip code)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) 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. [ ]
Indicate by check mark whether the registrant is an accelerated filed (as
defined in Rule 12b-24 of the Act). Yes [ ] No [X]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C-48
EXPLANATORY NOTE
This Form 10-K/A is being filed for the sole purpose for correcting a
typographical error in order to indicate that Richard P. Dalton is the Principal
Accounting Officer of the Westwood Group, in addition to being the Principal
Executive Officer and Principal Financial Officer of the Westwood Group. No
other information contained in the Westwood Group's Form 10-K for the year ended
December 31, 2002, has been updated or amended.
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.
<Table>
<Caption>
THE WESTWOOD GROUP, INC.
Date: April 15, 2003 /s/ RICHARD P. DALTON
---------------------------------------------
Richard P. Dalton
President, Chief Executive Officer and
Director
(Principal Executive Officer, Principal
Financial
Officer and Principal Accounting Officer)
</Table>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf by the
Registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
Date: April 15, 2003 /s/ CHARLES F. SARKIS
---------------------------------------------
Charles F. Sarkis
Chairman of the Board
Date: April 15, 2003 /s/ RICHARD P. DALTON
---------------------------------------------
President, Chief Executive Officer and
Director
(Principal Executive Officer, Principal
Financial
Officer and Principal Accounting Officer)
Date:
---------------------------------------------
Director
</Table>
C-49
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.
<Table>
<Caption>
THE WESTWOOD GROUP, INC.
Date: October 31, 2003 /s/ RICHARD P. DALTON
---------------------------------------------
Richard P. Dalton
President, Chief Executive Officer and
Director
(Principal Executive Officer, Principal
Financial
Officer and Principal Accounting Officer)
</Table>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf by the
Registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
Date: October 31, 2003 /s/ CHARLES F. SARKIS
---------------------------------------------
Charles F. Sarkis
Chairman of the Board
Date: October 31, 2003 /s/ RICHARD P. DALTON
---------------------------------------------
Richard P. Dalton
President, Chief Executive Officer and
Director
(Principal Executive Officer, Principal
Financial
Officer and Principal Accounting Officer)
Date: October 31, 2003 /s/ JOSEPH CASSIN
---------------------------------------------
Joseph Cassin
Director
</Table>
C-50
EXHIBIT D
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2003
D-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
<Table>
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</Table>
COMMISSION FILE NUMBER: 0-1590
THE WESTWOOD GROUP, INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 04-1983910
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
190 V.F.W. PARKWAY, 02151
REVERE, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
</Table>
781-284-2600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of August 11, 2003, 351,210 shares of the Registrant's common stock, par
value $.01 per share, and 912,015 shares of the Registrant's Class B common
stock, par value $.01 per share, were outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
D-2
<Table>
<Caption>
PAGE
NUMBER
------
PART I FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2003 and December
31, 2002.................................................... D-4
Consolidated Statements of Operations for the three months
ended June 30, 2003 and June 30, 2002....................... D-5
Consolidated Statements of Operations for the six months
ended June 30, 2003 and June 30, 2002....................... D-6
Consolidated Statements of Cash Flows for the six months
ended June 30, 2003 and June 30, 2002....................... D-7
Notes to Consolidated Financial Statements.................. D-8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... D-12
Item 3: Quantitative and Qualitative Disclosures About Market
Risk........................................................ D-17
Item 4: Controls and Procedures..................................... D-17
PART II OTHER INFORMATION
Item 1: Legal Proceedings........................................... D-17
Item 2: Changes in Securities and Use of Proceeds................... D-19
Item 3: Defaults Upon Senior Securities............................. D-19
Item 4: Submission of Matters to a Vote of Security Holders......... D-19
Item 5: Other Information........................................... D-19
Item 6: Exhibits and Reports on Form 8-K............................ D-19
Signature............................................................ D-20
Exhibit Index........................................................ D-21
</Table>
D-3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
(UNAUDITED)
ASSETS (NOTE 2)
CURRENT ASSETS:
Cash and cash equivalents................................. $ 479,292 $ 114,327
Restricted cash........................................... 277,439 376,279
Escrowed cash............................................. 174,897 294,996
Accounts receivable....................................... 16,054 20,781
Prepaid expenses and other current assets................. 276,883 134,583
Notes receivable from officers short term portion......... 598,646 1,137,572
------------ ------------
Total current assets.................................... 1,823,211 2,078,538
------------ ------------
PROPERTY, PLANT, & EQUIPMENT
Building and building improvements........................ 19,121,765 19,094,811
Machinery and equipment................................... 4,875,680 4,848,183
Land...................................................... 348,066 348,066
------------ ------------
24,345,511 24,291,060
Less accumulated depreciation and amortization............ (19,822,573) (19,534,414)
------------ ------------
Net property, plant and equipment....................... 4,522,938 4,756,646
------------ ------------
OTHER ASSETS:
Deferred financing costs, less accumulated amortization of
$83,037 and $33,214 at June 30, 2003 and December 31, 2002
respectively.............................................. 215,900 265,723
Other assets, net......................................... 26,379 26,379
------------ ------------
Total other assets...................................... 242,279 292,102
------------ ------------
Total assets............................................ $ 6,588,428 $ 7,127,286
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities............ $ 2,294,697 $ 1,749,997
Outstanding pari-mutuel tickets........................... 451,039 608,226
Current maturities of long-term debt (Note 2)............. 104,710 96,072
------------ ------------
Total current liabilities............................... 2,850,446 2,454,295
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 2)............ 5,821,427 5,531,302
OTHER LONG-TERM LIABILITIES................................. 918,906 985,827
------------ ------------
Total liabilities....................................... 9,590,779 8,971,424
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
STOCKHOLDERS' DEFICIENCY:
Common stock, $.01 par value; authorized 3,000,000 shares,
1,944,409 shares issued................................. 19,444 19,444
Class B Common stock, $.01 par value; authorized 1,000,000
shares; 912,615 shares issued........................... 9,126 9,126
Additional paid-in capital................................ 13,379,275 13,379,275
Accumulated deficit....................................... (7,949,129) (6,790,916)
Accumulated other comprehensive loss...................... (496,285) (496,285)
Cost of 1,593,199 common and 600 Class B common shares in
treasury................................................ (7,964,782) (7,964,782)
------------ ------------
Total stockholders' deficiency.............................. (3,002,351) (1,844,138)
------------ ------------
Total liabilities and stockholders' deficiency.......... $ 6,588,428 $ 7,127,286
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
D-4
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
JUNE 30, JUNE 30,
FOR THE THREE MONTHS ENDED 2003 2002
- -------------------------- ---------- ----------
(UNAUDITED)
OPERATING REVENUES:
Pari-mutuel commissions................................... $3,020,871 $3,392,600
Admissions................................................ 38,595 46,245
Concessions and parking................................... 628,536 770,124
---------- ----------
Total operating revenue..................................... 3,688,002 4,208,969
---------- ----------
OPERATING EXPENSES:
Wages, taxes and benefits................................. 1,724,145 1,502,137
Purses.................................................... 803,023 893,996
Cost of food and beverage................................. 108,156 171,992
Administrative and operating.............................. 1,518,165 1,372,575
Depreciation and amortization............................. 162,050 155,386
---------- ----------
Total operating expenses.................................... 4,315,539 4,096,086
---------- ----------
Income (loss) from operations............................. (627,537) 112,883
---------- ----------
OTHER EXPENSE:
Interest expense, net..................................... (107,391) (92,911)
Other expense, net........................................ (10,000) (1,890)
---------- ----------
Total other expense......................................... (117,391) (94,801)
---------- ----------
Income (loss) from operations before provision for income
taxes..................................................... (744,928) 18,082
Provision for income taxes................................ 7,500 10,303
---------- ----------
Net income (loss)........................................... $ (752,428) $ 7,779
---------- ----------
BASIC AND DILUTED PER SHARE DATA:
Net income (loss)........................................... $ (0.59) $ 0.01
========== ==========
Weighted average common shares outstanding.................. 1,263,225 1,263,225
========== ==========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
D-5
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
JUNE 30, JUNE 30,
FOR THE SIX MONTHS ENDED 2003 2002
- ------------------------ ----------- ----------
(UNAUDITED)
OPERATING REVENUES:
Pari-mutuel commissions................................... $ 5,900,383 $6,718,299
Admissions................................................ 66,525 88,654
Concessions and parking................................... 1,175,640 1,432,798
----------- ----------
Total operating revenue................................ 7,142,548 8,239,751
----------- ----------
OPERATING EXPENSES:
Wages, taxes and benefits................................. 3,252,277 3,057,149
Purses.................................................... 1,582,767 1,756,092
Cost of food and beverage................................. 185,543 282,115
Administrative and operating.............................. 2,696,924 2,488,401
Depreciation and amortization............................. 337,982 289,293
----------- ----------
Total operating expenses.................................... 8,055,493 7,873,050
----------- ----------
Income (loss) from operations............................. (912,945) 366,701
----------- ----------
OTHER (EXPENSE):
Interest expense, net..................................... (201,768) (227,208)
Other expense, net........................................ (10,000) (31,344)
----------- ----------
Total other (expense)....................................... (211,768) (258,552)
----------- ----------
Income (loss) from operations before provision for income
taxes..................................................... (1,124,713) 108,149
Provision for income taxes................................ 33,500 27,445
----------- ----------
Net income (loss)........................................... $(1,158,213) $ 80,704
=========== ==========
BASIC AND DILUTED PER SHARE DATA:
Net income (loss)........................................... $ (0.92) $ 0.06
=========== ==========
Weighted average common shares outstanding.................. 1,263,225 1,263,225
=========== ==========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
D-6
THE WESTWOOD GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
-------------------------
2003 2002
------------ ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $(1,158,213) $ 80,704
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 337,982 289,293
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash................. 98,840 (165,131)
Decrease in escrowed cash.............................. 120,099 14,618
Decrease in accounts receivable........................ 4,727 25,395
Decrease (increase) in prepaid expenses and other
current assets........................................ (142,300) 52,210
Decrease in other assets, net.......................... -- 38,073
Increase in accounts payable and other accrued
liabilities........................................... 518,390 229,560
Decrease in outstanding pari-mutuel tickets............ (157,187) (91,888)
Decrease in accrued executive bonus long-term
portion............................................... -- (46,769)
Decrease in other long term liabilities................ (66,921) (28,926)
----------- ---------
Total adjustments.................................... 713,630 316,435
----------- ---------
Net cash provided by (used in) operating
activities.......................................... (444,583) 397,139
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (28,141) (504,963)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment of debt................................. (51,237) (241,320)
Proceeds from debt financing.............................. 350,000 --
Decrease in notes receivable, officers.................... 538,926 109,469
Short term advances....................................... -- 300,000
----------- ---------
Net cash provided by financing activities................. 837,689 168,149
----------- ---------
Net increase in cash and cash equivalents................... 364,965 60,325
Cash and cash equivalents, beginning of year................ 114,327 12,355
----------- ---------
Cash and cash equivalents, end of year...................... $ 479,292 $ 72,680
----------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 201,768 $ 202,661
----------- ---------
Income taxes.............................................. $ 26,000 $ 25,000
----------- ---------
</Table>
The company recorded capital lease obligations of $26,310 in 2003.
The accompanying notes are an integral part of these consolidated financial
statements.
D-7
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
INTERIM RESULTS
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair statement of results of
operations for the interim periods presented. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities on the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Operating results for interim
periods are not necessarily indicative of results that may be expected for an
entire fiscal year. Accordingly, these interim consolidated financial statements
should be read in conjunction with the consolidated financial statements
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements as of June 30, 2003 and
December 31, 2002 and for the three and six month periods ended June 30, 2003
and 2002 include the accounts of the Company and its wholly-owned subsidiaries.
All material inter-company accounts and transactions have been eliminated in
consolidation.
INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
per share is computed using the weighted average number of common shares and
potentially dilutive common shares, consisting of stock options with an exercise
price below the average market price of common shares. Stock options were not
considered in 2003 since the Company had a net loss and their effect would be
antidilutive. The Company's stock options did not have a dilutive effect in 2002
since the option prices per share were deemed to be equal to or higher than the
estimated average per share market price of the Company's common stock.
The amount of potentially dilutive common shares issuable under the
Company's stock options, if any, are determined based on the treasury stock
method.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
STOCK-BASED COMPENSATION
At June 30, 2003, the Company continued to account for stock-based
compensation plans using the intrinsic value method. The Company accounts for
stock based compensation plans in accordance with the provisions of APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation", and SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure".
D-8
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All stock options were fully vested as of December 31, 2000. As a result,
there is no pro-forma expense for the six months ended June 30, 2003 and 2002.
NEW ACCOUNTING PRONOUNCEMENTS
In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables". EITF 00-21 addresses certain aspects
of the accounting by a vendor for arrangements under which the vendor will
perform multiple revenue generating activities. EITF 00-21 will be effective for
periods beginning after June 15, 2003. The adoption of EITF 00-21 is not
expected to have a material impact on the Company's financial position and
results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"). This interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," addresses
consolidation by business enterprises of variable interest entities. Under
current practice, two enterprises generally have been included in consolidated
financial statements because one enterprise controls the other through voting
interests. This interpretation defines the concept of "variable interests" and
requires existing unconsolidated variable interest entities to be consolidated
by their primary beneficiaries if the entities do not effectively disperse the
risks among the parties involved. The provisions of FIN 46, which the Company
adopted in 2003, did not have a material impact on the consolidated financial
statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003, and hedging relations designated after June 30, 2003, except for
those provisions of SFAS No. 149 which relate to SFAS No. 133 implementation
issues that have been effective for fiscal quarters that began prior to June 15,
2003. For those issues, the provisions that are currently in effect should
continue to be applied in accordance with their respective effective dates. In
addition, certain provisions of SFAS No. 149, which relate to forward purchases
or sales of when-issued securities or other securities that do not yet exist,
should be applied to both existing contracts and new contracts entered into
after June 30, 2003. The adoption of SFAS No. 149 is not expected to have a
material effect on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that is within
the scope of SFAS No. 150 as a liability. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective beginning September 1, 2003. The adoption of SFAS No. 150 is not
expected to have a material effect on the Company's financial statements.
D-9
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DEBT
Long-term debt consisted of the following:
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
---------- ------------
6.5% Boston Federal Savings Bank term loan.................. $5,926,137 $5,627,374
Requiring 34 monthly payments of principal and interest
beginning November 1, 2002 collateralized by a mortgage
and security interest in all real estate and personal
property located at Wonderland Greyhound Park The final
payment on the loan is to be made September 1, 2005 in the
amount of $5,690,369.
Less current maturities..................................... 104,710 96,072
---------- ----------
Long -- term portion........................................ $5,821,427 $5,531,302
========== ==========
</Table>
At June 30, 2003, the Company had drawn down a total of $6,000,000 under
the Boston Federal Savings Bank line, with an additional $500,000 available for
use. Of this available amount, $250,000 is currently available for working
capital purposes and $250,000 may be used to assist the Company for transaction
costs relating to the proposed purchase of stock from the minority stockholders
of the Company.
The Loan, Reimbursement, and Security Agreement, dated as of September 3,
2002, by and between Wonderland Greyhound Park Realty, LLC and Boston Federal
Savings Bank, contains certain restrictive covenants including the maintenance
of certain financial ratios and debt coverage requirements. As of June 30, 2003,
the Company was in compliance with these covenants. The note is collateralized
by a mortgage and security interest in all real estate and personal property at
Wonderland Greyhound Park.
3. LITIGATION
The Company is involved in various legal proceedings that arise in the
ordinary course of its business.
On March 18, 2003, which was one day prior to the date of the special
meeting of the Company's stockholders to approved a proposed reverse stock split
going private transaction, the Company received an Administrative Complaint and
Ex Parte Motion for a Temporary Order to Cease and Desist from the Securities
Division of the Office of the Secretary of The Commonwealth of Massachusetts'
Securities Division. The Administrative Complaint claimed that the Company
failed to disclose certain information to the stockholders in the proxy
statement related to the proposed reverse stock split, which the Division
alleged to be "material." Specifically, the Division alleged that the Company
failed to disclose (i) the existence of loans from E. Mark Noonan, the principal
of Alouette Capital, to the Company and Mr. Sarkis; (ii) that Alouette Capital
was not a registered broker dealer, and (iii) the extent of the Company's
lobbying activities with respect to the passage of gaming legislation. The
stockholders' meeting scheduled for March 19, 2003 to approve the proposed going
private transaction was adjourned in order to permit the Company to address this
matter, and the stockholders' vote was never taken. On April 8, 2003, the
Company filed an answer in response to the Administrative Complaint denying each
of the allegations set forth in the Administrative Complaint.
On June 16, 2003, the Company executed an Offer of Settlement and a Consent
Order was issued. The principal elements of the settlement were as follows:
(i) The Company would not commit any future violations of chapter
110A of Massachusetts General Laws and the corresponding regulations
promulgated thereunder;
(ii) The Company paid the sum of $10,000 to offset the cost of the
Division's investigation;
D-10
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(iii) If the Company retains a fairness opinion provider as part of
any proposed going private transaction, the Company would engage a fairness
opinion provider that is independent, unaffiliated, and free from all
material conflicts of interest;
(iv) The Company would not, within the next twelve months, enter into,
effect or consummate with its then existing shareholders a going private
transaction where the common stock of Company is valued as a per share
price of less than $4.00, however, it could seek review of this provision
through petition to the Director of the Division and he/she may grant such
relief at his/her sole discretion, provided that such relief shall not be
unreasonably withheld;
(v) The Company would include all material facts, consistent with the
SEC's rules, considered by the Board of Directors in reaching its fairness
determination regarding any proposed going private transaction and would
present a fair and balanced representation of the potential expansion of
gaming legislation in Massachusetts consistent with all applicable SEC
rules;
(vi) The Company would make available to any fairness opinion provider
retained by the Board of Directors to determine the fairness of any
proposed going private transaction, any and all current gaming-related
reports and materials prepared for the Company by any consultant, including
any financial projections;
(vii) The Company would present to the Division any draft of an
amendment to the existing February 13, 2003 Proxy Statement or any other
filing under the SEC's Regulation M-A contemporaneously with submission of
the same to the SEC for review;
(viii) The Company would require approval of any proposed going
private transaction by majority of (a) the unaffiliated stockholders of the
outstanding shares of Common Stock, and (b) the unaffiliated stockholders
of the Class B Common Stock;
(ix) The Company would value the stock based upon a range deemed to be
fair by the new fairness opinion provider; and
(x) The Company would include provisions that would pay former
stockholders whose shares have been purchased through the transaction an
additional premium, earn out, or the like, should legislation be enacted
into law, within one (1) year of the stockholders vote approving the
transaction, authorizing the Company to install slot machines at its
racetrack, with the amount of any payment to former stockholders to be
determined based upon the particular provisions of the statute, and
whether, in fact, the Company realizes increased revenues in connection
therewith.
On April 1, 2003, a class action complaint was filed by a stockholder of
the Company against the Company and the Company's Board of Directors in the
Court of Chancery in the State of Delaware seeking to enjoin the proposed
reverse stock split on the basis that is not fair to the stockholders and that
the proxy statement omits information alleged to be "material." On June 17,
2003, the Company filed a Motion to Dismiss for mootness on the grounds that the
proposed going private transaction has not or will not be completed. To date,
the plaintiffs have not filed a response to the motion, and no further action
has been taken at this time.
D-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations together with our financial statements and
related notes appearing elsewhere in this quarterly report. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of many factors, including, but
not limited to, those set forth under "Results of Operations" and elsewhere in
this quarterly report.
RESULTS OF OPERATIONS
During 2001, the Company and the owners of other area racetracks worked to
enact legislation which would permit the Company and the other greyhound track
to continue to provide simulcast broadcasting of thoroughbred racing on a more
frequent basis, as well as providing for a decrease in the pari-mutuel taxes
paid to the Commonwealth and that the funds available from the pari-mutuel tax
decrease be made available for increases in purses and the Greyhound Capital
Improvement and Promotional Trust Funds as well as the establishment of a
Greyhound Adoption Fund and the implementation of an off-track betting system.
On November 17, 2001, the "Act Providing for Improvements to the Horse and
Greyhound Racing Industry in the Commonwealth and the Regulation Thereof" was
signed into law by the acting governor of Massachusetts. Under this statute, the
Company and the other area racetracks are permitted to continue to provide
simulcast broadcasting of thoroughbred racing to their patrons until December
2005. This legislation also provides that the Company is to pay premiums for the
right to simulcast interstate thoroughbred and harness racing ranging from 3% to
7% for the benefit of the purse accounts at the Commonwealth's two commercial
horse racetracks. In addition, to the extension and expansion of simulcast
broadcasting, this statute provides for a "purse pool," which will be funded by
taxes, fees and assessments with a minimum of $400,000 being credited to the
purse accounts of each racetrack with any remaining portion being apportioned
among the racetracks pursuant to a formula to be devised by the State Racing
Commission. All unclaimed simulcast wagers collected at each racetrack are to be
deposited with the Massachusetts State Racing Commission for payment to the
purse account of the individual racetracks responsible for such unclaimed
wagers. The Westwood Group also received a one-time grant of $300,035 during
2001 from the Commonwealth for the purpose of funding capital improvements and
repairs to its facility and equipment. Finally, the statute authorizes account
wagering at each of the individual racetracks and establishes a nine member
special commission to study the feasibility of an off-track betting program in
Massachusetts.
Despite the enactment of this legislation and the initial potential for an
increase in cash flow from such legislation, management does not believe that
this legislation has materially benefited the Company's overall racing
operations since November 2001.
While various legislation has been introduced, the Massachusetts state
legislature took no action to expand legalized gaming in the years 2000, 2001
and 2002. On October 3, 2002, the then Governor of Massachusetts issued an
executive order establishing a special commission to study and report on the
potential impact, both positive and negative, of the potential expansion of
legalized gaming in Massachusetts. This commission held public hearings in four
locations throughout the Commonwealth and reported its findings to the Governor
on December 31, 2002. This commission's report did not recommend that the
Governor and/or the state legislature enact legislation that would expand
gaming, but instead focused on the various ways that the expansion of legalized
gaming could possibly impact, both negatively and positively, the Commonwealth
and its citizens. Management is unable to predict what, if any, impact this
report will have on the overall prospects for the enactment of legislation in
Massachusetts to expand legalized gaming. There is no assurance that the release
of this report will prompt or thwart the introduction or enactment of such
legislation. This is not the first time a commission of this type has been
formed. Over the past decade, when similar commissions have proposed the
introduction of gaming legislation, numerous bills have been introduced, but
legislation has never been enacted despite being supported of by the then
Governor of The Commonwealth of Massachusetts and certain state legislators.
D-12
In the Spring of 2003, according to newspaper accounts, Governor Mitt
Romney was considering introducing legislation to allow the installation of
video slot machines at two to four unspecified sites in the Commonwealth, which
would be determined by means of an auction with five-year licenses going to the
highest bidders. In a hearing of the Government Regulations Committee of the
Massachusetts House of Representatives, Robert Pozen, Governor Romney's Chief of
Commerce and Labor, on behalf of the Romney administration, stated that 7,200
slot machines at three unspecified sites could raise as much as $300 million
annually in additional state tax revenues. At this same hearing, a number of
other gaming-related proposals were discussed. On April 15, 2003, the House of
Representatives debated two gaming bills related to permitting slot machines at
the Commonwealth's four racetracks and authorizing slot machines and full-scale
casinos. Both of these gaming bills were defeated in the House of
Representatives on that date.
A provision calling for the expansion of legalized gaming was not included
in the Massachusetts budget for fiscal year 2004. According to published
newspaper accounts, legislation to expand legalized gaming will not be
introduced in the Massachusetts state legislature until the Fall of 2003. If
Governor Romney and/or the state legislature determines to introduce or enact
legislation in 2003 to expand gaming, the process to enact gaming legislation
could take a number of months, and it is impossible to predict the nature of any
such legislation and whether the Company would in fact benefit from such
legislation if ultimately enacted.
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, the negative effect of the ballot initiative on
greyhound racing's image, 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.
Wonderland Greyhound Park currently conducts live racing five (5) nights
per week. Wonderland Greyhound Park also offers simulcast wagering afternoons
and evenings throughout the year.
The table below illustrates certain key statistics for Wonderland Greyhound
Park, the Company's greyhound racing operation, for the three months ended June
30, 2003 and 2002.
<Table>
<Caption>
2003 2002
------- -------
Performances................................................ 75 91
Simulcast days.............................................. 91 91
Pari-mutuel handle (in thousands)
Live-on track............................................. $ 3,577 $ 4,757
Live-simulcast............................................ 6,686 8,500
Guest-simulcast........................................... 12,297 12,728
------- -------
Total pari-mutuel handle.................................... $22,560 $25,985
======= =======
Total attendance............................................ 62,922 70,297
Average per capita on site wagering......................... $ 252 $ 249
Average Daily Attendance.................................... 839 772
</Table>
QUARTER ENDED JUNE 30, 2003 COMPARED TO QUARTER ENDED JUNE 30, 2002
OPERATING REVENUE
Total operating revenue declined by approximately $521,000, or 12%, to
$3.69 million in the quarter ended June 30, 2003 as compared to the quarter
ended June 30, 2002. Pari-mutuel commissions declined by 11% from approximately
$3.39 million to $3.02 million during the same period. Total handle in the
second quarter of 2003 was approximately $22.56 million as compared to
approximately $25.99 million in 2002. Live-on track handle decreased 25%, or
about $1.18 million, from approximately $4.76 million to approximately $3.58
million in 2002, with an average daily attendance of approximately 839 persons
in 2003 compared to 772 persons in 2002. Live-simulcast handle decreased by
approximately $1.81 million from approximately $8.50 million to approximately
$6.69 million, or 21%, in the second quarter of 2003 compared to the second
D-13
quarter of 2002. Guest-simulcast handle decreased by $431,000 from approximately
$12.73 million to approximately $12.30 million, or 3%, from 2003 to 2002.
The decrease in admissions revenue, when associated discounts are added
back, approximates the decline in attendance of 11%. Other operating revenue
consists of food and beverage, program sales, lottery, parking and gift shop
sales. Other operating revenue stood at approximately $629,000 for the three
months ended June 30, 2003 decreasing by approximately $141,000 from
approximately $770,000 for the three months ended June 30, 2002. Pari-mutuel
commission for the three months ended June 30, 2003 included approximately
$30,000 deposited into the Greyhound Capital Improvements Trust Fund, $46,000
deposited into the Greyhound Promotional Trust Fund, and $31,000 deposited into
the Greyhound Adoption Trust Fund. During same period of 2002, these figures
amounted to $34,000, $52,000, and $35,000, respectively.
OPERATING EXPENSES
Operating expenses of approximately $4.32 million for the three months
ended June 30, 2003 increased by approximately $219,000 from approximately $4.10
million for the three months ended June 30, 2002. This increase was attributable
to an increase in salary expense related to adjustments negotiated with
bargaining units as well as an increase in utilities expense or approximately
$125,000 which was mainly the result of a credit that was received in the first
quarter of 2002.
INTEREST EXPENSE
Interest expense increased by approximately $14,000 for the three months
ended June 30, 2003 from approximately $93,000 in the three months ended June
30, 2002 to approximately $107,000 in the three months ended June 30, 2003 due
to increased debt borrowings.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately $7,500 to $162,000 in
the three months ended June 30, 2003, from $155,000 in the comparable period in
2002. The increase is the result of capital additions to the racing facility.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes was less than the statutory
federal tax rate of 34% during the first six months of 2003 and 2002 primarily
due to the utilization of available net operating loss carryforwards in 2002 and
the net loss in 2003. The provision for taxes of approximately $7,500 and
$10,000 in the second three months of 2003 and 2002, respectively, represents
estimated state taxes.
The table below illustrates certain key statistics for Wonderland Greyhound
Park, the Company's greyhound racing operation, for the six months ended June
30, 2003 and 2002.
<Table>
<Caption>
2003 2002
-------- --------
Performances................................................ 141 167
Simulcast days.............................................. 180 181
Pari-mutuel handle (in thousands)
Live-on track............................................. $ 6,261 $ 8,717
Live-simulcast............................................ 12,477 16,349
Guest-simulcast........................................... 24,069 25,313
-------- --------
Total pari-mutuel handle.................................... $ 42,807 $ 50,379
======== ========
Total attendance............................................ 117,722 135,850
Average per capita on site wagering......................... $ 258 $ 250
Average Daily Attendance.................................... 835 813
</Table>
D-14
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002
OPERATING REVENUE
Total operating revenue declined by $1.10 million, or 13%, to approximately
$7.14 million in the six months ended June 30, 2003 as compared to approximately
$8.24 million in the six months ended June 30, 2002. Pari-mutuel commissions
declined by 12% to approximately $5.90 million from approximately $6.72 million
during the same period. Total handle in the first six months of 2003 was
approximately $42.81 million as compared to $50.38 million in 2002. This
represents a decrease of 15%. Live-on track handle decreased 28% or about $2.46
million from approximately $8.72 million in 2002 to $6.26 million in 2002, with
an average attendance of approximately 835 persons in 2003 compared to 813
persons in 2002. Live-simulcast handle decreased by $3.87 million to $12.47
million, or 24%, in the first six months of 2003 as compared to $16.35 million
during the comparable period of 2002. Guest-simulcast handle decreased by $1.24
million, or 5%, to approximately $24.07 million from approximately $25.31
million in the first six months of 2002.
The decrease in admissions revenue, when associated discounts are added
back, approximates the decline in attendance of 15%. Other operating revenue
consists of food and beverage, program sales, lottery, parking and gift shop
sales. Other operating revenue stood at approximately $1.18 million for the six
months ended June 30, 2003 decreasing by approximately $250,000 from
approximately $1.43 million for the six months ended June 30, 2002. Pari-mutuel
commission for the six months ended June 30, 2003 included approximately $60,000
deposited into the Greyhound Capital Improvements Trust Fund, $46,000 deposited
into the Greyhound Promotional Trust Fund, and $31,000 deposited into the
Greyhound Adoption Trust Fund. During same period of 2002, these figures
amounted to $68,000, $44,000, and $44,000 respectively.
OPERATING EXPENSES
Operating expenses of approximately $8.06 million for the six months ended
June 30, 2003 increased by approximately $182,000 from approximately $7.87
million for the six months ended June 30, 2002. This increase was attributable
to an increase in salary expense related to adjustments negotiated with
bargaining units as well as an increase in utilities expense of approximately
$125,000 which was mainly the result of a credit that was received in the first
quarter of 2002.
INTEREST EXPENSE
Interest expense decreased by approximately $25,000 for the six months
ended June 30, 2003 from $227,000 in the six months ended June 30, 2002 to
approximately $202,000 in the six months ended June 30, 2003 due to increased
debt borrowings.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately $49,000 to $338,000
in the six months ended June 30, 2003, from $289,000 in the comparable period in
2002. The increase is the result of capital additions to the racing facility.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes was less than the statutory
federal tax rate of 34% during the first six months of 2002 and 2002 primarily
due to the utilization of available net operating loss carryforwards in 2002 and
the net loss in 2003. The provision for taxes of $34,000 and $27,000 in the
first six months of 2003 and 2002, respectively, represents estimated state
taxes.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, the Company had a working capital deficit of
approximately $1.0 million, and a stockholders' deficit of approximately $3.0
million. 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
D-15
service requirements. The Company's cash and cash equivalents totaled
approximately $479,000 at June 30, 2003, compared with $114,000 at December 31,
2002. This increase in cash was primarily due to the payment received on the
note receivable from an officer. The Company generated a cash deficiency from
operations of approximately $445,000 during the first six months of 2003 as
compared to a cash surplus of $397,000 during the corresponding period in 2002.
Non-cash items included in the Company's net loss in the first six months of
2003 consist of depreciation and amortization expense of $338,000. Changes in
working capital accounts including restricted cash, accounts payable and other
accrued liabilities generated approximately $376,000 of cash in the first six
months of 2003.
Net cash used in investing activities in 2003 of approximately $28,000
represents investments and additions to the property, plant and equipment.
Financing activities in 2003 include $51,000 of funds used to reduce outstanding
balances on long-term debt, as well as proceeds from debt financing of $350,000
and the decrease of $539,000 in notes receivable from officers.
The Company believes that it will generate enough cash from operating and
financing activities to satisfy its anticipated obligations during 2003.
Management continues to examine the full range of strategic alternatives in
an effort to maximize shareholder value, including the benefits and
disadvantages of remaining a public company, particularly in light of the lack
of a meaningful trading market for its common stock.
CRITICAL ACCOUNTING POLICIES
In accordance with the U.S. Securities and Exchange Commission Release Nos.
33-8040, 34-45149 and FR-60, the Company's Critical Accounting Policies are as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with principles
generally accepted in the United States of America 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. Estimates that could impact on the Company's
results of operations include those relating to contractual obligations and
other accrued expenses. Actual results could differ from those estimates.
RESTRICTED CASH
Restricted cash includes approximately $150,000 and $125,000 at June 30,
2003 and December 31, 2002, respectively, related to funds dedicated to payment
of the Company's liability for outstanding pari-mutuel tickets. Unclaimed
winnings from pari-mutuel wagering are held by Wonderland Greyhound Park until
they become payable to the Commonwealth by operation of unclaimed property
statutes. Restricted cash includes approximately $1,000 and $126,000 at June 30,
2003 and December 31, 2002, respectively, which is required to be used for the
purposes of the proposed going private transaction. Restricted cash also
includes approximately $126,000 and $125,000 at June 30, 2003 and December 31,
2002, respectively, held as collateral for the Company's letter of credit which
secures the Company's racing bond.
ESCROWED CASH
Escrowed cash is related to the operations of Wonderland Greyhound Park and
includes amounts held by The Commonwealth of Massachusetts in trust funds (for
capital improvements and advertising/promotion). Wonderland Greyhound Park funds
these costs and requests reimbursements from the trust funds. Wonderland
Greyhound Park is reimbursed upon approval by the Commonwealth of Massachusetts.
REVENUE RECOGNITION
The Company's annual revenues are mainly derived from the net commission
that it receives from wagers made by patrons during its live-on track racing
performances, live and guest-simulcast racing performances
D-16
and from admission and concession charges at such performances. Inter-track
receivables and payables are dependent on the accuracy of an independent
totalisator vendor. This vendor's system has been independently reviewed and
deemed reliable.
FORWARD-LOOKING STATEMENTS
Certain statements contained throughout this quarterly 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 employment of capital.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material exposure to market risk that could affect its
future results of operations and financial condition. Risks and uncertainties,
including those not presently known to us or that we currently deem immaterial,
may impair our business. The Company does not use derivative products and does
not have any material monetary assets (See Item 2, "Liquidity and Capital
Resources").
ITEM 4. CONTROLS AND PROCEDURES
The term "disclosure controls and procedures" is defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"). The
rules refer to the controls and other procedures designed to ensure that
information required to be disclosed in reports that the Company files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified. The Company's management, including the
Company's Chief Executive Officer, performed an evaluation of the effectiveness
of the design and operation of the Company's disclosure controls and procedures
as of June 30, 2003 and, based on that evaluation, concluded that the Company's
disclosure controls and procedures were effective as of June 30, 2003.
During the three month period ended June 30, 2003, there were no
significant changes in the Company's internal control over financial reporting
that materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that arise in the
ordinary course of its business.
March 18, 2003, which was one day prior to the date of the special meeting
of the Company's stockholders to approve a proposed reverse stock split going
private transaction, the Company received an Administrative Complaint and Ex
Parte Motion for a Temporary Order to Cease and Desist from the Securities
Division of the Office of the Secretary of The Commonwealth of Massachusetts'
Securities Division. The Administrative Complaint claimed that the Company
failed to disclose certain information to the stockholders in the prior proxy
statement, which the Division alleged to be "material." Specifically, the
Division alleged that the Company failed to disclose (i) the existence of loans
from E. Mark Noonan, the principal of Alouette Capital, to the Company and Mr.
Sarkis; (ii) that Alouette Capital was not a registered broker dealer, and (iii)
the extent of the Company's lobbying activities with respect to the passage of
gaming legislation. The stockholders' meeting scheduled for March 19, 2003 to
approve the proposed going private transaction was adjourned in order to permit
the Company to address this matter, and the stockholders' vote
D-17
was never taken. On April 8, 2003, the Company filed an answer in response to
the Administrative Complaint denying each of the allegations set forth in the
Administrative Complaint.
On June 16, 2003, the Company executed an Offer of Settlement and a Consent
Order was issued. The principal elements of the settlement were as follows:
(i) The Company would not commit any future violations of chapter 110A
of Massachusetts General Laws and the corresponding regulations promulgated
thereunder;
(ii) The Company paid the sum of $10,000 to offset the cost of the
Division's investigation;
(iii) If the Company retains a fairness opinion provider as part of
any proposed going private transaction, the Company would engage a fairness
opinion provider that is independent, unaffiliated, and free from all
material conflicts of interest;
(iv) The Company would not, within the next twelve months, enter into,
effect or consummate with its then existing shareholders a going private
transaction where the common stock of Company is valued as a per share
price of less than $4.00, however, it could seek review of this provision
through petition to the Director of the Division and he/she may grant such
relief at his/her sole discretion, provided that such relief shall not be
unreasonably withheld;
(v) The Company would include all material facts, consistent with the
SEC's rules, considered by the Board of Directors in reaching its fairness
determination regarding any proposed going private transaction and would
present a fair and balanced representation of the potential expansion of
gaming legislation in Massachusetts consistent with all applicable SEC
rules;
(vi) The Company would make available to any fairness opinion provider
retained by the Board of Directors to determine the fairness of any
proposed going private transaction, any and all current gaming-related
reports and materials prepared for the Company by any consultant, including
any financial projections;
(vii) The Company would present to the Division any draft of an
amendment to the existing February 13, 2003, Proxy Statement or any other
filing under the SEC's Regulation M-A contemporaneously with submission of
the same to the SEC for review;
(viii) The Company would require approval of any proposed going
private transaction by majority of (a) the unaffiliated stockholders of the
outstanding shares of Common Stock, and (b) the unaffiliated stockholders
of the Class B Common Stock;
(ix) The Company would value the stock based upon a range deemed to be
fair by the new fairness opinion provider; and
(x) The Company would include provisions that would pay former
stockholders whose shares have been purchased through the transaction an
additional premium, earn out, or the like, should legislation be enacted
into law, within one (1) year of the stockholders vote approving the
transaction, authorizing the Company to install slot machines at its
racetrack, with the amount of any payment to former stockholders to be
determined based upon the particular provisions of the statute, and
whether, in fact, the Company realizes increased revenues in connection
therewith.
On April 1, 2003, a class action complaint was filed by a stockholder of
the Company against the Company and the Company's Board of Directors in the
Court of Chancery in the State of Delaware seeking to enjoin the proposed
reverse stock split on the basis that is not fair to the stockholders and that
the proxy statement omits information alleged to be "material". On June 17,
2003, the Company filed a Motion to Dismiss for mootness on the grounds that the
proposed going private transaction has not or will not be completed. To date,
the plaintiffs have not filed a response to the motion, and no further action
has been taken at this time.
D-18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification by Principal Executive Officer and Principal
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32.1 Certification by Principal Executive Officer and Principal
Financial and Accounting Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(b) Current Reports on Form 8-K
None.
D-19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WESTWOOD GROUP, INC.
/s/ RICHARD P. DALTON
--------------------------------------
Richard P. Dalton
President, Chief Executive Officer and
Director (Principal Executive Officer
and
Principal Financial and Accounting
Officer)
Date: August 14, 2003
D-20
EXHIBIT INDEX
<Table>
31.1 Certification by Principal Executive Officer and Principal
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification by Principal Executive Officer and Principal
Financial and Accounting Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
</Table>
D-21
PROXY
(Preliminary)
THE WESTWOOD GROUP, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS ON NOVEMBER , 2003.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned having received the Notice of Special Meeting of Stockholders
and the Proxy Statement of The Westwood Group, Inc. (the "Company"), hereby
appoint(s) Richard P. Dalton proxy for the undersigned to represent the
undersigned at the Special Meeting of Stockholders of the Company to be held at
190 V.F.W. Parkway, Revere, Massachusetts 02151 on November , 2003, and at any
adjournment or postponement thereof, and thereat to vote and act in regard to
all matters which may properly come before said meeting (except those matters as
to which authority is hereinafter withheld) upon and in respect of all shares of
Common Stock, par value $.01 per share, of the Company and/or all shares of
Class B Common Stock, par value $.01 per share, of the Company upon on in
respect of which the undersigned would possess, if personally present, and
especially (but without limiting the general authorization and power hereby
given) to vote and act as indicated on the reverse.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. IF NO INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED "FOR"
PROPOSAL 1.
The undersigned hereby confer(s) upon said proxy discretionary authority to vote
upon any other matters or proposals not known at the time of solicitation of
this proxy which may properly come before the meeting.
Attendance of the undersigned at said meeting or at any adjournment or
postponement thereof will not be deemed to revoke this proxy unless the
undersigned shall affirmatively indicate thereat his or her intention to vote
said shares in person. If a fiduciary capacity is attributed to the undersigned
hereon, this proxy will be deemed signed by the undersigned in that capacity.
PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE AND RETURN
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
1
Please mark votes as in this example. [X]
1. To consider and vote upon a proposal to amend FOR AGAINST ABSTAIN
the Westwood Group's Certificate of Incorporation, [ ] [ ] [ ]
pursuant to which each share of Common Stock, par
value $.01 per share, authorized immediately prior
to the effectiveness of the proposed amendment will
be reclassified into one-five hundredth of one fully
paid and non-assessable share of Common Stock, par
value $.01 per share, so that every 500 shares of
Common Stock authorized immediately prior to the
effectiveness of this amendment will be combined
together to form one full share of Common Stock, par
value $.01. At the effective time of the proposed
amendment, each share of Class B Common Stock, par
value $.01 per share, authorized immediately prior
to the effectiveness of this amendment will be
reclassified into one-five hundredth of one fully
paid and non-assessable share of Class B Common
Stock, par value $.01 per share, so that every 500
shares of Class B Common Stock authorized
immediately prior to the effectiveness of this
amendment will be combined together to form one full
share of Class B Common Stock, par value $.01. The
Westwood Group will make a cash payment of $4.00 per
share to record holders of fewer than 500 shares of
either Common Stock or Class B Common Stock
immediately prior to the effectiveness of this
amendment. Certificates for fractional shares of
Common Stock and Class B Common Stock will be issued
by reason of this amendment to holders of greater
than 500 shares of either Common Stock or Class B
Common Stock immediately prior to the effectiveness
of this amendment.
Please be sure to sign and date this Proxy.
Stockholder sign here: Co-owner sign here, if applicable:
- --------------------------------- ---------------------------------
Date:
----------------------------
Mark box at right if an address change or comment has been noted on the reverse
side of this card. [ ]
2