<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 15, 1994
Registration No. 33-51251
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FORUM GROUP, INC.
8900 KEYSTONE CROSSING, SUITE 200
INDIANAPOLIS, INDIANA 46240-0498
(317) 846-0700
INDIANA 61-0703072
(State of Incorporation) (I.R.S. Employer
Identification No.)
JOHN H. SHARPE, ESQ.
VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
FORUM GROUP, INC.
8900 KEYSTONE CROSSING, SUITE 200
INDIANAPOLIS, INDIANA 46240-0498
(317) 846-0700
(Agent for Service)
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COPIES TO:
ROBERT A. PROFUSEK, ESQ.
JONES, DAY, REAVIS & POGUE
2300 TRAMMELL CROW CENTER
2001 ROSS AVENUE
DALLAS, TEXAS 75201
(214) 220-3939
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
None of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933.
The Registrant elects to deliver its latest Annual Report on Form 10-K
pursuant to Item 11(a)(1) of this Form.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
FORUM GROUP, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
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Form S-2 Caption or Location
Item Number and Heading in Prospectus
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<C> <S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Facing Page; Cross Reference
Sheet; Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................. Inside Front Cover Page of
Prospectus; Outside Back Cover
Page of Prospectus
3. Summary Information, Risk Factors,
and Ratio of Earnings to Fixed
Charges............................ "Prospectus Summary"; "Risk
Factors"
4. Use of Proceeds..................... "Use of Proceeds"
5. Determination of Offering Price..... *
6. Dilution............................ *
7. Selling Security Holders............ *
8. Plan of Distribution................ "Plan of Distribution"
9. Description of Securities to be
Registered......................... "Capital Stock"; "Special Warrants"
10. Interests of Named Experts and
Counsel............................ "Experts"; "Legal Opinion"
11. Information with Respect to the
Registrant......................... "Information Incorporated by
Reference"
12. Incorporation of Certain Information
by Reference....................... "Information Incorporated by
Reference"
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ *
</TABLE>
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* Item is omitted because answer is negative or inapplicable.
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<PAGE>
PROSPECTUS
FORUM GROUP, INC.
Up to 1,520,212 Shares of Common Stock
and
Up to 149,607 Special Warrants to Purchase Common Stock
Forum Group, Inc., an Indiana corporation (the "Company"), is offering to
certain holders of its Common Stock, without par value ("Common Stock"), the
opportunity to subscribe for and purchase additional shares of Common Stock at
$3.75 per share. (Such offering is hereinafter referred to as the "Subscription
Offering.") Forum Retirement Partners, L.P. ("FRP") is a publicly traded
limited partnership for which a wholly owned subsidiary of the Company acts as
general partner and in which the Company has a substantial equity interest. The
Company and FRP entered into a Recapitalization Agreement (the "FRP
Recapitalization Agreement") relating to the recapitalization of FRP (the "FRP
Recapitalization"). Pursuant to the FRP Recapitalization Agreement, a wholly
owned subsidiary of the Company acquired 6,500,000 newly issued Units (as
defined below) for $13.0 million in October, 1993. The Company obtained funds
for the purchase of the Units from certain shareholders of the Company who in
the aggregate own a majority of the Company's outstanding Common Stock (the "FGI
Investors") pursuant to the sale to the FGI Investors of 3,466,666 shares of
Common Stock for a total purchase price of approximately $13.0 million, or $3.75
per share. The Subscription Offering is intended to afford Eligible
Shareholders (as defined below) the opportunity to acquire additional shares of
Common Stock on substantially the same terms applicable to the FGI Investors and
thereby avoid dilution. See "The FRP Recapitalization" and "Stock Purchase
Agreements." Eligible Shareholders are urged to obtain current market
quotations prior to determining whether to accept the Subscription Privilege.
Only shareholders of record (other than the FGI Investors) as of the close of
business on October 18, 1993 (the "Record Date") (such shareholders being
hereinafter referred to as "Eligible Shareholders") will be eligible to purchase
Common Stock in the Subscription Offering. Eligible Shareholders may subscribe
for and purchase .2717458 of a share of Common Stock for each share of Common
Stock held of record by them on the Record Date at a purchase price of $3.75 per
share (the "Subscription Privilege"). No fractional shares of Common Stock will
be issued. The number of shares of Common Stock for which Eligible Shareholders
may subscribe will be based on the aggregate number of shares of Common Stock
held by the Eligible Shareholder on the Record Date and will be rounded down to
the nearest whole number. The opportunity to subscribe for and purchase
additional shares of Common Stock pursuant to the Subscription Offering is not
directly or indirectly assignable or transferable and will not be evidenced by a
certificate. The exercise of the Subscription Privilege will be irrevocable
and, if the Subscription Offering is completed, the Subscription Price will be
non-refundable. The Subscription Offering is subject to certain conditions.
See "The Subscription Offering."
In accordance with the terms of a Warrant Agreement, dated as of June 10, 1993
(the "Warrant Agreement"), between the Company and Citicorp USA, Inc. (the
"Warrant Holder"), the Company is also offering to the Warrant Holder the
opportunity to subscribe for and purchase, at its election, either 149,607
shares of Common Stock or 149,607 Special Warrants (as defined below) at a
purchase price of $3.75 per share or Special Warrant to enable the Warrant
Holder to avoid dilution. (Such offering is hereinafter referred to as the
"Warrant Offering," and the Warrant Offering and the Subscription Offering are
hereafter referred to collectively as the "Offerings.") Each Special Warrant
is purchasable for $3.75 per Special Warrant and would permit the holder thereof
to purchase one share of Common Stock at a warrant exercise price of $0.01 per
share. See "The Warrant Offering."
The Common Stock is traded in the over-the-counter market and price quotations
are reported through the National Association of Securities Dealers Automated
Quotation System (the "NASDAQ") under the symbol "FOURQ." On October 6, 1993,
the last full trading day prior to the public announcement of the first sale of
Common Stock pursuant to the Stock Purchase Agreements (as defined below), the
close bid quotation for the Common Stock as reported by the NASDAQ was $4.125
per share. On the last trading day prior to the date of this Prospectus, the
close bid quotation for the Common Stock was $ per share.
The Offerings will expire at 5:00 p.m., New York City time, on March , 1994,
unless extended in the sole discretion of the Company.
AN INVESTMENT IN THE COMMON STOCK AND SPECIAL WARRANTS OFFERED HEREBY INVOLVES
A NUMBER OF MATERIAL RISKS AND OTHER CONSIDERATIONS. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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SUBSCRIPTION UNDERWRITER'S FEES PROCEEDS TO
PRICE AND COMMISSIONS ISSUER (1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share or Special Warrant. $ 3.75 N/A $ 3.75
- ------------------------------------------------------------------------------
Total (2).................... $5,700,795 N/A $5,700,795
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</TABLE>
(1) Before deduction of estimated expenses of $224,000 payable by the
Company.
(2) Assumes that Eligible Shareholders purchase 1,370,605 shares of Common Stock
in the Subscription Offering and that the Warrant Holder purchases either
149,607 shares of Common Stock or 149,607 Special Warrants in the Warrant
Offering.
The date of this Prospectus is February , 1994.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations promulgated thereunder with respect to the Common
Stock and Special Warrants offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, and to which reference is hereby made. For further information with
respect to the Company, the Common Stock and the Special Warrants, reference is
made to the Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference.
The Company is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports and other information with the
Commission. The Registration Statement, as well as such reports and other
information filed by the Company with the Commission, may be inspected at the
Public Reference Room maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and should also be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company (Commission File No. 0-6350) with
the Commission are incorporated herein by reference: (1) the Company's Annual
Report on Form 10-K for its fiscal year ended March 31, 1993 (the "1992 Form
10-K"); (2) the Company's Current Report on Form 8-K dated June 14, 1993; (3)
the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended June
30, 1993; (4) the Company's Quarterly Report on Form 10-Q for its fiscal quarter
ended September 30, 1993; (5) the Company's Current Report on Form 8-K dated
October 6, 1993; and (6) the Company's Quarterly Report on Form 10-Q for its
fiscal quarter ended December 31, 1993 (the "1993 Third Quarter Form 10-Q").
Any statement incorporated herein shall be deemed to be modified, replaced or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies, replaces or supersedes
such statement. Any statement so modified, replaced or superseded shall not be
deemed, except as so modified, replaced or superseded, to constitute a part of
this Prospectus.
The Company is delivering copies of the 1992 Form 10-K and the 1993 Third
Quarter Form 10-Q to each person to whom this Prospectus is delivered. Upon
written or oral request, the Company will provide, without charge, to each
person to whom this Prospectus is delivered, a copy of any and all of the
documents incorporated by reference herein (not including exhibits to the
documents that are incorporated by reference unless the exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests should be directed to John H. Sharpe, Esq., Vice
President, Secretary and General Counsel, Forum Group, Inc., 8900 Keystone
Crossing, Suite 200, Indianapolis, Indiana 46240-0498, telephone (317) 846-0700.
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<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus. Reference is made to, and this summary is qualified in its entirety
by, the more detailed information contained elsewhere in this Prospectus, which
should be read in its entirety. Unless the context otherwise requires, all
references to "1993," "1992," "1991" and "1990" mean the Company's fiscal years
ended March 31, 1994, March 31, 1993, March 31, 1992 and March 31, 1991,
respectively.
THE COMPANY
The Company provides senior housing services in 11 states through the
operation of 22 rental retirement communities ("RCs") and three RCs
predominantly providing continuing care. The Company also operates one free-
standing nursing home. Of those facilities, eight are owned by the Company, two
are leased and 16 are managed. Nine of the facilities managed by the Company
are owned by FRP. See "The Company" and "Business and Properties of the
Company."
RECENT HISTORY
On February 19, 1991, the Company and certain of its affiliates (not including
FRP) (collectively, the "Forum Debtors") commenced proceedings (the
"Reorganization Proceedings") under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") to reorganize and restructure their liabilities.
On April 2, 1992, the Company emerged from bankruptcy pursuant to a plan of
reorganization (the "POR"). See "The Company --Reorganization Proceedings."
Thereafter, the Company entered into agreements with the FGI Investors, being
Apollo FG Partners, L.P. ("AFG"), Forum Holdings, L.P. ("Forum Holdings"),
Healthcare Resources I, L.P. ("Resources") or certain of their affiliates, which
resulted in a substantial recapitalization of the Company in June 1993 (the
"1993 Recapitalization"). The FGI Investors, in the aggregate, beneficially
owned 71.7% of the outstanding Common Stock as of the completion of the 1993
Recapitalization. See "The Company -- The 1993 Recapitalization" for a
description of the 1993 Recapitalization and see "The Offerings" with respect to
the FGI Investors' present beneficial ownership of Common Stock.
RISK FACTORS
The Common Stock and Special Warrants offered hereby are subject to a number
of material risks and other investment considerations, including the Company's
high level of leverage, risks relating to floating interest rates applicable to
a substantial portion of the Company's long-term debt, restrictive covenants
applicable to the Company, the Company's history of unprofitable operations, the
Company's recent bankruptcy proceedings and recapitalization in 1993, the
Company's failure to pay dividends since 1989 and restrictions on its payment of
dividends, the risks of RC ownership generally, the risks of government
regulation and reimbursement by third-party payors, the risks of potential
future dilution and risks relating to the Company's interest in FRP. See "Risk
Factors."
BUSINESS STRATEGY AND OUTLOOK
The Company has historically experienced significant losses, including a net
loss of $7.4 million for the fiscal year ended March 31, 1993. See "Risk
Factors -- History of Unprofitable Operations". However, the Company's
operating results have improved substantially in 1993 compared to 1992.
Excluding the effects of changes in certain prior year estimates, the Company's
operating revenues increased 19% in both the three- and nine-month periods ended
December 31, 1993 over operating revenues for the comparable periods in 1992,
and the Company's net operating income (operating revenues less operating
expenses, including general and administrative expenses and depreciation and
amortization) for those periods in 1993 was 289% and 241%, respectively, higher
than its net operating income for the comparable periods in 1992. See "Pro
Forma Financial Information." Although the write-off of deferred financing
costs relating to the payment and prepayment of the Company's bank debt due as a
result of the refinancing described in "The Refinancing" (the "Refinancing") and
certain other fees and expenses relating to the Refinancing will result in
extraordinary charges in the Company's fourth fiscal quarter of 1993 (presently
estimated at $8.0 million), the Company presently expects its operating results
for such quarter to be generally consistent with its improved operating results
in the Company's third fiscal quarter of 1993.
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<PAGE>
The improvement in operating revenues was attributable both to improved
occupancy rates for the Company's RCs during 1993 and to increases in the amount
of revenue generated per occupied unit. Average occupancy of the Company's RCs
for the first nine months of 1993 was 90.3% as compared to average occupancy of
83.0% for 1992, and average revenues per occupied unit for the same periods have
improved from $24,564 to $26,664. A change in the estimate of amounts
reimbursable to third party payors from prior years, resulted in the recognition
of $1,115,000 of operating revenue in the nine-month periods ended December 31,
1993. The Company participates in the Medicare program and in certain Medicaid
programs which reimburse the Company on the basis of allowable costs. Allowable
cost is subject to retroactive examination and adjustment by the agencies
administering the programs, and provisions are made in the financial statements
for potential adjustments that may result. To the extent that those estimated
provisions differ from the administering agencies' determinations, operations
are routinely charged or credited in the period of such determinations. As a
result, the Company changed its estimate of amounts reimbursable to third-party
payors in 1993 from prior years.
Because most of the Company's operating expenses are fixed, a substantial
portion of incremental revenues generated by improvements in occupancy are
expected to flow through to increase the Company's net operating income. In
light of the large and growing segment of the U.S. population which is 75 years
of age and older and the relatively low levels of construction of new RCs and
other competitive properties during the 1990's compared to the high levels of RC
and other real estate construction and development during the 1980's, management
of the Company presently expects increases in occupancy levels and billing rates
and, therefore, increases in net operating income to be sustainable, although
there necessarily can be no assurance with respect thereto. In addition,
management of the Company is implementing various systems designed to control
and, in some instances, decrease operating expenses, and as discussed below, in
February 1994 the Company refinanced its long-term indebtedness on terms that
reduce the Company's overall level of indebtedness and total required debt
service payments during the term of the new loan. See "The Recapitalization
- -- The Nomura Loan" and "Pro Forma Financial Information."
The terms of the Company's prior bank debt required that a substantial portion
of excess cash flow be applied by the Company to reduce indebtedness thereunder
whereas the terms of the Company's new long-term debt (the "Refinancing Loan")
do not require such prepayments and have an amortization period of 25 years (but
with a stated maturity of February 1, 2001). As a result, the Company may use
any excess cash flow to pursue its growth strategy. In addition, the
Refinancing Loan is generally on terms more favorable than the terms applicable
under the Company's prior long-term debt. The Refinancing Loan also includes an
option that, subject to certain conditions, enables the Company to increase the
amount of borrowings if the operating cash flows from the assets pledged to
secure the Refinancing Loan continue to improve during the 24-month period
ending February 1, 1996, in which event the increased borrowing proceeds could
be used to fund the Company's growth through acquisitions of additional
properties, to expand or upgrade the Company's existing RCs or for other
corporate purposes. In addition, the Refinancing Loan permits the Company to
convert the initial floating interest rate structure (generally 4.3% over the
London Interbank Offered Rate ("LIBOR") which at the closing of the Refinancing
Loan was 3.125%, plus servicing costs, presently estimated to be 0.2% per year)
under the Refinancing Loan to a fixed interest rate structure.
The Company intends to seek to grow through the acquisition of additional
properties and other assets. In connection with the Company's 1993
Recapitalization, the FGI Investors stated their intention to make up to $30.0
million of additional equity capital available to the Company for this purpose.
Although the FGI Investors already invested an additional $13.0 million in the
Company since the completion of the 1993 Recapitalization, such amount was
contributed to the capital of FRP and used by FRP to pay bank debt. See "The
FRP Recapitalization." Any additional equity investment by the FGI Investors
would be subject to the negotiation of mutually acceptable terms. Accordingly,
there can be no assurance that any such additional investment will be made or as
to the timing or terms thereof. The Company has also entered into a commitment
letter agreement (the "Acquisition Commitment") with Nomura Asset Capital
Corporation ("Nomura") providing for up to $100.0 million in new debt financing
(the "Acquisition Loan" and, collectively with the Refinancing Loan, the "Nomura
Loans"), the proceeds of which would be used, together with equity to be
provided by the Company, to fund the purchase price for acquisitions of skilled
nursing home, assisted living and other senior housing properties. Under the
acquisition facility, Nomura would advance $2.00 of debt financing for each
$1.00 of equity capital invested by the Company, which equity is presently
expected to be obtained from the Subscription Offering, future offerings of
additional shares of Common Stock to shareholders, including the FGI Investors,
cash from operations (including cash from sales of units in the Company's
existing RCs, primarily
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<PAGE>
Forum/Rancho San Antonio (as defined below)) or a combination of the foregoing.
During the 24-month period in which amounts could be drawn to finance
acquisitions under the Acquisition Loan, the Company would have the right,
subject to the satisfaction of certain conditions, to convert the indebtedness
thereunder to seven-year debt under either a fixed or floating interest rate
structure. During such period, the Company could also repay such indebtedness
using proceeds from other financing sources, if any such financing becomes
available on more favorable terms. The Company would have an option that would
permit the Company to increase the borrowings against the properties acquired
if, at the end of 24 months after the initial closing of the Acquisition Loan,
the debt service coverage computed on a trailing 12-month basis exceeded certain
thresholds, in which event the increased borrowings, like any increased
borrowings under the Refinancing Loan, could be used to fund the Company's
growth or for other corporate purposes. See "Refinancing and Other Loans --
Acquisition Commitment -- Refinancing." There can be no assurance that any
acquisitions will be completed or, if so, as to the timing or terms thereof. The
Acquisition Commitment is subject to the negotiation of definitive documentation
and certain conditions. Moreover, Nomura's obligation to provide financing
under the acquisition facility, if completed, will be subject to a number of
conditions, and there can be no assurance that such conditions will be
satisfied. See "Refinancing and Other Loans -- Acquisition Commitment."
THE FRP RECAPITALIZATION
On December 30, 1993, FRP obtained a $50.3 million loan from Nomura (the "New
FRP Loan"). The proceeds of the New FRP Loan were used, together with equity
capital made available to FRP, to retire and repay all existing indebtedness of
FRP, including bank debt maturing on December 31, 1993 (the "FRP Bank Debt")
(the principal balance of which was approximately $22.5 million prior to the FRP
Recapitalization Agreement), and approximately $34.1 million aggregate principal
amount of FRP's split coupon first mortgage notes (the "FRP Split Coupon
Notes"), and to pay related fees and expenses. Pursuant to a Recapitalization
Agreement between FRP and the Company (the "FRP Recapitalization Agreement"),
the Company purchased through a subsidiary 6,500,000 newly issued units of
limited partners' interests ("Units") from FRP for $13.0 million, or $2.00 per
Unit. The FRP Recapitalization Agreement was the result of arms' length
negotiations between representatives of the Company and a committee of the
independent directors of the general partner of FRP, and their representatives.
Various factors were important to the Company's decision to enter into the FRP
Recapitalization Agreement, including (i) FRP's need for equity capital to
refinance its indebtedness, including the FRP Bank Debt which matured on
December 31, 1993, and the willingness of the FGI Investors to make available to
the Company the equity capital necessary therefor, (ii) the Company's
substantial equity interest in FRP and the potential adverse impact thereon
which would result if the FRP Bank Debt is not paid when it becomes due, (iii)
the terms of the New FRP Loan, including provisions that would permit FRP to
make distributions to holders of Units in certain circumstances, and the lower
debt service costs which FRP would incur if the Nomura refinancing of FRP's
indebtedness were completed, and (iv) recent improvements in FRP's results of
operations and the Company's views as to FRP's prospects. Based on the
foregoing factors, management of the Company believes that the purchase of
additional Units pursuant to the FRP Recapitalization Agreement was an
attractive investment and that the transactions contemplated by the FRP
Recapitalization Agreement will enhance the value of the Company's equity
interest in FRP.
As a result of the purchase of the 6,500,000 Units, the Company increased its
aggregate beneficial ownership of Units to 8,440,268 Units, or approximately
55.2% of the total number of Units outstanding. Under the terms of the FRP
Recapitalization Agreement, FRP is required to repurchase a portion of such
Units at a price of $2.00 per Unit with the proceeds, if any, of a subscription
offering being made to holders of Units other than the Company and its
affiliates (the "FRP Offering"). The FRP Offering is currently scheduled to
expire on February 15, 1994, subject to extension. If the FRP Offering is fully
subscribed, the Company's percentage beneficial ownership of the total
outstanding Units would be approximately 22.1%, the same beneficial ownership
percentage the Company had prior to the transactions provided for in the FRP
Recapitalization Agreement. Holders of Units that elect to participate in the
FRP Offering will not be entitled to purchase any portion of the Units not
subscribed for by other holders of Units that elect not to participate in the
FRP Offering. Accordingly, the Company's percentage beneficial ownership of
Units will exceed 22.1% to the extent that holders of Units elect not to
participate in the FRP Offering. See "The FRP Recapitalization."
Under the terms of the Company's prior long-term debt, the Company could not
enter into the FRP Recapitalization Agreement unless it obtained new investment
equity. Accordingly, the FGI Investors agreed to enter into certain stock
purchase agreements with the Company (the "Stock Purchase Agreements") pursuant
to which the FGI Investors purchased a total of 3,466,666 shares of Common Stock
from the Company in
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<PAGE>
October for an aggregate purchase price of approximately $13.0 million, or $3.75
per share. The terms and conditions of the Stock Purchase Agreements, which
were modeled on the February Stock Purchase Agreement (as defined below) entered
into between the Company and Forum Holdings prior to the time at which the FGI
Investors acquired a majority interest in the Company, were determined by a
committee of the Board of Directors of the Company comprised solely of persons
who are not officers or employees of the Company or affiliates of the FGI
Investors to be fair and reasonable to, and in the best interest of, the Company
and comparable to those that could be negotiated with an unrelated third party.
See "Stock Purchase Agreements."
THE OFFERINGS
As a result of the transactions contemplated by the Stock Purchase Agreements,
the FGI Investors, in substance, advanced to the Company the equity capital
necessary to permit the Company to enter into the FRP Recapitalization Agreement
without any compensation being paid to the FGI Investors for such advance
funding. Any excess equity capital derived from the Subscription Offering or as
a result of the repurchase of Units in connection with the FRP Offering will be
retained by the Company and used for general corporate purposes, including
funding the Company's growth strategy. See "Use of Proceeds."
As a result of their purchase of 3,466,666 shares of Common Stock pursuant to
the Stock Purchase Agreements, the FGI Investors increased their aggregate
beneficial ownership of Common Stock to 16,223,682 shares (including 5,760
shares presently purchasable for a nominal price upon exercise of the Investor
Warrants (as defined below)), or approximately 76.3% of the total number of
shares outstanding, from 12,757,016 shares (including 5,760 shares presently
purchasable for a nominal price upon exercise of the Investor Warrants), or
71.7% of the shares outstanding prior thereto. The Subscription Offering is
intended to afford Eligible Shareholders the opportunity, if they elect to do
so, to purchase additional shares on substantially the same terms as the
3,466,666 shares of Common Stock were purchased by the FGI Investors and thereby
avoid dilution as a result of the issuance of such shares to the FGI Investors.
If all of the 1,520,212 shares of Common Stock being offered pursuant to the
Offerings were subscribed for and purchased by Eligible Shareholders and the
Warrant Holder, the FGI Investors' percentage ownership of Common Stock
outstanding would be approximately 71.2%. Eligible Shareholders that elect to
participate in the Subscription Offering will not be entitled to purchase any
portion of the Common Stock not subscribed for by Eligible Shareholders that
elect not to participate in the Subscription Offering. Accordingly, the FGI
Investors' percentage ownership of the total outstanding Common Stock will
exceed 71.2% to the extent Eligible Shareholders elect not to participate in the
Subscription Offering and the Warrant Holder elects not to subscribe for and
purchase shares of Common Stock pursuant to the Warrant Offering. See "Stock
Purchase Agreements."
ELIGIBLE SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO
DETERMINING WHETHER TO ACCEPT THE SUBSCRIPTION PRIVILEGE.
The Warrant Offering is required to be made under the terms of the Warrant
Agreement. The Warrant Offering will afford the Warrant Holder, as the holder
of warrants issued pursuant to the Warrant Agreement (the "Warrants"), if it
elects to do so, the opportunity to avoid dilution as a result of the issuance
of shares of Common Stock pursuant to the Stock Purchase Agreements and the
Subscription Offering. The Warrant Holder may subscribe for and purchase, at
its election, in whole or in part, either (i) 149,607 shares of Common Stock at
a purchase price of $3.75 per share or (ii) 149,607 special warrants (the
"Special Warrants"), each representing the right to purchase one share of Common
Stock upon the payment of an exercise price per Special Warrant of $0.01 at any
time prior to 5:00 p.m., Indianapolis, Indiana time, on June 11, 1999, at a
purchase price of $3.75 per Special Warrant. See "The Warrant Offering."
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS") HAS
AUTHORIZED THE SUBSCRIPTION OFFERING TO AFFORD ELIGIBLE SHAREHOLDERS THE
OPPORTUNITY, IF THEY ELECT TO DO SO, TO AVOID DILUTION AS A RESULT OF THE
ISSUANCE OF 3,466,666 SHARES OF COMMON STOCK TO THE FGI INVESTORS. ALTHOUGH THE
COMPANY HAS BEEN INFORMED BY THE FGI INVESTORS THAT THE FGI INVESTORS BELIEVE
THAT THE ACQUISITION OF ADDITIONAL SHARES OF COMMON STOCK AT $3.75 PER SHARE
REPRESENTED AN ATTRACTIVE INVESTMENT BY THE FGI INVESTORS, THE BOARD OF
DIRECTORS HAS DETERMINED TO EXPRESS NO OPINION AND MAKE NO RECOMMENDATION TO
ELIGIBLE SHAREHOLDERS REGARDING THEIR DECISION EITHER TO EXERCISE OR REFRAIN
FROM EXERCISING THEIR SUBSCRIPTION PRIVILEGE PURSUANT TO THE SUBSCRIPTION
OFFERING. ANY ANALYSIS OF THE VALUE OF AN INVESTMENT IN COMMON STOCK IS
NECESSARILY UNCERTAIN, IS BASED IN SUBSTANTIAL PART ON FUTURE EVENTS, INCLUDING
THE COMPANY'S FUTURE OPERATING PERFORMANCE, MANY OF WHICH ARE OUTSIDE THE
CONTROL OF THE COMPANY, AND IS HEAVILY DEPENDENT UPON THE PARTICULAR CRITERIA
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<PAGE>
AN INVESTOR DETERMINES TO BE APPROPRIATE FOR SUCH INVESTOR'S ANALYSIS.
ACCORDINGLY, ELIGIBLE SHAREHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO
SUBSCRIBE FOR AND PURCHASE ADDITIONAL COMMON STOCK PURSUANT TO THE SUBSCRIPTION
OFFERING AND SHOULD GIVE CAREFUL CONSIDERATION TO THE TERMS OF THE SUBSCRIPTION
OFFERING AND SUCH OTHER FACTORS AS SUCH ELIGIBLE SHAREHOLDERS DETERMINE TO BE
RELEVANT, INCLUDING, IN ADDITION TO FACTORS GENERALLY APPLICABLE TO AN
INVESTMENT IN AN ENTITY SUCH AS THE COMPANY, THE FACTORS REFERRED TO UNDER THE
CAPTION "RISK FACTORS" BELOW.
THE EXERCISE OF THE SUBSCRIPTION PRIVILEGE WILL BE IRREVOCABLE AND, IF THE
SUBSCRIPTION OFFERING IS COMPLETED, THE SUBSCRIPTION PRICE WILL BE NON-
REFUNDABLE. SEE "THE OFFERING."
THE COMMON STOCK
The Common Stock is traded in the over-the-counter market and price quotations
are reported through the NASDAQ under the symbol "FOURQ." On October 6, 1993,
the last full trading day prior to the public announcement of the first sale of
Common Stock pursuant to the Stock Purchase Agreements, the close bid quotation
for the Common Stock as reported by the NASDAQ was $4.125 per share. For a more
recent close bid quotation for the Common Stock, see the cover page of this
Prospectus.
USE OF PROCEEDS
The net proceeds of the Offerings (estimated to be approximately $5.5 million
assuming Eligible Shareholders and the Warrant Holder subscribe for and purchase
an aggregate of 1,520,212 shares of Common Stock pursuant to the Offerings) will
be added to the Company's working capital and used for general corporate
purposes, which could include financing future growth of the Company through
possible acquisitions (although the Company has not entered into any agreement
providing for any such acquisition). See "Use of Proceeds." The proceeds to
the Company as a result of the repurchase of Units in connection with the FRP
Offering (see "The FRP Recapitalization"), if any, will also be added to the
Company's working capital and used for general corporate purposes. The
Acquisition Loan, if completed, would require the Company to invest $1.00 of
equity capital for every $2.00 of debt financing provided under the Acquisition
Loan. Accordingly, the Company may be required to raise additional equity
capital (through one or more rights offerings or otherwise) if the Company seeks
to avail itself of the entire amount of financing to be available to it under
the Acquisition Loan.
While the Company has engaged in preliminary discussions regarding certain
possible acquisitions of additional RCs and other assets, as of the date of this
Prospectus, the Company had not entered into any agreement providing for any
acquisition of any additional property or other assets outside the ordinary
course of business. There can be no assurance that any such acquisitions will
be completed or, if so, as to the timing or terms thereof. The transactions
contemplated by the Acquisition Commitment are subject to various conditions and
there can be no assurance as to the timing or terms thereof. See "Refinancing
and Other Loans -- Acquisition Commitment."
SUMMARY PRO FORMA FINANCIAL DATA
The following table presents unaudited summary pro forma financial data of the
Company as of and for the nine months ended December 31, 1993 and for the year
ended March 31, 1993. The pro forma results of operations have been derived
from the Company's unaudited financial statements contained in the 1993 Third
Quarter Form 10-Q and the Company's audited financial statements contained in
the 1992 Form 10-K, as adjusted to give effect to the sale of, alternatively,
1,520,212 and no shares of Common Stock pursuant to the Offerings (assuming all
Eligible Shareholders and the Warrant Holder subscribe for and purchase all
shares of Common Stock being offered in the Offerings), the transactions
described under the caption "The Company --The 1993 Recapitalization" below, the
closing of the Refinancing Loan and the application of the proceeds from the
Refinancing Loan to the prepayment of the $49.0 million principal balance of the
Citicorp Term Loan (as defined below) and $30.0 million aggregate principal
amount of the Company's senior subordinated notes (the "Senior Subordinated
Notes") and the payment of estimated costs and expenses, as if such transactions
had been consummated on the first day of the period presented. The pro forma
balance sheet data have been adjusted to give effect to such transactions as if
the transactions had been consummated as of December 31, 1993. See "Pro Forma
Financial Information" for pro forma financial information assuming, in the
alternative, that no shares of Common Stock are purchased pursuant to the
Subscription Offering. The pro forma financial data do not purport to be
indicative of the financial position or results of operations that would
actually have been
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<PAGE>
reported had such transactions in fact been consummated on such dates or of the
financial position or results of operations that may be reported by the Company
in the future. All of the following data should be read in conjunction with the
audited financial statements contained in the 1992 Form 10-K (including the
notes thereto) and the unaudited financial statements contained in the 1993
Third Quarter Form 10-Q (including the notes thereto), copies of which accompany
this Prospectus, and the unaudited pro forma financial information and related
notes contained elsewhere in this Prospectus. See "Pro Forma Financial
Information."
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended
December 31, 1993 March 31, 1993
----------------------- -----------------------
Historical Pro Forma Historical Pro Forma
----------- ---------- ----------- ----------
(000's Omitted, except per share data)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Total Revenues (a)........................ $ 80,636 $ 80,636 $ 93,302 $ 93,302
Operating Expenses........................ (57,450) (57,450) (70,417) (70,417)
Depreciation.............................. ( 5,841) ( 5,841) ( 8,793) ( 8,793)
Interest expense.......................... (13,241) (14,330) (18,192) (19,578)
Other expenses............................ ( 3,787) ( 3,787) ( 5,411) ( 5,411)
Income (loss) before minority
interests and extraordinary charge..... 317 ( 772) (9,511) (10,897)
Minority interests...................... 972 972 2,152 2,152
-------- -------- -------- --------
Net income (loss) before
extraordinary charge................... 1,289 200 (7,359) ( 8,745)
======== ======== ======== ========
Net income (loss) per share
before extraordinary charge............ $0.08 $0.01 $(0.98) $( 0.38)
======== ======== ======== ========
</TABLE>
- --------------------
(a) A change in the estimate of amounts reimbursable to third party payors from
prior years resulted in the recognition of $1,115,000 of revenue in the
nine-month period ended December 31, 1993, $54,000 of which applies to the
fiscal year ended March 31, 1993.
<TABLE>
<CAPTION>
At December 31, 1993
------------------------------------------------------
Pro Forma with Pro Forma with-
Additional Sale out Additional
Historical of Stock Sale of Stock
------------- ------------------- ------------------
(000's Omitted)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................. $ 14,334 $ 17,616 $ 11,915
Total assets.......... 286,991 293,236 287,535
Long-term debt........ 191,917(a) 206,218(a) 206,218(a)
Shareholders' equity.. 50,971 48,448 42,747
</TABLE>
- -------------------------
(a) Includes $76,381,000 of secured non-recourse obligations of the Company.
See Note 1(c) of Notes to Pro Forma Financial Statements."
PRINCIPAL TERMS OF THE SUBSCRIPTION OFFERING
Eligible Shareholders........ Each shareholder of record as of the close of
business on the Record Date (October 18, 1993),
other than the FGI Investors. See "The
Subscription Offering -- Subscription Privilege."
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<PAGE>
Subscription Privilege....... Each Eligible Shareholder may subscribe for and
purchase .2717458 of a share of Common Stock for
each share of Common Stock held of record by that
Eligible Shareholder on the Record Date. No
fractional shares of Common Stock will be issued.
The number of shares of Common Stock for which
each Eligible Shareholder may subscribe will be
based on the aggregate number of shares of Common
Stock held by the Eligible Shareholder on the
Record Date and will be rounded down to the
nearest whole number. See "The Subscription
Offering -- Subscription Privilege."
Subscription Price........... $3.75 in cash per share of Common Stock subscribed
for pursuant to the Subscription Privilege (the
"Subscription Price"). See "The Subscription
Offering -- Subscription Privilege."
Subscription Privilege
Not Transferable............ The opportunity to subscribe for and purchase
Common Stock pursuant to the Subscription Offering
is not directly or indirectly assignable or
transferable by the Eligible Shareholder and will
not be evidenced by a certificate. See "The
Subscription Offering -- Subscription Privilege."
Subscription Privilege
Not Revocable................ Once an Eligible Shareholder has exercised the
Subscription Privilege, such exercise may not be
revoked by an Eligible Shareholder. See "The
Subscription Offering -- No Revocation."
Expiration Date.............. March , 1994, at 5:00 p.m., New York City time,
subject to extension in the sole discretion of the
Company. See "The Subscription Offering --
Expiration Date."
Procedures for Exercising
Subscription Privilege....... The Subscription Privilege may be exercised by
properly completing the Notice of Exercise of
Subscription Privilege enclosed herewith ("Notice
of Exercise") or a facsimile thereof and
forwarding such Notice of Exercise, together with
payment of the Subscription Price for each share
of Common Stock subscribed for pursuant to the
Subscription Offering, to the Subscription Agent
so that it is received prior to the Expiration
Date. If the mail is used to forward Notices of
Exercise, it is recommended that registered mail
be used. See "The Subscription Offering --
Exercise of the Subscription Privilege."
Persons Holding Common
Stock Through Others......... Persons who on the Record Date held Common Stock
through a broker, dealer, commercial bank, trust
company or other nominee should contact the
appropriate institution or nominee and request it
to effect the transactions for them. See "The
Subscription Offering -- Exercise of Subscription
Privilege."
Issuance of Share
Certificates................. Share certificates evidencing Common Stock
purchased pursuant to the Subscription Offering
will be delivered to
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<PAGE>
Eligible Shareholders as soon as practicable after
they have validly exercised their Subscription
Privilege. See "The Subscription Offering --
Exercise of Subscription Privilege."
Subscription Agent........... American Stock Transfer & Trust Company.
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<PAGE>
RISK FACTORS
The Common Stock and Special Warrants offered hereby are subject to a number
of material risks and other investment considerations. These risks and
investment considerations should be carefully considered by Eligible
Shareholders prior to the exercise of the Subscription Privilege pursuant to the
Subscription Offering and by the Warrant Holder prior to its election to
purchase shares of Common Stock or Special Warrants pursuant to the Warrant
Offering.
HIGH LEVERAGE
Although the net proceeds of the Offerings, if any, will increase the
shareholders' equity of the Company, the Company will continue to have
indebtedness that is substantially greater than its shareholders' equity even
after giving effect to the Offerings. On a pro forma basis accounting for the
Offerings (assuming subscription by the Eligible Shareholders and the Warrant
Holder of all 1,520,212 shares of Common Stock being offered pursuant to the
Offerings), the Company's ratio of long-term indebtedness, including the current
portion thereof, to shareholders' equity was 4.26:1.0 at December 31, 1993, and
its ratio of operating income to net interest expense was .44:1.0 and .95:1.0,
respectively, for the fiscal year ended March 31, 1993 and the nine-month period
ended December 31, 1993. See "Pro Forma Financial Information."
RESTRICTIVE COVENANTS
The terms of the Company's long-term debt include various restrictive
covenants, including restrictions on the Company's ability to incur additional
indebtedness or liens, prohibitions on the payment of dividends and other
restrictions. The terms of the Nomura Loans contain various restrictive
covenants applicable to the subsidiary borrowers thereunder, including covenants
prohibiting the borrowers from engaging in any activity other than owning and
operating certain properties and incurring additional debt. Moreover, the
Nomura Loans provide that the Company could be replaced as manager of the Owned
Properties (as defined below) or Acquired Properties (as defined below), as the
case may be, upon the vote of the holders of 66-2/3% of the principal amount of
the related notes in certain limited circumstances. See "Business and
Properties of the Company -- Mortgages" and "Refinancing and Other Loans --
Refinancing Loan" and "Refinancing and Other Loans -- Acquisition Commitment."
FLOATING INTEREST RATES
A substantial portion of the Company's indebtedness bears interest at variable
rates tied to certain interest rate indices. Interest payable under the Nomura
Loans fluctuates by reference to LIBOR, although the Nomura Loans include a
feature that permit the Company to elect, subject to certain restrictions, to
convert to a fixed interest rate structure. See "Refinancing and Other Loans --
Refinancing Loan -- Refinancing Option." Accordingly, while interest rates
generally have been low in recent periods, the Company's results of operations
could be adversely affected by increases in such rates.
In connection with the Refinancing Loan, the subsidiary borrower thereunder
entered into an interest rate cap agreement with a financial institution that
provides that such financial institution will reimburse the subsidiary borrower
for any interest paid under the Refinancing Loan in excess of 8.925% per annum.
The interest rate cap agreement is for the term of the Refinancing Loan. See
"Refinancing and Acquisition Loan -- Refinancing Loan." It is contemplated that
the Company will enter into interest rate cap agreements or similar arrangements
in respect of variable rate debt under the Acquisition Loan.
HISTORY OF UNPROFITABLE OPERATIONS
For the fiscal year ended March 31, 1993, the Company had a net loss of
$7,359,000. For the nine months ended December 31, 1993, the Company had net
loss of $483,000 compared to a net loss of $7,081,000 for the same period of the
previous fiscal year. For the three months ended December 31, 1993, the Company
had net income of $272,000, compared to a net loss of $1,815,000 for the same
period of the previous fiscal year. The net loss for the nine-months period
ended December 31, 1993 included extraordinary charges totalling $1,772,000
related to the early extinguishment of the Company's and FRP's debt. A change
in the estimate of
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<PAGE>
amounts reimbursable to third party payors from prior years resulted in the
recognition of $1,115,000 of operating revenue in the nine-month period ended
December 31, 1993. The Company's objective is to continue to increase occupancy
rates and improve its operating margins through controlling expenses so that the
Company can generate, on a sustainable basis, positive results of operations.
As a result of the completion of the Refinancing Loan, the Company will be
required to incur a non-cash write-off of deferred financing costs of
approximately $5.0 million, to expense a $3,000,000 fee paid in connection with
the prepayment of the Senior Subordinated Notes in the Company's fiscal quarter
ended March 31, 1994, and to recognize certain other expenses. There can be no
assurance that the Company will have profitable operations in future periods.
RECENT BANKRUPTCY PROCEEDINGS AND 1993 RECAPITALIZATION
The Forum Debtors commenced the Reorganization Proceedings under Chapter 11 of
the Bankruptcy Code in 1991, the Company emerged from bankruptcy in 1992, and it
required a substantial recapitalization in 1993. See "The Company --
Reorganization Proceedings" and "The Company -- The 1993 Recapitalization."
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company has not declared or paid dividends on the Common Stock since 1989
and does not anticipate paying regular dividends on the Common Stock in the
foreseeable future, but rather presently expects to reinvest any excess cash
flow in the Company's businesses. See "Dividend Policy." Dividends and other
distributions are prohibited by the terms of the Senior Secured Notes as long as
such Notes remain outstanding. See "Refinancing and Other Loans -- Other Long-
Term Debt." Distributions by the borrowers under the Nomura Loans to the
Company are subject to certain financial tests and other limitations described
below. See " -- Restrictive Covenants," "Refinancing and Other Loans --
Refinancing Loan" and " -- Acquisition Commitment."
RISKS OF RC OWNERSHIP GENERALLY
The RCs owned or operated by the Company may be affected by the risks
generally incident to the ownership and operation of real property, including
adverse changes in general or local economic conditions, increases in real
estate taxes and other operating expenses (including costs of energy), adverse
governmental rules and policies (including environmental restrictions), changes
in competitive conditions within their respective geographical market areas,
uninsured losses, repair and replacement of fixed assets, unbudgeted
contingencies and other factors beyond the Company's control. Such changes may
negatively effect the profitability of operations and the value of owned or
leased RCs and may have a direct or indirect result of reducing management fee
income in respect of managed RCs.
The value and profitability of the Company's RCs may also be affected by
changes in the overall demand for such rental communities and assisted living
and nursing facilities, as well as general economic and capital market
conditions. Although the Company believes that demand is currently at high
levels relative to supply of comparable RCs, there can be no assurance that
demand for RCs will continue at those levels or, even if it does continue, that
the Company will be successful in capitalizing upon that demand. Residents of
the independent and assisted living components of the rental RCs enter into
residency agreements on a short-term basis; consequently, there can be no
assurance that independent living units and assisted living suites presently
occupied will continue to be occupied. The Company's RCs may be subject to
competition from other rental and continuing care RCs and assisted living and
nursing facilities in the respective geographic areas of such facilities. See
"Business and Properties of the Company -- Competition."
One of the owned or leased RCs and two of the managed RCs have not yet
achieved stabilized occupancy (generally considered to be approximately 90%). A
high percentage of the Company's operating expenses are fixed and are therefore
incurred regardless of the level of occupancy. To the extent any RC is unable
to achieve stabilized occupancy, it may adversely affect the Company's results
of operations. See "Business and Properties of the Company -- Rental RCs."
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<PAGE>
GOVERNMENT REGULATION
RC operations are subject to federal, state and local government regulations.
Facilities are subject to periodic inspection by state licensing agencies to
determine whether the standards necessary for continued licensure are
maintained. In granting and renewing licenses, the state agencies consider,
among other things, buildings, furniture and equipment; qualifications of
administrative personnel and staff; quality of care and compliance with laws and
regulations relating to operation of the facilities. State licensure of a
nursing facility is a prerequisite to certification for participation in the
Medicare and Medicaid programs. The Company believes that all of its RCs are
presently in substantial compliance with applicable federal, state and local
regulations with respect to healthcare licensure requirements. However, because
those standards are subject to change, there can be no assurance that its RCs
will be able to maintain their licenses upon a change in standards, and future
changes in those standards could necessitate substantial expenditures by the
Company. Most states have licensure requirements for the assisted living
components of RCs; however, those requirements are generally much less
comprehensive and stringent than requirements for licensure of nursing
facilities. None of the states in which the Company's RCs are located presently
have healthcare licensure requirements for the independent living components of
RCs.
RCs offering continuing care are subject to additional standards administered
by state regulatory agencies, including reporting requirements. Certain
compliance issues have recently arisen with respect to Forum/Rancho San Antonio,
a continuing care RC located in Cupertino, California, subject to regulation by
the California Department of Social Services ("DSS"). Forum/Rancho San Antonio
is owned by a nonprofit cooperative housing corporation controlled by residents
of the community (the "RSA Co-op") and managed by a subsidiary of the Company
(the "RSA Manager"). In consideration of development activities and a
construction loan, the RSA Co-op issued a subsidiary of the Company several
promissory notes in the aggregate principal amount of $18,493,000. It is
contemplated that these notes, as well as other substantial loans for
construction, will be repaid from the proceeds from the sales of memberships in
the RSA Co-op. In September 1993, DSS advised the Company that as a consequence
of certain alleged reporting and other deficiencies membership purchase price
deposits paid by prospective residents of the community were to be retained in
escrow. As a consequence, closings on the sale of memberships were delayed. On
January 21, 1994, DSS and the entities which it has heretofore certified to
provide continuing care at Forum/Rancho San Antonio (including the RSA Co-Op,
the RSA Manager and a non-profit subsidiary of the Company which leases the on-
site healthcare center from the RSA Co-op (the "Health Corporation")) entered
into an agreement whereby DSS issued a new certificate for buildings I, II and
III of Forum/Rancho San Antonio, but conditioned the continued validity of the
certificate on the satisfaction of certain requirements, including changes in
the composition of the officers and directors of the RSA Manager and of the
Health Corporation and modification of the management agreement among the RSA
Co-op, the RSA Manager and the Health Corporation. As a consequence of this
agreement, DSS authorized the release of the purchase price deposits from
escrow, thereby allowing closings to resume. DSS has stated that this
certificate may be forfeited in the event of a material breach of the specified
conditions. While the Company believes that Forum/Rancho San Antonio will be
able to satisfy such conditions, there can be no assurance with respect thereto.
Notwithstanding the foregoing, the Company believes that all of its continuing
care RCs are presently in substantial compliance with applicable reporting and
other governmental requirements. However, because continuing care certification
requirements are subject to change, there can be no assurance that the Company's
continuing care RCs will be able to maintain their certification.
The failure to obtain or renew certain required regulatory approvals or
licenses, the delicensing or decertification of any of the Company's RCs,
including Forum/Rancho San Antonio, or the disqualification of the Company, FRP
and other affiliates of the Company from participation in certain federal and
state reimbursement programs could have a material adverse effect upon the
Company. See "Business and Properties of the Company -- Regulation and Other
Factors."
The Federal Omnibus Budget Reconciliation Act of 1993 includes certain changes
in the Medicare program effective October 1, 1993, including, among other
things, the elimination of the provision allowing Medicare providers to receive
a return on equity as part of the provider's payment under the program. See
"Business and Properties of the Company -- Sources of Payment." Although the
Company does not expect this change to have a material adverse effect on the
Company's financial condition or results of operations, there can be no
assurance in this regard.
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<PAGE>
In January 1993, President Clinton established the Task Force on National
Health Care Reform (the "Task Force"). The Task Force was charged with
preparing health care reform legislation to be presented to Congress. Among the
stated concerns considered by the Task Force were the means to control or reduce
public and private spending on health care, to reform the payment methodology
for healthcare goods and services by both the public (Medicare and Medicaid) and
private sectors and to provide universal access to health care. The Task Force
has presented its report and recommendations to the Administration, and the
Administration has recently proposed legislation to Congress. The Company
cannot predict the effect the Task Force's report and recommendations or the
proposed legislation may have on its business, and no assurance can be given
that any such report and recommendations or the proposed legislation will not
have a material adverse effect on the Company. Various other legislative and
industry groups are studying numerous healthcare issues, including access,
delivery and financing of long-term health care, and at any given time there are
numerous federal and state legislative proposals relating to the funding and
reimbursement of healthcare costs. It is difficult to predict whether these
proposals will be adopted or the form in which they might be adopted, and no
assurance can be given that any such legislation, if adopted, would not have a
material adverse effect on the Company.
REIMBURSEMENT BY THIRD-PARTY PAYORS
For the nine months ended December 31, 1993, the Company derived approximately
16% of its operating revenues from Medicare and Medicaid and approximately 84%
of its operating revenues from private pay sources. Governmental and other
third-party payors have adopted and are continuing to adopt cost containment
measures designed to limit payments to healthcare providers. Medicaid
reimbursement rates are generally less than the rates charged to private pay
residents. There can be no assurance that payments under governmental or third-
party payor programs will remain at levels comparable to present levels or will,
in the future, be sufficient to cover the costs allocable to residents
participating in such programs. Because of the level of revenues which the
Company derives from Medicare and Medicaid, the Company's results of operations
are sensitive to changes in Medicare and Medicaid rates. See "Business and
Properties of the Company -- Sources of Payment."
POTENTIAL FUTURE DILUTION
The Warrant Agreement provides for the issuance of up to 550,205 shares of
Common Stock at $2.86 per share (subject to adjustment in certain
circumstances). The Warrant Offering would permit the Warrant Holder to
subscribe for and purchase, at its election, either 149,607 shares of Common
Stock or 146,607 Special Warrants at $3.75 per share or Special Warrant. See
"The Warrant Offering." In addition, as a result of the 1993 Recapitalization,
the FGI Investors hold warrants to purchase up to 5,760 shares of Common Stock
at $0.001 per share and will receive 1.1555 shares of Common Stock for each
additional share of Common Stock issued by the Company pursuant to its POR. See
"The Company -- The 1993 Recapitalization." In addition, the Company presently
expects to seek to raise additional equity capital to fund acquisitions. See
"Summary --Business Strategy and Outlook" and "Use of Proceeds." Any of the
foregoing could dilute the equity interest of shareholders interests in the
Company.
RISK OF RELATIONSHIPS WITH IN FRP
The Company has a substantial equity in FRP and a wholly owned subsidiary of
the Company is the general partner of FRP. In addition, the Company acts as
manager of the RCs owned by FRP pursuant to a management agreement entered into
in connection with the formation of FRP in 1986 (as amended, the "FRP Management
Agreement").
On January 24, 1994, the Russell F. Knapp Revokable Trust, a substantial
Unitholder of FRP that purchased Preferred Depositary Units in 1992 (the "Knapp
Trust"), filed a complaint (the "Complaint) in the United States District Court
for the Northern District of Iowa against FRP's general partner, a wholly owned
subsidiary of the Company, alleging breach of FRP's Amended and Restated
Agreement of Limited Partnership, dated as of December 29, 1986, as amended (the
"Partnership Agreement"), breach of fiduciary duty, fraud and civil conspiracy.
The Complaint alleges, among other things, that the Board of Directors of FRP is
not comprised of a majority of Independent Directors, as defined in and required
by the Partnership Agreement and as allegedly represented in the 1986 Prospectus
of the Partnership (the "1986 Prospectus"), and that the general
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<PAGE>
partner's Board of Directors has approved and/or acquiesced in 8% management
fees being charged by the Company under the Management Agreement. The Complaint
further alleges that the "industry standard" for such fees is 4% thereby
resulting in an "overcharge" to FRP estimated by the Knapp Trust at $1.8 million
per annum, beginning in 1994. The Knapp Trust is seeking the restoration of
certain former directors to the Board of Directors of FRP's general partner and
the removal of certain other directors from such Board, an injunction
prohibiting the payment of 8% management, fees and unspecified compensatory and
punitive damages. The Company believes that the allegations in the Complaint
are without merit and intends vigorously to defend this litigation.
THE COMPANY
The Company provides senior housing and associated convenience and healthcare
services in 11 states through the operation of 22 rental RCs and three RCs
predominantly providing continuing care. The Company also operates one free-
standing nursing home. Of those facilities, eight are owned by the Company, two
are leased and 16 are managed. Nine of the managed RCs are owned by FRP.
Except as described below, each RC contains an independent living component and
a full-care nursing component available to residents should the need arise, and
certain RCs also include an assisted living component. One RC consists of an
assisted living component and a nursing component, and does not contain an
independent living component. Another RC consists of an independent living
component and assisted living component, and does not contain a nursing
component, but is adjacent to and enjoys the benefits of an RC which contains a
nursing component.
The Company was incorporated under the laws of Kentucky on November 13, 1969
and changed its corporate domicile to Indiana on June 10, 1981. The principal
executive offices of the Company are located at 8900 Keystone Crossing, Suite
200, Indianapolis, Indiana 46240-0498, telephone (317) 846-0700.
REORGANIZATION PROCEEDINGS
On February 19, 1991, the Forum Debtors commenced the Reorganization
Proceedings to reorganize and restructure their liabilities. The Company
emerged from bankruptcy on April 2, 1992. The POR provided for (i) the
cancellation of 32,548,108 shares of Common Stock of the Company, (ii) the
issuance of up to 10,000,000 shares of Common Stock of the reorganized Company,
with the Forum Debtors' unsecured creditors to receive approximately 93% thereof
and the Company's then-existing shareholders to receive approximately 7%
thereof, and (iii) the Forum Debtors' secured creditors to be paid in full. As
of the business day immediately preceding the date of this Prospectus, less than
266,000 shares of Common Stock continued to be reserved for possible issuance
under the POR to holders of general unsecured claims. The POR also contemplated
the sale and refinancing of assets to provide working capital and pay down
secured bank debt. Contemporaneously with the Company's emergence from
bankruptcy, the Company and its pre-petition bank lenders entered into a Senior
Secured Term Loan Agreement (the "Senior Secured Term Loan Agreement"), and
executed and delivered other documents (including without limitation term notes)
incident to the loan thereunder (the "Senior Secured Term Loan").
THE 1993 RECAPITALIZATION
Notwithstanding the completion of the Reorganization Proceedings in April of
1992, by the fourth calendar quarter of 1992, the Company lacked sufficient
funds to pay amounts required to be paid under its Senior Secured Term Loan
Agreement in accordance with the terms thereof. Following amendments to the
terms of the Senior Secured Term Loan Agreement, including the deferral of a
portion of the $13.5 million principal amount due December 31, 1992, on February
1, 1993, the Company entered into an agreement (the "February Stock Purchase
Agreement") with Forum Holdings pursuant to which Forum Holdings purchased
shares of preferred stock of the Company for $5.0 million, which amount was used
by the Company to pay the deferred bank debt. On February 1, 1993, the Company
also entered into an agreement (the "Agreement in Principle") with certain
affiliates of the FGI Investors providing for the purchase, for $15.0 million,
of a number of shares of Common Stock that would result in such persons owning
approximately 51% of the outstanding Common Stock and warrants to purchase a
number of shares of Common Stock equal to approximately 10% of the outstanding
Common Stock at an aggregate exercise price of $6.0 million.
-15-
<PAGE>
Under the Agreement in Principle, the purchasers thereunder had the right to
substantially match competing recapitalization or acquisition proposals received
by the Company. On April 13, 1993, in response to offers from other investors,
the purchasers under the Agreement in Principle presented the Board of Directors
with a revised offer pursuant to which (i) the Senior Secured Term Loan would be
replaced with (a) a new bank credit facility of up to $50.0 million (the
"Citicorp Term Loan Agreement") and (b) up to $40.0 million aggregate principal
amount of Senior Subordinated Notes and (ii) the purchasers under the Agreement
in Principle would acquire Common Stock either by (a) purchasing, for $20.0
million, a number of newly issued shares of Common Stock that would equal 37.8%
of the number of outstanding post-closing Common Stock (the "Non-Liquidity
Transaction") or (b) purchasing, for $20.0 million, a number of newly issued
shares of Common Stock that would equal 39.9% of the number of outstanding post-
closing Common Stock and also providing shareholders (other than the purchasers
and their affiliates) the opportunity to receive $3.62 per share, in cash, for
their Common Stock (the "Liquidity Transaction"). The Board of Directors
selected the Non-Liquidity Transaction, and on April 18, 1993, the Company and
certain affiliates of the FGI Investors entered into a definitive acquisition
agreement relating thereto (the "Acquisition Agreement").
On April 29, 1993, a competing investor and certain other persons
(collectively, the "Plaintiffs") initiated litigation against the Company and
others in the Superior Court for Marion County, Indiana (the "Trial Court"),
seeking, among other things, (i) the rescission of the Agreement in Principle,
the February Stock Purchase Agreement (and the issuance of preferred stock to
Forum Holdings pursuant thereto) and the Acquisition Agreement and (ii) an
injunction prohibiting the consummation of the transactions contemplated by the
Acquisition Agreement. On June 4, 1993, the Trial Court issued an order (the
"June 4 Order") which enjoined the defendants from taking any action to
consummate the Non-Liquidity Transaction, but otherwise permitted the defendants
to proceed with the transactions contemplated by the Acquisition Agreement,
provided that it was modified to implement the Liquidity Transaction. The
Plaintiffs appealed the decision of the Trial Court to the Indiana Court of
Appeals. The Indiana Court of Appeals denied the appeal on procedural grounds,
and the Plaintiffs have appealed such denial to the Indiana Supreme Court.
Subsequently, the Indiana Supreme Court ruled against the Plaintiffs' appeal.
The Company intends vigorously to defend against such additional proceedings, if
any, which may result therefrom and believes that the Plaintiff's allegations
therein are without merit. However, there necessarily can be no assurance as to
the ultimate outcome of this litigation.
On June 14, 1993, the transactions (other than the Liquidity Transaction),
contemplated by the Acquisition Agreement, as modified in accordance with the
June 4 Order, were consummated (the "June Closing"). At the June Closing, the
purchasers under the Acquisition Agreement collectively purchased from the
Company, for an aggregate price of $20.0 million in cash, (i) 7,098,200 newly
issued shares of Common Stock and (ii) warrants ("Investor Warrants") entitling
the purchasers to purchase for a nominal price an aggregate of 1.1555 shares of
Common Stock for each share of Common Stock issued on or after June 14, 1993
under the POR for the payment of pre-reorganization general unsecured claims.
(Since June 14, 1993, 4,984 shares of Common Stock have been issued under the
POR for the payment of general unsecured claims.) In addition, at the June
Closing, Forum Holdings exchanged all of its shares of preferred stock of the
Company for 2,500,000 shares of Common Stock, and the Company also (i) entered
into the Citicorp Term Loan Agreement, (ii) issued and sold $40.0 million
aggregate principal amount of Senior Subordinated Notes (one-half of which were
purchased by an affiliate of AFG for a managed account and one-half of which
were purchased by the limited partners of Forum Holdings), and (iii) prepaid all
amounts outstanding under the Senior Secured Term Loan. In connection with the
Citicorp Term Loan Agreement, the Company also entered into the Warrant
Agreement and issued the Warrants to the Warrant Holder. Pursuant to the
Warrant Agreement, the Warrant Holder currently holds Warrants, exercisable
prior to 5:00 p.m., Indianapolis, Indiana time, on June 11, 1999, to purchase
550,205 shares of Common Stock at a purchase price equal to $2.86 per share of
Common Stock, subject to specified annual increases and other adjustments.
The Senior Subordinated Notes accrue interest at the rate of 12.5% per annum,
which interest is paid semi-annually. The Senior Subordinated Notes mature on
June 1, 2003, at which time the entire principal amount becomes due. The
Company may prepay the Senior Subordinated Notes as long as a prepayment premium
is paid as well (10% through April 1, 1994, and decreasing 1.0% annually
thereafter). The terms of the Senior Subordinated Notes prohibit the Company
from paying dividends so long as such Notes are outstanding. The Senior
Subordinated Notes are subordinated to all indebtedness of the Company which has
been designated as "Senior Indebtedness" by the Board of Directors of the
Company, including the Refinancing Loan.
-16-
<PAGE>
Pursuant to the Acquisition Agreement, as modified, on July 27, 1993 the FGI
Investors commenced a tender offer for any and all outstanding shares of Common
Stock at $3.62 per share, net to the seller in cash. On August 31, 1993, the
FGI Investors purchased 1,345,543 shares of Common Stock for an aggregate
purchase price of approximately $4,870,865 pursuant to the tender offer.
Immediately after such purchase, the FGI Investors beneficially owned 12,757,016
shares of Common Stock (approximately 71.7% of the then-outstanding shares).
REFINANCING AND OTHER LOANS
REFINANCING LOAN
Pursuant to an Amended and Restated Loan Agreement with Nomura (the
"Refinancing Loan Agreement"), the Company obtained the Refinancing Loan on
February 1, 1994, borrowing $93.3 million. The Refinancing Loan was made to FGI
Financing I Corporation, a bankruptcy remote entity formed by the Company
("Newco I") and, in connection with the Refinancing Loan, the Company
transferred, or caused the transfer of, the Owned Properties (as defined below),
together with all regulatory licenses required for the operation thereof and
related contracts, agreements, assets and liabilities, including insurance
customarily required to be maintained on similar property, to Newco I. In
connection with such transfer, Newco I entered into management agreements with
the Company providing for the management of the Owned Properties. See " --
Management Agreements; Removal of Manager."
A summary of certain provisions of the Refinancing Loan follows.
Interest. The note issued under the Refinancing Loan Agreement (the "Nomura
Note") bears interest, payable monthly. Subject to the refinancing option
described below, the interest rate structure is floating based on a 4.3% spread
to 30-day LIBOR, which was 3.125% as of the closing date of the Refinancing
Loan. The foregoing spread includes servicing costs, which are 0.20% of the
principal amount of the Refinancing Loan per annum.
In connection with the Refinancing Loan, Newco I entered into an interest rate
cap agreement with a financial institution that provides that such financial
institution will reimburse Newco I for any interest paid under the Refinancing
Loan in excess of 8.925% per annum. The interest rate cap agreement is for the
term of the Refinancing Loan. See "Refinancing and Acquisition Loan --
Refinancing Loan." It is contemplated that the Company will enter into interest
rate cap agreements or similar arrangements in respect of variable rate debt
under the Acquisition Loan.
Maturity. The Nomura Note matures February 1, 2001.
Amortization. The Nomura Note amortizes over a 25-year schedule.
Prepayment. The Nomura Note is not prepayable for three years from the date
of closing of the Refinancing Loan (the "Refinancing Loan Closing Date") (except
for a prepayment resulting from an exercise of the refinancing option described
below, application of certain casualty and condemnation proceeds, the imposition
of certain taxes on Nomura, and the required application of excess cash flow
following a decrease in the debt service coverage ratio ("DSCR") as described
below). Any prepayment during the 37th through the 72nd month would require a
yield maintenance payment calculated by discounting monthly to net present value
the product of (x) 8.3333% and (y) 50 basis points multiplied by the amount
prepaid, for the period from the month of prepayment to February 1, 2000,
utilizing a discount rate equal to the then current 30-day LIBOR rate at the
time of prepayment plus the pricing spread (as indicated above) less 50 basis
points.
Refinancing Option. On any interest payment date during the 24 months
following the Refinancing Loan Closing Date (the "Refinancing Date"), Newco I
has the option to refinance the Nomura Note, with either a fixed rate structure
or a floating rate structure (as Newco I may select) to apply after such
refinancing. Depending on the aggregate DSCR for the Owned Properties, the
interest rate spreads would be as follows:
-17-
<PAGE>
<TABLE>
<CAPTION>
Aggregate Spread to Spread to
DSCR 30-day LIBOR Seven Year U.S. Treasury
============== ================= ========================
<S> <C> <C>
1.60 and above 2.80% 3.10%
1.50-1.59 3.35% 3.65%
1.40-1.49 4.10% 4.40%
============== ================= ========================
</TABLE>
The spreads quoted above do not include servicing costs, which are anticipated
to be between 0.15% and 0.20% of the principal amount per annum, but not to
exceed 0.35% per annum.
Both the 30-day LIBOR and the yield of seven-year U.S. Treasury Securities
have been near historical lows in recent periods, although there has been some
recent upward movement in these rates. There can be no assurance that there
will not be an adverse change in such rates during the 24-month period following
the Refinancing Loan Closing Date. See "Risk Factors -- Floating Interests
Rates." If such rates were to increase, the option to refinance the Nomura Note
may no longer be attractive and in certain circumstances may not be available.
If at the time of refinancing, the aggregate DSCR is greater than 1.4x,
subject to certain conditions, Newco I would have the option to increase the
principal amount of the Nomura Note to an amount which would maintain a DSCR of
at least 1.4x. These provisions are intended to permit the Company to benefit
from improvements, if any, in operating cash flow over the 24-month period
following the Refinancing Loan Closing. See "Summary -- Business Strategy and
Outlook." However, there can be no assurance that Newco I will be able to
increase the amount of indebtedness in connection with the refinancing of the
Refinancing Loan.
The refinanced Nomura Note could not be prepaid for a period of 36 months
after the Refinancing Date, except for an exercise of the refinancing option,
application of certain casualty and condemnation proceeds, the imposition of
certain taxes on Nomura, and a prepayment resulting from the required
application of excess cash flow following a decrease in DSCR. Any prepayment of
a fixed rate loan during the 37th through the 72nd month after the Refinancing
Date would require a yield maintenance payment calculated by discounting monthly
to net present value the product of (x) 8.3333% and (y) the greater of (i) the
coupon on the refinanced Nomura Note less a rate equal to the sum of (a) the
U.S. Treasury Security yield of a Security with a comparable maturity for such
period and (b) 150 basis points and (ii) 50 basis points, in either case
multiplied by the amount prepaid for the period from the month of prepayment to
January 1, 2000, utilizing a discount rate equal to the U.S. Treasury Security
yield of a Security with a comparable maturity, for such period plus 150 basis
points. Any prepayment of a floating rate loan during the 37th through the 72nd
month after the Refinancing Date, other than as a result of an exercise of the
refinancing option, application of certain casualty and condemnation proceeds,
the imposition of certain taxes on Nomura, and prepayments required upon
application of excess cash flow following a decrease in DSCR, would require a
yield maintenance payment similar to the calculation described under the caption
" -- Prepayment" above. After such refinancing, the Nomura Note would mature
seven years from the effective date of the refinancing and would be amortized
over the remaining portion of the original 25-year schedule.
Negative Covenants. The Refinancing Loan Agreement includes negative
covenants customarily included in similar agreements, including covenants
prohibiting Newco I from (i) engaging in any activity other than owning and
operating the Owned Properties and (ii) incurring any additional debt (other
than certain purchase money debt incurred in the ordinary course of business).
These covenants, however, will not apply to the Company or any of its affiliates
other than Newco I.
Financial Tests. The aggregate principal amount of the Nomura Note was
allocated among the Owned Properties based on their respective DSCRs. DSCR was
on annualized pro forma net operating income ("NOI") for each Owned Property,
based on actual occupancy levels (assuming a stable or positive occupancy
trend). For this purpose, NOI was net of (i) allowances for capital
expenditures of at least $380 per bed or unit (as applicable) per annum and (ii)
annual management fees of 5% of gross revenue. NOI was also adjusted to provide
for a vacancy factor of 5%, where actual vacancies are less than 5% (average
vacancies
-18-
<PAGE>
for the Owned Properties for the nine months ended December 31, 1993 were 9.9%)
(see "Business and Properties of the Company -- Rental RCs").
If the aggregate DSCR of the Owned Properties at the end of a calendar quarter
is less than 1.3x or 1.2x, then 50% and 100%, respectively, of the excess cash
flow from the Owned Properties could not be distributed to the Company and would
be applied to amortize the principal balance of the Nomura Note, for so long as
the aggregate DSCR of the Owned Properties remains below such levels. No
prepayment penalties or yield maintenance premiums would be required in
connection with such amortization. Under the terms of the Refinancing Loan,
"excess cash flow" means all available cash from the Owned Properties after the
payment of debt service, operating expenses, management fees and permitted
capital expenditures, in excess of prudent levels to be maintained for working
capital, capital expenditure reserves and other Newco I purposes.
Security. The Nomura Note is secured by first priority and perfected mortgage
liens on the Owned Properties, assignments of rents and a security interest in
all related personal property, contract rights, general intangibles and other
assets of Newco I. The mortgages on the Owned Properties are recorded and are
cross-defaulted and cross-collateralized. The Nomura Note is non-recourse to
Newco I, except for certain specific, and presently unanticipated,
circumstances. The "Owned Properties" include The Forum at Brookside, The Forum
at Deer Creek, The Forum at Desert Harbor, The Forum at Memorial Woods, The
Forum at Overland Park, The Forum at Park Lane and The Forum at Tucson. See
"Business and Properties of the Company --Mortgages."
A specific Owned Property may be released from the applicable lien securing
the Refinancing Loan after February 1, 1997 provided that (i) an amount equal to
125% of such Owned Property's allocated portion of the aggregate principal
amount of the Nomura Note is applied to the prepayment of the Nomura Note, (ii)
the aggregate DSCR of the remaining Owned Properties is not lower than 1.15x the
aggregate DSCR of such Owned Properties on the Refinancing Closing Date and
(iii) the aggregate DSCR for the remaining Owned Properties is not lower than
1.4x.
Use of Proceeds. The proceeds of the Refinancing Loan were required to be
used for the following purposes: (i) to repay existing debt (including without
limitation the $49.0 million principal balance of the Citicorp Term Loan and
$30.0 million aggregate outstanding principal amount of Senior Subordinated
Notes, and all related costs and expenses, including a total of $3,000,000
million of fees payable in connection with the prepayment of the Senior
Subordinated Notes), (ii) to pay to Nomura and affiliates thereof the financing
and securitization fees and to pay or reimburse other expenses directly related
to the Refinancing Loan, (iii) to pay the approximately $7.4 million necessary
to purchase an interest rate cap agreement, and (iv) to fund reserves for
capital expenditures.
Financing Fees; Expenses. Financing fees totaling approximately $1.9 million
were paid by Newco I to Nomura and one of its affiliates on the Refinancing Loan
Closing Date. An additional fee of approximately 2% will be payable on the
Refinancing Date to the extent of the increase in total principal amount of the
refinanced loan. The Company or Newco I will also be obligated to pay all
reasonable fees and expenses relating to the transactions contemplated by the
refinancing of the Refinancing Loan.
Possible Securitization. Subsequent to the issuance of the Nomura Note,
Nomura could sell the Nomura Note or, in connection with a securitization, could
deposit the Nomura Note into a trust (the "Newco I Trust") to be created
pursuant to a pooling and servicing agreement between Nomura and a trustee to be
selected by Nomura (the "Newco I Trustee") in exchange for certificates (the
"Certificates") representing beneficial interests in the Newco I Trust and sell
the Certificates to sophisticated investors. Newco I would be required to pay
or reimburse Nomura for fees, costs and expenses relating to any such
securitization, including without limitation (i) all costs associated with or
incidental to the preparation of offering documentation in connection therewith
and (ii) the fees and expenses of rating agencies in connection with the rating
of the Certificates (if Nomura determines to rate the offering).
-19-
<PAGE>
As a condition to rating the Certificates, rating agencies may require Newco I
to (i) establish debt service, operating, deferred maintenance or capital
expenditure reserve funds or accounts and (ii) agree to escrow or deposit funds
on a periodic basis to fund debt service, operating, deferred maintenance or
capital expenditure reserve funds or accounts. Pursuant to the Refinancing Loan
Agreement, Newco I would be required to comply with such rating agency
requirements. To the extent funds required for such reserve funds, escrow
accounts or similar items were in excess of $500,000, Newco I would not be
permitted to dividend or otherwise apply its resources until such requirements
were satisfied and would be required to apply excess cash flow to build up
reserves and escrows to satisfy required levels. All reserve funds and other
accounts would be interest bearing and for the benefit of Newco I (and Newco I's
interest therein would be subject to the security interest described above) and
may be invested only in specified types of investment grade investments, such as
Treasury securities.
To the extent required by the rating agencies, all revenue from the Owned
Properties would be deposited directly for credit into a sweep account
maintained by the Newco I Trustee. On a monthly basis, excess cash flow,
subject to the limitations described above, may be distributed by Newco I to the
Company.
Funds necessary to complete certain deferred capital improvements will be
deposited by Newco I into a reserve account and will be released by the Newco I
Trustee to cover such expenses. In addition, Newco I would make a monthly
deposit into an escrow account of an amount to cover one-twelfth of the annual
replacement reserve for capital expenditures. Newco I would pledge the amounts
on deposit in the reserve account and the escrow account to the Newco I Trust as
additional collateral for repayment of the Nomura Note.
Management Agreements; Removal of Manager. The Company and Newco I entered
into a management agreement pursuant to which the Company would manage the Owned
Properties and in exchange for such services would receive fees based upon gross
revenues of the Owned Properties. The Company could be replaced as manager of
any Owned Property upon the vote of the holders of 66-2/3% of the principal
amount of the then-outstanding Nomura Note (or Certificates) in certain
circumstances.
ACQUISITION COMMITMENT
On October 21, 1993, the Company obtained the Acquisition Commitment from
Nomura. See "Summary --Business Strategy and Outlook" with respect to the
events giving rise to the Acquisition Commitment and the Company's strategy
relating thereto.
Under the terms of the Acquisition Commitment, Nomura will make available to
the Company up to $100.0 million to finance a portion of the purchase price for
the acquisition of fee title interests in skilled nursing home, assisted living
and other senior housing properties ("Acquired Properties") during the 24-month
period (the "Financing Period") following the execution of the Acquisition Loan
Agreement (as defined below) (the "Initial Acquisition Loan Closing"). The
Acquisition Commitment contemplates that the Acquisition Loan will be made
available to a bankruptcy remote entity to be formed by the Company ("Newco
II"), which will be structured and governed substantially the same as Newco I.
The Company anticipates that prior to February 28, 1994 Newco II and Nomura will
enter into a loan agreement (the "Acquisition Loan Agreement"), pursuant to
which Newco II will issue notes (the "Acquisition Notes") on substantially the
terms described below. The Acquisition Loan Agreement would provide that during
the Financing Period the Acquisition Notes could be refinanced as described
below.
THE TRANSACTIONS CONTEMPLATED BY THE ACQUISITION COMMITMENT ARE SUBJECT TO A
NUMBER OF CONDITIONS, INCLUDING THE EXECUTION OF DEFINITIVE DOCUMENTATION
ACCEPTABLE TO NOMURA AND THE COMPANY AND OTHER CONDITIONS, AND THERE CAN BE NO
ASSURANCE THAT SUCH CONDITIONS WILL BE SATISFIED. Both the Company and Nomura
are required to perform their respective obligations in good faith and to
proceed expeditiously to enter into definitive loan documents relating to the
transactions described in the Acquisition Commitment. Although the Company is
engaged in the analysis of a number of acquisition possibilities, as of the date
of this Prospectus, it has not entered into any agreement or commitment for any
acquisition. See "Use of Proceeds."
A summary of certain provisions of the Acquisition Commitment follows.
-20-
<PAGE>
Equity Requirements. For each dollar of value of unencumbered property
contributed by the Company to Newco II, two dollars would be available under the
Acquisition Loan Agreement to be applied to fund up to 100% of the purchase
price of Acquired Properties. For each dollar in cash contributed by the
Company to Newco II and used to acquire an Acquired Property, two dollars would
be available under the Acquisition Loan Agreement to be applied to fund up to
66.67% of the purchase price of such Acquired Property. If the Company
contributes no unencumbered property to Newco II, in order to utilize the full
amount of the Acquisition Commitment, the Company would be required to
contribute $50.0 million in cash to Newco II. The Company may seek to raise
additional equity capital to fund such requirements through other debt or equity
financings by the Company, including future offerings of additional shares of
Common Stock to its existing shareholders, including the FGI Investors, cash
from operations (including cash from sales of units in the Company's existing
RCs, primarily Forum/Rancho San Antonio) or a combination thereof.
Selection of Acquired Properties. The Acquired Properties would be selected
by the Company, but would have to be approved by Nomura, based upon Nomura's due
diligence and financial analysis. The aggregate DSCR for the Acquired
Properties must be at least 1.4x based on an annualization of the most recent
month's net operating income (assuming a stable or positive occupancy trend),
taking into account the payment of management fees equal to 5% of the Acquired
Property's gross revenue and provision for capital expenditures of at least $300
per bed or unit (as applicable) per annum. Notwithstanding the foregoing, an
Acquired Property may have a DSCR of less than 1.4x provided that (i) the
Company or Newco II demonstrates to Nomura's satisfaction that the Acquired
Property in issue can reasonably be expected to perform at a DSCR of at least
1.4x by the end of the Financing Period and (ii) the inclusion of the Acquired
Property in the pool of Acquired Properties previously acquired would not lower
the aggregate DSCR of all the Acquired Properties to less than 1.4x.
Interest. The Acquisition Notes would bear interest, payable monthly.
Pursuant to the Acquisition Commitment, the interest rate structure would be
floating at a rate equal to one-month U.S. Dollar LIBOR plus 3.35% per annum
during the Financing Period. Thereafter, if the Acquisition Notes are not
refinanced, modified or repaid as described below, interest will accrue at one-
month U.S. Dollar LIBOR plus 6.5% per annum, and all excess cash flow will be
applied to principal repayment.
Maturity. The Acquisition Notes would mature 108 months following the Initial
Acquisition Closing Date, unless refinanced as described below.
Amortization. The Acquisition Notes would not require the repayment of any
principal during the Financing Period, although the Acquisition Notes would
become due at the end of two years unless refinanced as described under the
caption "-- Refinancing" below.
Prepayment. The Acquisition Notes would be prepayable without penalty or
premium during the Financing Period. If the Acquisition Notes are not prepaid
at the end of the Financing Period, unless prepaid at the option of the Company,
the terms would be modified as described below under the caption "--
Refinancing" below.
Refinancing. On or before the last day of the Financing Period, the Company
would have the option to cause Newco II to elect to: (i) repay the Acquisition
Notes in whole or in part; (ii) if the aggregate DSCR is equal to or greater
than 1.4x, have the Acquisition Notes modified as described below; (iii) if the
aggregate DSCR is greater than 1.4x, increase the principal amount of the
Acquisition Notes; or (iv) if the aggregate DSCR is less than 1.4x, repay a
portion of the aggregate principal balance of the Acquisition Notes sufficient
to increase the DSCR to 1.4x and then have the Acquisition Notes modified or
refinanced. If, at the end of the Financing Period, Newco II does not elect any
of the above options, Newco II would be required to repay the entire principal
balance of the Acquisition Notes. Alternative (i) above would permit Newco II
to pay off the Acquisition Notes during the Financing Period at par, plus
accrued interest, using proceeds from other financing sources, which may be
available on more favorable terms.
At any time on or before the last day of the Refinancing Period, the
Acquisition Notes may be refinanced based upon the election by Newco II of a
floating rate structure or a fixed rate structure. Under the floating rate
structure and the fixed rate structure, based upon the aggregate DSCR of the
Acquired Properties, the interest rate spreads would be as follows:
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<PAGE>
<TABLE>
<CAPTION>
Aggregate Option 1: Floating Rate Structure Option 2: Fixed Rate Structure
DSCR Spread to 30-day LIBOR Spread to 7 yr. U.S. Treasury
============== ================================== ==============================
<S> <C> <C>
1.60 and above 2.80% 3.10%
1.50-1.59 3.35% 3.65%
1.40-1.49 4.10% 4.40%
============== ================================== ==============================
</TABLE>
The spreads quoted above do not include servicing costs, which would be paid by
Newco II.
Both the 30-day LIBOR and the yield of seven-year U.S. Treasury Securities
have been near historical lows in recent periods. However, there has been some
recent upward movement in these rates and rates may increase further in the
future. There can be no assurance that there will not be an adverse change in
such rates during the Financing Period. If such rates were to increase, the
option to refinance the Acquisition Notes may no longer be attractive and in
certain circumstances may not be available. See "Risk Factors -- Floating
Interests Rates."
If, upon refinancing, the aggregate DSCR is greater than 1.4x, the aggregate
principal amount of the Acquisition Notes may be increased to an amount which
would maintain an aggregate DSCR of at least 1.4x for the pool of Acquired
Properties. These provisions are intended to permit the Company to benefit from
improvements, if any, in the operating results of Acquired Properties during the
Financing Period. However, there can be no assurance that Newco II will be able
to increase in the amount of indebtedness under the Acquisition Loan.
The refinanced Acquisition Notes may not be prepaid for a period of 36 months
after the effective date of the refinancing (the "Acquisition Refinancing
Date"), except for a prepayment resulting from the required application of
excess cash flow following a decrease in DSCR. Any prepayment of the
Acquisition Notes during the 37th through the 72nd month after the Acquisition
Refinancing Date would require a yield maintenance payment substantially similar
to that required when the Nomura Note is prepaid. See "-- Refinancing Loan --
Refinancing Option." After such refinancing, the Acquisition Notes would mature
seven years from the Acquisition Refinancing Date and would amortize based on a
240-month amortization schedule.
Use of Proceeds. The proceeds of the Acquisition Loan would be required to be
used for the following purposes: (i) to pay for the acquisition of Acquired
Properties, including reasonable costs and expenses directly related thereto;
(ii) to repay any existing debt or liabilities relating to the Acquired
Properties; (iii) to pay to Nomura and any affiliate thereof the financing and
securitization fees and to pay or reimburse other expenses directly related to
the transactions contemplated thereby; (iv) to pay the amount necessary to
purchase interest rate caps contracts, if necessary; and (v) to fund reserves
for capital expenditures.
Financing Fees, Expenses. An investment banking fee of $1,000,000 will be
payable to an affiliate of Nomura at the Initial Acquisition Loan Closing.
Financing fees totalling 3% of the principal amount of the Acquisition Notes
would be payable by Newco II to Nomura and one of its affiliates on the closing
date of any issuance of Acquisition Notes under the Acquisition Loan Agreement.
Additionally, if the aggregate principal amount of the Acquisition Notes is
increased upon refinancing, on the Acquisition Refinancing Date a financing fee
of 2% of the principal amount of any increased financing would be payable by
Newco II to Nomura. The Company or Newco II would also be obligated to pay all
reasonable fees and expenses related to the transactions contemplated by the
Acquisition Commitment.
Interest Rate Caps. Upon issuance of any Acquisition Note and, if the
Acquisition Notes are refinanced and a floating interest rate structure is
selected, on the Acquisition Refinancing Date, Newco II would be required to
purchase a like principal amount of 30-day LIBOR interest rate cap contracts
with a term at least equal to the remaining term of the Acquisition Notes, from
a financing institution acceptable to Nomura. The interest rate cap contracts
would be owned by Newco II and would be pledged as security for the Acquisition
Notes.
-22-
<PAGE>
Miscellaneous. The Acquisition Commitment also contains provisions
substantially similar to those described under the captions "-- Refinancing Loan
- -- Negative Covenants," "-- Refinancing Loan -- Financial Tests," "--
Refinancing Loan -- Security," "-- Refinancing Loan -- Possible Securitization"
and "-- Refinancing Loan -- Management Agreements; Removal of Manager."
OTHER LONG-TERM DEBT
In addition to the Refinancing Loan, the Company has additional long-term
debt, the aggregate principal amount of which was $113 million at December 31,
1993 (giving effect to the Refinancing Loan and the application of the net
proceeds thereof as described in "-- Refinancing Loan"). Approximately $76
million of such long-term debt was non-recourse secured debt issued by asserts
of subsidiaries of the Company. The terms of such additional long-term debt
impose various restrictions on the Company or the subsidiaries obligated
thereunder, including prohibitions on the payment of dividends by the Company.
See "Dividend Policy." The total principal payments required to be made in
respect of all such debt (including the Refinancing Loan) is as follows:
<TABLE>
<CAPTION>
Fiscal Year Total Recourse Non-Recourse
Ended March 31, Obligations Obligations Obligations
----------- ----------- ------------
<S> <C> <C> <C>
1994 $ 762,142 $ 467,019 $ 295,123
1995 4,892,664 3,644,726 1,247,938
1996 4,389,995 3,061,297 1,328,698
1997 50,055,134 3,271,540 46,783,594
1998 17,254,217 16,897,201 357,016
1999 29,368,464 3,048,129 26,368,464
2000 and
thereafter $99,447,232 $99,447,232 $ 0
</TABLE>
The Company continues to be a party to the Citibank Term Loan Agreement
notwithstanding the payment of $49.0 million in term debt thereunder with a
portion of the net proceeds of the Refinancing Loan because letters of credit in
the aggregate notational amount of $6.8 million issued thereunder remain
outstanding. Citibank has waived the application of the covenants under the
Citibank Term Loan Agreement for a period ending March 17, 1994 as the parties
negotiate appropriate amendments to the Citibank Term Loan Agreement. There can
be no assurance that the Company will be able to negotiate amendments acceptable
to it, in which event the Company may be forced to seek to replace the above-
referenced letters of credit.
THE FRP RECAPITALIZATION
The events giving rise to the FRP Recapitalization and the execution of the
FRP Recapitalization Agreement are described under the caption "Summary -- The
FRP Recapitalization."
Pursuant to the FRP Recapitalization Agreement, the Company purchased through
a subsidiary 6,500,000 newly issued Units from FRP at a purchase price of $2.00
per Unit. In accordance with the FRP Recapitalization Agreement, FRP applied
the $13.0 million of proceeds from the sale of Units to the partial prepayment
of the FRP Bank Debt. The proceeds of the New FRP Loan were used, together with
equity capital made available to FRP, to retire and repay all existing
indebtedness of FRP, including the FRP Bank Debt, the principal balance of which
was approximately $22.5 million prior to the FRP Recapitalization Agreement, and
approximately $34.1 million aggregate principal amount of the FRP Split Coupon
Notes, to pay related fees and expenses and for general corporate purposes. As
contemplated by the FRP Recapitalization Agreement, FRP made the FRP Offering
pursuant to which unitholders of record as of October 18, 1993 (other than the
Company and its affiliates) will be permitted to acquire additional Units at
$2.00 per unit in order to avoid dilution. The FRP Offering is subject to
certain conditions. Under the FRP Recapitalization Agreement, the proceeds of
the FRP Offering are required to be used to repurchase Units from the Company at
$2.00 per unit. As a result of the purchase of Units, the Company increased its
aggregate beneficial ownership to 8,440,268 Units, or approximately 55.2% of the
total number of Units outstanding. If
-23-
<PAGE>
all eligible unitholders subscribe for and purchase all of the Units being
offered in the FRP Offering, the Company's percentage beneficial ownership of
the total outstanding Units will be approximately 22.1%, the same beneficial
ownership percentage the Company had prior to the transactions provided for in
the FRP Recapitalization Agreement. Holders of Units that elect to participate
in the FRP Offering will not be entitled to purchase any portion of the Units
not subscribed for by other holders of Units that elect not to participate in
the FRP Offering. Accordingly, the Company's percentage beneficial ownership of
Units will exceed 22.1% to the extent that holders of Units elect not to
participate in the FRP Offering.
STOCK PURCHASE AGREEMENTS
FRP obtained the FRP Commitment in an effort to refinance its indebtedness
prior to the maturity date of the FRP Bank Debt. FRP, through the independent
directors of FRP's general partner, requested that the Company enter into the
FRP Recapitalization Agreement to provide FRP a measure of assurance that it
would be able to pay the FRP Bank Debt at maturity even if the New FRP Loan did
not close by the maturity date of the FRP Bank Debt. Under the terms of the
Citibank Term Loan, the Company was unable to enter into the FRP
Recapitalization Agreement unless it obtained new investment equity.
Accordingly, the FGI Investors agreed to enter into the Stock Purchase
Agreements pursuant to which the FGI Investors purchased a total of 3,466,666
shares of Common Stock for an aggregate purchase price of approximately $13.0
million, or $3.75 per share. Of the shares of Common Stock so purchased, AFG
and Forum Holdings each individually purchased 1,488,413 shares of Common Stock
and Resources purchased 489,840 shares of Common Stock. The terms and
conditions of the Stock Purchase Agreements, which were modeled after the
February Stock Purchase Agreement entered into between the Company and Forum
Holdings prior to the time at which the FGI Investors acquired a majority
interest of the Company, were determined by a committee of the Board of
Directors of the Company comprised solely of persons who are not officers or
employees of the Company or affiliates of the FGI Investors to be fair and
reasonable to, and in the best interest of, the Company and comparable to those
that could be negotiated with an unrelated third party.
As a result of their purchase of 3,466,666 shares, the FGI Investors increased
their aggregate beneficial ownership of Common Stock to 16,223,682 shares
(including 5,760 shares presently purchasable for a nominal price upon exercise
of the Investor Warrants), or approximately 76.3% of the total number of shares
outstanding, from 12,757,016 shares (including 5,760 shares presently
purchasable for a nominal price upon exercise of the Inventory Warrants), or
approximately 71.7% of the shares outstanding prior thereto. The Stock Purchase
Agreements provide that in order to afford Eligible Shareholders the
opportunity, if they elect to do so, to avoid dilution as a result of the
issuance of the 3,466,666 shares of Common Stock to the FGI Investors, the
Company, at its sole cost and expense, will make the Subscription Offering to
Eligible Shareholders. If all of the 1,520,212 shares of Common Stock being
offered pursuant to the Offerings are subscribed for and purchased by Eligible
Shareholders and the Warrant Holder, the FGI Investors' percentage ownership of
the Common Stock outstanding would be approximately 71.2%. Eligible
Shareholders that elect to participate in the Subscription Offering will not be
entitled to purchase any portion of the Common Stock not subscribed for by
Eligible Shareholders that elect not to participate in the Subscription
Offering. Accordingly, the FGI Investors' percentage ownership of the total
outstanding Common Stock will exceed 71.2% to the extent Eligible Shareholders
elect not to participate in the Subscription Offering and the Warrant Holder
elects not to subscribe for and purchase shares of Common Stock pursuant to the
Warrant Offering.
DIVIDEND POLICY
The Company has not declared or paid dividends on the Common Stock since 1989
and does not anticipate paying regular dividends on the Common Stock in the
foreseeable future, but rather expects to reinvest any excess cash flow in the
Company's businesses.
The terms of the Senior Subordinated Notes prohibit the Company from paying
dividends so long as such Notes are outstanding. The current terms of the
Citibank Term Loan Agreement also prohibit the Company
-24-
<PAGE>
from paying dividends. See "Refinancing and Other Loans -- Other Long-Term
Debt." The Refinancing Loan Agreement includes provisions that permit, under
certain circumstances, the payment of dividends on the Common Stock. See "Risk
Factors -- Restrictive Covenants" "Refinancing and Other Loans." The Company's
ability to pay dividends in the future will require continued improvements in
the Company's results of operations (including cash from sales of units in the
Company's existing RCs, particularly Forum/Rancho San Antonio (see "Risk Factors
- -- Government Regulation")), and an amendment or waiver of the foregoing
covenants. There can be no assurance as to the level of dividends, if any,
which the Company may declare in the future. See "Risk Factors."
Although the Company does not presently intend to commence the payment of
regular quarterly dividends on shares of Common Stock, in the event that cash
flow from operations (including sales of units of existing RC's such as
Forum/Rancho San Antonio) or proceeds from refinancings (including proceeds from
increases in or refinancings of the Nomura Loans) exceed the amounts determined
to be necessary to prepay the then-outstanding principal amount of Senior
Subordinated Notes (see "The Company -- The 1993 Recapitalization") and to fund
the Company's ordinary operations and the requirements of its growth strategy,
the Company intends from time to time to consider the possibility of declaring
special dividends on the Common Stock then outstanding. THERE CAN BE NO
ASSURANCE AS TO THE TIMING OR AMOUNTS OF ANY SUCH SPECIAL DIVIDENDS.
USE OF PROCEEDS
The net proceeds of the Offerings (estimated to be approximately $5.5 million
assuming Eligible Shareholders and the Warrant Holder subscribe for and purchase
an aggregate of 1,520,212 shares of Common Stock pursuant to the Offerings) will
be added to the Company's working capital and used for general corporate
purposes, which could include financing of future growth of the Company through
possible acquisitions of additional RCs or other similar assets or businesses
(although the Company has not entered into any agreement providing for any such
acquisition). Any proceeds to the Company as a result of the repurchase of
Units in connection with the FRP Offering (see "The FRP Recapitalization") will
also be added to the Company's working capital and used for general corporate
purposes. The Acquisition Loan, if completed, would require the Company to
invest $1.00 of equity capital for every $2.00 of debt financing provided under
the Acquisition Loan. Accordingly, the Company may be required to raise
additional equity capital (through one or more rights offerings or otherwise) if
the Company seeks to avail itself of the entire amount of financing to be
available to it under the Acquisition Loan.
While the Company has engaged in preliminary discussions regarding certain
possible acquisitions of additional RCs and other assets, as of the date of this
Prospectus, the Company had not entered into any agreement providing for any
acquisition of any additional property or other assets outside the ordinary
course of business. There can be no assurance that any such acquisitions will
be completed or, if so, as to the timing or terms thereof. The transactions
contemplated by the Acquisition Commitment are subject to various conditions and
there can be no assurance as to the timing or terms thereof. See "Refinancing
and Other Loans -- Acquisition Commitment."
-25-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization and long-term debt of the
Company as of December 31, 1993, as adjusted to give effect to the sale of,
alternatively, 1,520,212 and no shares of Common Stock to Eligible Shareholders
and the Warrant Holder pursuant to the Offerings. This presentation does not
purport to represent the capitalization that would actually have been reported
had such transactions in fact been consummated on December 31, 1993. The
presentation should be read in conjunction with the audited financial statements
contained in the 1992 Form 10-K (including the notes thereto) and the unaudited
financial statements contained in the 1993 Third Quarter Form 10-Q (including
the notes thereto), copies of which accompany this Prospectus, and the unaudited
pro forma financial information, related notes and other information contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As Adjusted
--------------------------------------
<S> <C> <C> <C>
Assuming Assuming No
At December Additional Sales Additional Sales
31, 1993 of Stock of Stock
--------- ----------------- -----------------
(000's Omitted)
Long-term debt, including current portion........ $191,917(a) $206,218(a) $206,218(a)
Other partners' equity........................... 1,686 1,686 1,686
Shareholders' equity:
Common stock: 48,000,000 shares authorized,
21,261,625 shares issued and outstanding
(22,781,837 shares issued and outstanding 58,813 64,290 58,589
as adjusted)...............................
Accumulated deficit............................. (7,842) (15,842) (15,842)
-------- -------- --------
Total shareholders' equity.............. 50,971 48,448 42,747
-------- -------- --------
Total capitalization............................. $244,574 $256,352 $250,651
======== ======== ========
- -----------------------------
</TABLE>
(a) Includes $76,381,000 of secured, non-recourse obligations of the Company.
See Note 1(d) under "Notes to Pro Forma Financial Statements."
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information is based upon the
Company's unaudited financial statements as of and for the nine months ended
December 31, 1993 contained in the 1993 Third Quarter Form 10-Q and the
Company's audited financial statements for the year ended March 31, 1993
contained in the 1992 Form 10-K. The Pro Forma Condensed Consolidated
Statements of Operations include the transactions provided for in the Stock
Purchase Agreements and have been adjusted to give effect to the Offerings, the
transactions described under the caption "The Company -- The 1993
Recapitalization" above, the closing of the Refinancing Loan and the application
of proceeds therefrom to the prepayment of the $49.0 million principal balance
of the Citicorp Term Loan and $30.0 million aggregate principal amount of the
Senior Subordinated Notes and to the payment of estimated costs and expenses, as
if such transactions had been consummated on the first day of the period
presented. See "Financings." The Pro Forma Condensed Consolidated Balance
Sheet has been adjusted to give effect to the purchase of, in the alternative,
all 1,520,212 shares of Common Stock pursuant to the Offerings (assuming all
Eligible Shareholders and the Warrant Holder subscribe for and purchase all
shares of Common Stock offered in the Offerings), or none of such shares of
Common Stock, and the other transactions specified above as if such transactions
had been consummated on December 31, 1993. The following pro forma financial
information does not purport to be indicative of the financial position or
results of operations that would actually have been reported had such
transactions in fact been consummated on such dates or of the financial position
or results of operations that may be reported by the Company in the future. The
following pro forma financial information should be read in conjunction with the
audited financial statements contained in the 1992 Form 10-K (including the
notes thereto) and the unaudited financial statements contained in the 1993
Third Quarter Form 10-Q (including the notes thereto), copies of which accompany
this Prospectus, and the other financial information contained elsewhere in this
Prospectus.
-26-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1993
(000'S OMITTED)
(WITHOUT AUDIT)
<TABLE>
<CAPTION>
ASSUMING ADDITIONAL ASSUMING NO ADDITIONAL
SALES OF STOCK SALES OF STOCK
------------------------------ --------------------------------
PRO PRO
HISTORICAL DEBIT CREDIT FORMA DEBIT CREDIT FORMA
----------- ----- ------ -------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Property and equipment, net $212,710 $212,710 $212,710
Cash and cash equivalents 14,334 3,282(a) 17,616 $5,701(a) 11,915
Investment in Affiliates 31,298 3,000(a) 29,658 28,298
Deferred costs, net 9,116 3,176(a) 5,000(b) 7,292 7,292
Restricted cash 8,478 360(a) 8,838 8,838
Other assets 11,055 7,427(a) 18,482 18,482
-------- -------- --------
Total assets $286,991 $293,236 $287,535
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Long-term debt(c) $191,917 49,000(a) 93,301(a) $206,218 $206,218
30,000(a)
Accounts payable and accrued expenses 18,678 4,075(a) 13,145 13,145
1,458(a)
Resident deposits and deferred income 23,739 23,739 23,739
-------- -------- --------
Total liabilities 234,334 243,102 243,102
-------- -------- --------
Minority interests 1,686 1,686 1,686
Shareholders' equity:
Common Stock, no par value - 48,000,000 58,813 224(a) 5,701(a) 64,290 5,701(a) 58,589
shares authorized, 21,261,625 and
22,781,837 shares issued and outstanding
Accumulated deficit (7,842) 3,000(a) (15,842) (15,842)
5,000(b)
Shareholders' equity 50,971 -------- --------
-------- 48,448 42,747
-------- --------
Total liabilities and shareholder's equity $286,991 $293,236 $287,535
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
-27-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1993
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
(WITHOUT AUDIT)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Operating revenues $ 90,963 $ 90,963
Investment income 1,192 1,192
Other income 1,147 1,147
-------- --------
Total revenues 93,302 93,302
Costs and expenses:
Operating expenses 70,417 70,417
General and administrative 5,411 5,411
Depreciation 8,793 1,386(a) 8,793
------
Litigation expense 0 0
Interest expense 18,192 1,386 19,578
-------- ------ --------
Total costs and expense 102,813 104,199
-------- --------
Income (loss) before minority
interest and extraordinary item (9,511) (1,386) (10,897)
Minority interest 2,152 2,152
-------- --------
Net income (loss) before
extraordinary item ($7,359) (1,386) ($8,745)
======== ====== ========
Average number of common
shares outstanding 7,493 22,782
Net income (loss) per share:
Income (loss) before
extraordinary item ($0.38)
========
($0.98)
========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
-28-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1993
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
(WITHOUT AUDIT)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Operating revenues $ 73,620 $79,620
Investment income 645 645
Other income 371 371
-------- -------
Total revenues 80,636 80,636
Costs and expenses:
Operating expenses 57,450 57,450
General and administrative 2,470 2,470
Depreciation 5,841 5,841
Litigation expense 1,317 1,317
Interest expense 13,241 1,089(a) 14,330
-------- ----- -------
Total costs and expenses
80,319 1,089 81,408
-------- ------ -------
Income (loss) before minority
interest and extraordinary item 317 (1,089) (772)
Minority interest 972 972
-------- -------
Net income (loss) before
extraordinary item ($1,289) (1,089) $ 200
======== ====== =======
Average number of common
shares outstanding 15,858 22,782
Net income (loss) per share:
before extraordinary item ($0.08) ($0.01)
======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
-29-
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(WITHOUT AUDIT)
NOTE 1 - PRO FORMA CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1993
(a) To adjust for the proposed Refinancing Loan and Offerings:
<TABLE>
<S> <C> <C>
Sources of Cash:
Refinancing Loan $ 93,301
Sale of FRP Units pursuant to FRP Subscription
Offering (Est.)* 3,000
Funds from Offerings contemplated hereby 5,701
--------
Total sources of cash $102,002
Uses of Cash:
Repayment of Citicorp Term Loan 49,000
Repayment of estimated portion of Senior Subordinated
Notes 30,000
Payment of accrued interest on Citicorp Term Loan and
on Senior Subordinated Notes 1,458
Prepayment premium on Senior Subordinated Notes 3,000
Costs and expenses of the Refinancing Loan 3,176
Costs and expenses of the Offerings 224
Payment of Real Estate Tax and Insurance Obligations 4,075
Purchase of interest rate cap contracts 7,427
Escrow reserve for capital expenditures 360
--------
Total uses of cash 98,720
--------
Net increase in cash $ 3,282
========
</TABLE>
- --------
* Includes an estimate, based upon subscriptions received to date, of proceeds
resulting from the repurchase of Units pursuant to the terms of the FRP
Recapitalization Agreement. As of the business day immediately preceding
the date of this Prospectus, subscriptions for the purchase of _____ Units
had been received in the FRP Subscription Offering. See "The FRP
Recapitalization."
(b) To write off the balance of the deferred financing costs associated with
the Citicorp Term Loan and Senior Subordinated Notes.
(c) Schedule of long-term debt:
<TABLE>
<CAPTION>
At
December 31,
Maturity Interest Rate 1993 Pro Forma
-------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Citicorp Term Loan Mar-99 LIBOR + 3.5% 49,000 0
Senior Subordinated Notes Jun-03 12.50% 40,000 10,000
Refinancing Loan Dec-00 LIBOR + 4.27% 0 93,301
1st Mortgage on Knightsbridge Dec-97 10.50% 14,905 14,905
Lafayette Capital Lease Apr-06 7.54% 5,959 5,959
Lexington Capital Lease May-16 9.50% 2,514 2,514
Continuing Care Refund Loans Various 6.00% 600 600
Cupertino Resident Refund Loans Various Various 597 597
Resident Debentures Various Various 632 632
Income Tax Liability Loan Apr-98 8.50% 750 750
Other Various Various 579 579
-------- --------
Total recourse obligations 115,536 129,837
1st Mortgage on FRC II May-96 LIBOR + 1.3% 46,880 46,880
2nd Mortgage on FRC II May-96 Treasury + 3% 1,824 1,824
1st Mortgage on FRC I Feb-99 LIBOR + 1.5% 26,031 26,031
2nd Mortgage on FRC I Feb-99 Treasury + 3% 1,646 1,646
-------- --------
</TABLE>
-30-
<PAGE>
<TABLE>
<S> <C> <C>
Total non-recourse obligations 76,381 76,381
-------- --------
Total long-term debt $191,917 $206,218
======== ========
</TABLE>
NOTE 2 - PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED MARCH 31, 1993 AND FOR THE NINE MONTHS ENDED DECEMBER 31, 1993
(a) To adjust for the increase in interest expense reflecting the increased cost
of borrowing resulting primarily from the amortization of the interest rate
cap contract for the Refinancing Loan.
-31-
<PAGE>
THE SUBSCRIPTION OFFERING
SUBSCRIPTION PRIVILEGE
The Company is offering to shareholders of record (other than the FGI
Investors) as of the close of business on the Record Date (October 18, 1993),
the opportunity to subscribe for and purchase Common Stock for a price of $3.75
per share. Eligible Shareholders may subscribe for and purchase 0.2717458 of a
share of Common Stock for each share of Common Stock held of record by them on
the Record Date.
No fractional shares or cash in lieu thereof will be issued. The number of
shares of Common Stock for which each Eligible Shareholder may subscribe will be
based on the aggregate number of shares of Common Stock held by such Eligible
Shareholder on the Record Date and will be rounded down to the nearest whole
number. A broker, dealer, commercial bank, trust company or other nominee
holding Common Stock on the Record Date for more than one beneficial owner will
be required to certify to the Subscription Agent and the Company (i) the total
number of shares of Common Stock subscribed for by such nominee on behalf of
beneficial owners pursuant to the Subscription Privilege; (ii) the aggregate
number of shares of Common Stock held by it as of the Record Date on behalf of
each beneficial owner for which it has exercised the Subscription Privilege;
(iii) the aggregate number of shares of Common Stock subscribed for by it on
behalf of each such beneficial owner; and (iv) that, to its knowledge, it has
not exercised the Subscription Privilege in respect of any shares of Common
Stock held by it as of the Record Date on behalf of any of the FGI Investors.
The number of shares of Common Stock which may be subscribed for and purchased
on behalf of each beneficial owner will be based on the aggregate number of
shares of Common Stock held for such beneficial owner on the Record Date and
will be rounded down to the nearest whole number.
EXPIRATION DATE
The opportunity to subscribe for and purchase shares of Common Stock pursuant
to the Subscription Offering will expire at the Expiration Date. The term
"Expiration Date" means 5:00 p.m., New York City time, on March , 1994, unless
and until the Company, in its sole discretion, has extended the time for
expiration of the opportunity to subscribe for and purchase Common Stock
pursuant to the Subscription Offering, in which event the term "Expiration Date"
will mean the latest time and date on which such opportunity, as so extended by
the Company, expires. The Company will not honor any purported exercise of the
Subscription Privilege received by the Subscription Agent after the Expiration
Date, regardless of when the documents relating to such exercise were sent.
Any extension of the Expiration Date beyond March , 1994 will be followed by
public announcement thereof no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Company may choose to make any public
announcement, the Company currently intends to make announcements by issuing a
release to the Dow Jones News Service.
EXERCISE OF SUBSCRIPTION PRIVILEGE
The Subscription Privilege may be exercised by delivering to American Stock
Transfer & Trust Company at, or prior to the Expiration Date, a properly
completed and executed Notice of Exercise or a facsimile thereof, together with
payment in full of the Subscription Price for the Common Stock subscribed for
pursuant to the Subscription Privilege. A copy of the Notice of Exercise
accompanies this Prospectus.
Such payment in full must be by (i) check or bank draft drawn upon a U.S. bank
or postal, telegraphic or express money order payable to American Stock Transfer
& Trust Company, as Subscription Agent, or (ii) wire transfer of funds to the
account maintained by the Subscription Agent for such purpose at Chemical Bank,
Account No. 610093045; ABA No. 021000128 (reference should be made to Forum
Group, Inc. and the name of the Eligible Shareholder making such payment should
be indicated). The Subscription Price will be deemed to have been received by
the Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a U.S. bank or of any postal, telegraphic or express money order, or (iii)
receipt of good funds in the Subscription Agent's account designated above. If
paying by uncertified personal check, please note that the funds paid thereby
may take at least five business days to clear. Accordingly, Eligible
Shareholders who wish to pay the Subscription Price by means of uncertified
personal check are urged to make payment
-32-
<PAGE>
sufficiently in advance of the Expiration Date to ensure that such payment is
received and clears by such date and are urged to consider payment by means of
certified or cashier's check, money order or wire transfer of funds.
The address to which Notices of Exercise and payment of the Subscription Price
should be delivered is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL STREET, 46TH FLOOR
NEW YORK, NEW YORK 10005
ATTENTION: REORGANIZATION DEPARTMENT
Eligible Shareholders, such as brokers, dealers, commercial banks and trust
companies, who on the Record Date held Common Stock for the account of others
should notify the respective beneficial owners of such shares as soon as
possible to ascertain such beneficial owners' intentions and to obtain
instructions with respect to the Subscription Privilege. Beneficial owners of
Common Stock held through such a nominee holder on the Record Date should
contact the Eligible Shareholder and request the Eligible Shareholder to effect
transactions in accordance with the beneficial owner's instructions. If the
beneficial owner so instructs, the Eligible Shareholder should complete a Notice
of Exercise and submit it to the Subscription Agent with the proper payment. A
broker, dealer, commercial bank, trust company or other nominee holding shares
of Common Stock on the Record Date for one of the FGI Investors may not exercise
the Subscription Privilege with respect to such shares.
The instructions accompanying the Notice of Exercise should be read carefully
and followed in detail. Do not send Notices of Exercise or payments of the
Subscription Price to the Company.
The method of delivery of Notices of Exercise and payment of the Subscription
Price to the Subscription Agent will be at the election and risk of the Eligible
Shareholder, but if sent by mail it is recommended that such Notices of Exercise
and payments be sent by registered mail, with return receipt requested, and that
a sufficient number of days be allowed to ensure delivery to the Subscription
Agent and clearance of payment prior to the Expiration Date. Because
uncertified personal checks may take at least five business days to clear, you
are urged to pay, or arrange for payment, by means of certified or cashier's
check, money order or wire transfer of funds.
All questions concerning the timeliness, validity, form and eligibility of any
exercise of Subscription Privilege will be determined by the Company, whose
determinations will be final and binding. The Company in its sole discretion
may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Subscription Privilege. Subscriptions will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as the Company determines in its sole discretion. Neither the Company
nor the Subscription Agent will be under any duty to give notification of any
defect or irregularity in connection with the submission of Notices of Exercise
or incur any liability for failure to give such notification.
Any questions or requests for assistance concerning the method of exercising
Subscription Privileges or requests for additional copies of this Prospectus or
Notices of Exercise, should be directed to John H. Sharpe, Esq. in writing at
8900 Keystone Crossing, Suite 200, Indianapolis, Indiana 46240-0498 or by
telephone at (317) 846-0700.
ISSUANCE OF CERTIFICATES
Certificates representing Common Stock purchased pursuant to the Subscription
Offering will be delivered to Eligible Shareholders as soon as practicable after
they have validly exercised their Subscription Privilege.
NO REVOCATION
Once an Eligible Shareholder has exercised the Subscription Privilege, such
exercise may not be revoked.
-33-
<PAGE>
THE WARRANT OFFERING
Under the Warrant Agreement, if the Company issues shares of Common Stock at a
price per share of Common Stock that is less than the Current Market Price (as
such term is defined in the Warrant Agreement) per share of Common Stock on the
date the Company fixed the price of such additional shares of Common Stock, then
the number of shares of Common Stock thereafter purchasable upon the exercise of
each Warrant is required to be adjusted to avoid dilution. The Warrant
Agreement, however, provides that no such adjustment is required to be made on
account of any issuance of New Investment Equity (as such term is defined in the
Warrant Agreement) pursuant to a rights offering made to shareholders in which
each holder of Warrants is given the opportunity to participate on the same
basis as shareholders as though such holder of Warrants owned, as of the record
date for such rights offering, the shares of Common Stock then purchasable upon
the exercise of its Warrants, provided that any holder of Warrants participating
in such offering is given the option to receive upon the payment of the
applicable purchase price, in lieu of each share of Common Stock otherwise
purchasable upon such payment, one warrant representing the right to purchase
one share of Common Stock upon the payment of an exercise price per warrant of
$0.01 at any time prior to 5:00 p.m., Indianapolis, Indiana time, on June 11,
1999.
The issuance of shares of Common Stock pursuant to the transactions
contemplated by the Stock Purchase Agreement, including the Subscription
Offering, will be at a price per share less than the Current Market Price per
share of Common Stock. Accordingly, the Company is offering to the Warrant
Holder the opportunity to subscribe for and purchase either shares of Common
Stock or Special Warrants. The Warrant Holder may subscribe for and purchase,
at its election, in whole or in part, either (i) 149,607 shares of Common Stock
at a purchase price of $3.75 per share or (ii) 149,607 Special Warrants, each
representing the right to purchase one share of Common Stock upon the payment of
an exercise price per Special Warrant of $0.01 at any time prior to 5:00 p.m.,
Indianapolis, Indiana time, on June 11, 1999, at a purchase price of $3.75 per
Special Warrant. The opportunity being given to the Warrant Holder to subscribe
for and purchase either shares of Common Stock or Special Warrants pursuant to
the Warrant Offering will not be directly or indirectly assignable or
transferable and will not be evidenced by a certificate.
The Warrant Holder may exercise its opportunity to subscribe for and purchase
either shares of Common Stock or Special Warrants by notifying the Company in
writing of its election to do so prior to the Expiration Date (as defined
below). Such notice shall specify the number of shares of Common Stock or
Special Warrants which the Warrant Holder wishes to purchase and shall be
accompanied by payment in full for the shares of Common Stock or Special Warrant
for which it subscribes. The Company will not honor any purported exercise by
the Warrant Holder received after the Expiration Date, regardless of when the
notice relating thereto was sent. Payment of the purchase price for shares of
Common Stock or Special Warrants subscribed for by the Warrant Holder must be by
check or bank draft drawn upon a U.S. bank or postal, telegraphic or express
money order payable to Forum Group, Inc. or wire transfer to an account
designated by the Company for such purpose and will be deemed to have been
received by the Company only upon clearance of any uncertified check, receipt by
the Company of any certified check or bank draft drawn on a U.S. bank or of any
postal, telegraphic or express money order, or receipt of good funds in an
account designated by the Company as provided above.
-34-
<PAGE>
BUSINESS AND PROPERTIES OF THE COMPANY
The Company provides senior housing and associated convenience and healthcare
services in 11 states through the operation of 22 rental RCs and three RCs
predominantly providing continuing care. The Company also operates one
freestanding nursing home. Of those facilities, eight are owned by the Company,
two are leased and 16 are managed. Nine of the managed RCs are owned by FRP.
Except as described below, each RC contains an independent living component and
a full-care nursing component available to residents should the need arise.
Certain RCs also include an assisted living component. One RC consists of an
assisted living component and a nursing component, and does not contain an
independent living component. Another RC consists of an independent living
component and assisted living component, and does not contain a nursing
component, but is adjacent to and enjoys the benefits of a RC which contains a
nursing component. The Company presently owns, leases and manages RCs as
follows:
<TABLE>
<CAPTION>
Number of Units
Number of Facilities and/or Beds
----------------------------- -----------------------------
Class of Facility Owned Leased Managed Total Owned Leased Managed Total
================= ============================= =============================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental RCs 7 1 14 22 1,851 211 2,615 4,677
Continuing Care 1 0 2 3 274 0 667 941
RCs
Nursing Home 0 1 0 1 0 89 0 89
================= ============================= =============================
Totals 8 2 16 26 2,125 300 3,282 5,707
================= ============================= =============================
</TABLE>
For each of the Company's last three fiscal years and the nine-month period
ended December 31, 1993, the percentage of total revenues contributed by each of
the foregoing classes of facilities was as follows (000's omitted):
<TABLE>
<CAPTION>
Year ended March 31,
Nine Months Ended -----------------------------
Class of Facility December 31, 1993 1993 1992 1991
===================== ================================================
<S> <C> <C> <C> <C>
Rental RCs $ 7,434 $71,889 $68,719 $66,783
Continuing Care RCs 17,091 15,780 9,762 8,053
Nursing Home 2,192 2,670 2,718 7,932
===================== ================================================
</TABLE>
RENTAL RCS
The Company owns rental RCs in Arizona (two), Florida, Kansas, Ohio and Texas
(two); leases a rental RC in Kentucky; and manages rental RCs in California
(two), Delaware (six), Florida, Indiana, New Mexico, South Carolina and Texas
(two).
Except as described below, each of the Company's rental RCs contains an
independent living component and a nursing component. Certain of the Company's
rental RCs also include an assisted living component. One of the Company's
rental RCs consists of an assisted living component and a nursing component and
does not contain an
-35-
<PAGE>
independent living component. Another of the Company's rental RCs consists of
an independent living component and an assisted living component, and does not
contain a nursing component, but is adjacent to and enjoys the benefits of one
of the Company's rental RCs which contains a nursing component.
The independent living component (if any) of each of the Company's rental RCs
contains a variety of accommodations, together with amenities such as dining
facilities, lounges and game and craft rooms. All residents of the independent
living components are provided security, meals, housekeeping and linen service.
Emergency healthcare service is available 24 hours a day from an on-site nursing
staff, and each independent living unit is equipped with an emergency call
system. The independent living components of the Company's rental RCs consist
of apartments, villas and, in the case of two RCs, condominiums. Rental RC
independent living first person residency fees presently range from $850 to
$5,920 per month, depending on the size of accommodations. Each rental RC
apartment and villa resident enters into a residency agreement that may be
terminated by the resident on short notice, and each rental RC condominium
resident enters into a residency agreement coterminous with his or her
ownership. Although there can be no assurance that, as apartment and villa
residency agreements expire or are terminated, available apartments and villas
will be reoccupied, 80-90% of the residents of the apartments and villas
historically have renewed their residency agreements from year to year. All
residents of the independent living components of the Company's rental RCs are
assured space (subject to availability) in the assisted living (if any) and
nursing components should the need therefor arise.
The nursing component (if any) of each of the Company's rental RCs provides
residents a full range of nursing care. Residents have private or semiprivate
rooms, and share communal dining and social facilities. In most instances, each
resident of the independent living component of a Company rental RC is entitled
to care in the assisted living (if any) or nursing component at no extra charge
for up to a specified number of days annually or an aggregate of a specified
number of days during the resident's lifetime. After utilizing this accrued
time, the resident pays for both independent living occupancy, and assisted
living or nursing care, until canceling one or the other. The charge for a
semiprivate nursing bed presently ranges from $70 to $184 per day.
The assisted living component (if any) of each of the Company's rental RC
provides residents a semistructured environment that encourages independent
living. Residents have private or semiprivate suites, eat meals in a private
dining room, and are provided the added services of scheduled activities,
housekeeping and linen service, preventive health surveillance, periodic health
monitoring, assistance with activities of daily living and emergency care. The
charge for a private assisted living suite presently ranges from $36 to $133 per
day.
The Company's rental RCs provide ancillary healthcare services, including the
operation of an adult day care center on the premises of one RC.
The following tables indicate the name, location, capacity, occupancy rate and
average effective annual fees/charges per unit/suite/bed for each of the last
five fiscal years and for the nine-month period ended December 31, 1993 (each of
the last five calendar years and the nine-months ended December 31, 1993 in the
case of RCs owned by FRP and its affiliated operating partnerships) of each of
the Company's rental RCs:
-36-
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
OWNED AND LEASED FACILITIES
=====================================================================================================================
Capacity Occupancy Rate
------------------------------------------- -------------------------------------------
Nine
Independent Assisted Total Months Year Ended March 31,
Living Living Nursing Units/ Ended --------------------------------
Name and Location Units Suites Beds Suites/Beds 12/31/93 1993 1992 1991 1990 1989
- --------------------------- ------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Owned Facilities:
The Forum at Memorial Woods 198 36 96 330 79.7% 65.2% 49.7% 29.6% 16.2% N/A
Houston, Texas
The Forum at Park Lane 190 38 90 318 91.9% 77.3% 57.7% 23.7% N/A N/A
Dallas, Texas
The Forum at Deer Creek 180 30 60 270 94.5% 82.1% 60.2% 28.9% N/A N/A
Deerfield Beach, Florida
The Forum at Tucson 149 30 67 246 91.6% 82.4% 55.2% 31.9% 8.5% N/A
Tucson, Arizona
The Forum at Desert Harbor 154 30 57 241 92.5% 84.6% 62.8% 27.3% 6.2% N/A
Peoria, Arizona
The Forum at Knightsbridge 120 59 60 239 93.8% 89.1% 70.3% 42.4% 22.7% N/A
Columbus, Ohio
(ground lease expires 2028*)
The Forum at Overland Park 117 30 60 207 93.1% 87.3% 65.6% 48.8% 21.0% N/A
Overland Park, Kansas
All Owned Facilities: 1,108 253 490 1,851 90.5% 87.1% 71.1% 45.8% 20.1% N/A
- ---------------------------------------------------------------------------------------------------------------------
Leased Facility:
The Lafayette at Country
Place/Lexington Country Place
Lexington, Kentucky 100 -0- 111 211 94.9% 94.5% 94.3% 94.3% 92.9% 94.2%
(leases expire 2010 and
2016, respectively)*
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================
Average Effective Annual Fees/Charges Per Unit/Suite/Bed
--------------------------------------------------------
Nine
Months Year Ended March 31,
Ended ----------------------------------------
Name and Location 12/31/93 1993 1992 1991 1990 1989
- --------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Owned Facilities:
The Forum at Memorial Woods $29,015 $28,950 $29,194 $30,649 $ 9,445 N/A
Houston, Texas
The Forum at Park Lane $28,172 $27,783 $27,868 $29,242 N/A N/A
Dallas, Texas
The Forum at Deer Creek $24,084 $24,448 $23,452 $25,083 N/A N/A
Deerfield Beach, Florida
The Forum at Tucson $24,636 $23,959 $24,670 $26,404 $11,217 N/A
Tucson, Arizona
The Forum at Desert Harbor $23,332 $22,217 $21,660 $24,769 $37,206 N/A
Peoria, Arizona
The Forum at Knightsbridge $30,920 $28,610 $29,973 $30,452 $ 7,377 N/A
Columbus, Ohio
(ground lease expires 2028*)
The Forum at Overland Park $22,839 $23,923 $21,849 $25,991 $21,514 N/A
Overland Park, Kansas
All Owned Facilities: $26,316 $23,740 $21,849 $19,558 $10,372 N/A
- ------------------------------------------------------------------------------------------
Leased Facility:
The Lafayette at Country
Place/Lexington Country Place
Lexington, Kentucky $23,805 $22,936 $21,986 $20,997 $19,663 $18,332
(leases expire 2010 and
2016, respectively)*
==========================================================================================
</TABLE>
- ----------
* Assumes the exercise of all available extensions and/or renewal options.
-37-
<PAGE>
MANAGED FACILITIES OWNED BY FRP*
<TABLE>
<CAPTION>
==================================================================================================================
Capacity Occupancy Rate
------------------------------------------- ----------------------------------------
Assisted Year Ended December 31,
Independent Living Nursing Total Units/ ----------------------------------------
Name and Location Living Units Suites Beds Suites/Beds 1993 1992 1991 1990 1989 1988
- --------------------------- ------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Montevista at Coronado
El Paso, Texas 123 15 120 258 85.5% 81.6% 81.1% 74.3% 58.9% 40.9%
The Park Summit of Coral
Springs
Coral Springs, Florida 199 22 35 256 89.7% 81.7% 76.3% 76.3% 77.4% 62.6%
The Forum at Lincoln
Heights
San Antonio, Texas 152 30 60 242 94.0% 86.8% 68.5% 56.3% 17.1% N/A
The Montebello on Academy
Albuquerque, New Mexico 114 15 60 189 96.1% 90.1% 85.0% 87.4% 80.8% 65.8%
Millcroft
Newark, Delaware 63 0 100 163 92.1% 90.6% 87.9% 90.0% 93.6% 95.2%
Shipley Manor
Wilmington, Delaware 61 0 82 143 93.3% 85.8% 85.9% 90.8% 90.7% 97.6%
Myrtle Beach Manor
North Myrtle Beach,
South Carolina 60 0 80 140 93.6% 89.9% 79.4% 86.1% 88.6% 87.5%
Foulk Manor North
Wilmington, Delaware 58 11 46 115 90.9% 89.9% 88.1% 82.7% 84.6% 89.4%
Foulk Manor
Wilmington, Delaware 0 51 52 103 83.5% 80.2% 70.9% 83.5% 87.0% 93.8%
=========================== =========================================== ========================================
All Managed
Facilities Owned
by FRP 830 144 635 1,609 91.0% 85.9% 79.0% 77.8% 76.4% 73.0%
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================
Average Effective Annual Fees/Charges Per Unit/Suite/Bed
--------------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1993 1992 1991 1990 1989 1988
- --------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Montevista at Coronado
El Paso, Texas $24,081 $22,588 $20,321 $19,823 $17,890 $12,145
The Park Summit of Coral
Springs
Coral Springs, Florida $24,602 $24,687 $25,072 $24,177 $21,596 $19,451
The Forum at Lincoln Heights
San Antonio, Texas $27,417 $26,366 $18,858 $22,779 $10,190 N/A
The Montebello on Academy
Albuquerque, New Mexico $27,530 $27,426 $26,722 $24,804 $24,815 $22,005
Millcroft
Newark, Delaware $28,804 $27,803 $27,087 $25,071 $23,308 $23,167
Shipley Manor
Wilmington, Delaware $29,704 $29,501 $29,396 $26,655 $24,826 $23,482
Myrtle Beach Manor
North Myrtle Beach,
South Carolina $23,061 $21,813 $20,752 $19,349 $17,872 $17,152
Foulk Manor North
Wilmington, Delaware $29,175 $28,322 $26,711 $25,678 $23,601 $22,155
Foulk Manor
Wilmington, Delaware $29,941 $30,149 $31,612 $29,583 $26,735 $25,656
=========================== ====================================================
All Managed
Facilities Owned
by FRP $26,738 $26,067 $24,573 $24,158 $20,175 $20,938
=======================================================================================
</TABLE>
- --------------
* Pursuant to the FRP Management Agreement, the Company manages all nine of
the facilities owned by FRP and is entitled to receive management fees in
respect thereof, payable quarterly, in an amount equal to 8% of FRP's gross
operating revenues. Pursuant to the FRP Management Agreement, all management
fees payable since the formation of FRP in 1986 through December 31, 1993 have
been deferred. FRP deferred management fees in the following amounts for the
following calendar years: 1987: $928,000;
-38-
<PAGE>
1988: $1,398,000; 1989: $1,595,000; 1990: $1,615,000; 1991: $3,391,000; 1992:
$3,337,000; 1993: $3,515,575. At December 31, 1993, deferred management fees
totalled approximately $15,779,507. Under the terms of the FRP Management
Agreement, management fees are no longer deferrable from and after January 1,
1994. Deferred management fees will generally be paid quarterly in accordance
with the provisions of the Management Agreement; however, under such provisions,
it is not anticipated that any such deferred management fees will be paid by FRP
to the Company in the foreseeable future. See "Risk Factors -- Risk of
Relationships With FRP.
-39-
<PAGE>
MANAGED FACILITIES OWNED BY OTHER AFFILIATED ENTITIES
<TABLE>
<CAPTION>
====================================================================================================================
Capacity Occupancy Rate
------------------------------------------- ------------------------------------------
Nine
Independent Assisted Total Months Year Ended March 31,
Living Living Nursing Units/ Ended --------------------------------
Name and Location Units Suites Beds Suites/Beds 12/31/93 1993 1992 1991 1990 1989
- --------------------------- ----------- -------- ------- ----------- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Forwood Manor
Wilmington, Delaware
(management agreement
expires upon the
expiration or termination
of the term of Forum
Retirement Communities
II, L.P. ("FRCIILP")
(59.4%-owned), and
provides for management
fees equal to (i) for the
first six years a varying
percentage of net cash
flow after debt service,
and (ii) thereafter, 5%
of gross operating
revenues) 119 30 60 209 95.0% 89.2% 76.7% 67.1% 64.8% 23.2%
The Remington Club at
Rancho Bernardo - Phase I
San Diego, California
(management agreement
expires upon the
expiration or termination
of the term of FRCIILP,
and provides for
management fees equal to
(i) for the first six
years, a varying
percentage of net cash
flow after debt service,
and (ii) thereafter, 5%
of gross operating
revenues) 146 0 59 205 85.2% 82.2% 79.5% 78.9% 90.4% 64.2%
Stonegates (50%-Owned)
Greenville, Delaware
(management agreement
expires in 2004, and
provides for management
fees equal to 8% of gross
operating revenues) 162 0 39 201 93.2% 94.8% 92.3% 93.1% 93.5% 92.3%
The Remington Club at
Rancho Bernardo - Phase II
San Diego, California
(management agreement
expires upon the
expiration or termination
of the term of Forum
Retirement Communities I,
L.P. ("FRCILP")
(58.95%-owned), and
provides for management
fees equal to (i) the
first six years, a
varying percentage of net
cash flow after debt
service, and (ii)
thereafter, 5% of gross
operating revenues) 100 100 0 200 83.5% 68.5% 47.2% 26.3% N/A N/A
The Forum at the Crossing
Indianapolis, Indiana
(management agreement
expires upon the
expiration or termination
of the term of FRCIILP,
and provides for
management fees equal to
5% of gross operating
revenues) 117 14 60 191 94.9% 91.8% 93.2% 95.3% 91.4% 91.1%
=========================== =========== ======== ======= =========== ========= ==== ==== ==== ==== ====
All Managed
Facilities Owned
by Other
Affiliated
Entities 644 144 218 1,006 90.5% 84.7% 77.8% 71.1% 76.2% 74.2%
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================
Average Effective Annual Fees/Charges Per Unit/Suite/Bed
--------------------------------------------------------
Nine
Months Year Ended March 31,
Ended -------------------------------------------
12/31/93 1993 1992 1991 1990 1989
- -------------------------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Forwood Manor
Wilmington, Delaware
(management agreement
expires upon the
expiration or termination
of the term of Forum
Retirement Communities
II, L.P. ("FRCIILP")
(59.4%-owned), and
provides for management
fees equal to (i) for the
first six years a varying
percentage of net cash
flow after debt service,
and (ii) thereafter, 5%
of gross operating
revenues) $32,840 $32,228 $32,073 $31,339 $24,193 $19,322
The Remington Club at
Rancho Bernardo - Phase I
San Diego, California
(management agreement
expires upon the
expiration or termination
of the term of FRCIILP,
and provides for
management fees equal to
(i) for the first six
years, a varying
percentage of net cash
flow after debt service,
and (ii) thereafter, 5%
of gross operating
revenues) $34,339 $33,183 $31,625 $31,606 $26,006 $28,085
Stonegates (50%-Owned)
Greenville, Delaware
(management agreement
expires in 2004, and
provides for management
fees equal to 8% of gross
operating revenues) $26,556 $24,897 $24,514 $23,287 $22,659 $21,334
The Remington Club at
Rancho Bernardo - Phase II
San Diego, California
(management agreement
expires upon the
expiration or termination
of the term of Forum
Retirement Communities I,
L.P. ("FRCILP")
(58.95%-owned), and
provides for management
fees equal to (i) the
first six years, a
varying percentage of net
cash flow after debt
service, and (ii)
thereafter, 5% of gross
operating revenues) $32,868 $32,715 $31,088 $33,110 N/A N/A
The Forum at the Crossing
Indianapolis, Indiana
(management agreement
expires upon the
expiration or termination
of the term of FRCIILP,
and provides for
management fees equal to
5% of gross operating
revenues) $29,263 $26,919 $26,038 $24,128 $22,898 $21,178
=========================== ======= ======= ======= ======= ======= =======
All Managed
Facilities Owned
by Other
Affiliated
Entities $31,094 $29,991 $28,626 $27,953 $24,634 $20,466
===================================================================================
</TABLE>
-40-
<PAGE>
CONTINUING CARE RCS
The Company owns one continuing care RC, namely The Forum at Brookside
("Forum/Brookside"), in Louisville, Kentucky, Inc. and manages two continuing
care RCs, namely The Forum - Pueblo Norte ("Forum/Pueblo Norte"), in Scottsdale,
Arizona, and Forum/Rancho San Antonio, in Cupertino, California.
Forum/Brookside and Forum/Pueblo Norte were acquired by their respective owners
from other developers subsequent to commencement of operations. Forum/Rancho
San Antonio was developed by Forum Lifecare, Inc., a wholly owned subsidiary of
the Company ("Forum Lifecare").
The Forum at Overland Park ("Forum/Overland Park") in Overland Park, Kansas,
an RC owned by the Company, is approved under applicable state law to provide
continuing care. In addition to rental residency agreements, residents of
Forum/Overland Park may choose to enter into agreements providing for "front-
end" payments which, upon termination, are refunded in whole or in part
depending upon the refund option selected by the resident. Myrtle Beach Manor
in Myrtle Beach, South Carolina, an RC managed by the Company, is also approved
under applicable state law to provide continuing care. However, the predominant
mode of residency at each of Forum/Overland Park and Myrtle Beach Manor is
rental residency agreements. These RCs are therefore considered rental RCs.
Each of the Company's continuing care RCs contains an independent living
component and a nursing component. Forum/Brookside and Forum/Rancho San Antonio
also include an assisted living component. The accommodations and services
provided in the various components of the Company's continuing care RCs are
substantially the same as those provided in the various components of the
Company's rental RCs.
Forum/Brookside, Forum/Pueblo Norte and Forum/Rancho San Antonio differ from
the Company's rental RCs in the method(s) of payment by current and former
independent living residents. At the Company's rental RCs, independent living
residents generally make no "front-end" payment and only pay monthly residency
fees. At the Company's continuing care RCs, independent living residents
generally make substantial "front-end" payments and pay monthly residency (and,
in the case of two continuing care RCs, healthcare) fees that are substantially
less than monthly residency fees for comparable accommodations at the Company's
rental RCs. In addition, independent living residents of the Company's
continuing care RCs who transfer to the assisted living (if any) or nursing
component generally pay healthcare fees which are substantially less than those
paid by independent living residents of the Company's rental RCs who so
transfer.
Each of Forum/Pueblo Norte and Forum/Rancho San Antonio is owned by a
nonprofit cooperative housing corporation sponsored by Forum Lifecare. At those
RCs, the "front-end" payment takes the form of the purchase price of a
membership in the cooperative housing corporation. Each membership is allocated
to an independent living unit in the RC, and the purchase of a membership
entitles the purchaser to a long-term proprietary lease of the unit. Upon
resale of the membership, the resident (or his or her estate) and the
cooperative housing corporation share equally any excess of the sale proceeds
over the resident's membership purchase price. At Forum/Pueblo Norte,
independent living residents may elect to purchase memberships subject to an
option in favor of the cooperative housing corporation to repurchase upon
cessation of occupancy at a price which reduces to zero over six or 60 months.
The assisted living (if any) and nursing components of each of Forum/Pueblo
Norte and Forum/Rancho San Antonio are leased to a separate nonprofit
corporation, the sole member of which is Forum Lifecare, and each
member/independent living resident is required to enter into a healthcare
agreement with that lessee. Membership purchase prices at Forum/Pueblo Norte
and Forum/Rancho San Antonio presently range from $68,250 to $236,250, and
$199,000 to $630,000, respectively; first person monthly residency fees at those
RCs for independent living residents purchasing memberships presently range from
$910 to $1,500, and $1,035 to $2,335, respectively; and first person monthly
healthcare fees at those RCs for members presently range from $230 to $412,
respectively.
At Forum/Brookside, the "front-end" payment takes the form of an interest-free
loan to the owner of the RC, which may or may not be repaid in whole or in part
(depending upon the refund option selected by the resident) from the proceeds of
the next "front-end" payment in respect of the subject unit. Required interest-
free
-41-
<PAGE>
loans at Forum/Brookside presently range from $62,140 to $159,900; and first
person monthly residency fees at that RC for independent living residents making
interest-free loans presently range from $740 to $1,300.
At each of Forum/Brookside and Forum/Pueblo Norte, certain independent living
residents are parties to residency agreements with the previous sponsors which
were assumed by the current owners. Under those agreements, the "front-end"
payments took the form of an entrance fee which is 100% (in the case of
Forum/Brookside) or 90% (in the case of Forum/Pueblo Norte), as the case may be,
refundable to the resident (or his or her estate) from the next entrance fee
paid in respect of the subject unit. Refundable entrance fees at
Forum/Brookside and Forum/Pueblo Norte ranged from $31,500 to $111,000; and
first person monthly residency fees at those RCs for independent living
residents paying refundable entrance fees presently range from $494 to $1,119,
and $893 to $1,754, respectively.
At Forum/Brookside and Forum/Pueblo Norte, independent living residents are
also offered the alternative of a rental residency agreement. First person
rental residency fees at Forum/Brookside, Forum/Pueblo Norte and Forum/Rancho
San Antonio presently range from $1,275 to $2,625, $1,000 to $2,730, and $1,035
to $1,835, respectively.
The following table indicates the name, location, capacity, occupancy rate and
average effective annual fees/charges per unit-suite/bed for each of the last
five fiscal years and for the nine-month period ended December 31, 1993, of each
of the Company's continuing care RCs:
-42-
<PAGE>
CONTINUING CARE RCS
<TABLE>
<CAPTION>
=======================================================================================================================
Capacity Occupancy Rate
-------------------------------------------- ---------------------------------------------
Nine
Independent Assisted Total Months Year Ended March 31,
Living Living Nursing Units/ Ended ---------------------------------
Name and Location Units Suites Beds Suites/Beds 12/31/93 1993 1992 1991 1990 1989
- -------------------------- -------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Owned Facility:
The Forum at Brookside
Louisville, Kentucky 214 20 40 274 90.5% 83.7% 77.3% 67.9% 63.0% 37.1%
- -------------------------- -------------------------------------------- ---------------------------------------------
Managed Facilities:
The Forum at Rancho San
Antonio
Cupertino, California
(management agreement
expires in 1996 and
provides for management
fees equal to 4% of gross
operating revenues) 319 34 48 401 61.9% 53.3% 34.3% N/A N/A N/A
The Forum-Pueblo Norte
Scottsdale, Arizona
(management agreement
expires in 1993 and
provides for management
fees equal to 4% of gross
operating revenues) 169 0 97 266 92.6% 85.9% 56.2% 63.5% 69.9% 70.0%
- -------------------------- -------------------------------------------- ---------------------------------------------
All Managed Continuing
Care RCs 488 34 145 667 72.2% 63.0% 55.3% 63.5% 69.9% 70.0%
========================== ============================================ =============================================
All Continuing Care RCs 702 54 185 941 76.9% 69.2% 59.9% 66.2% 65.0% 53.9%
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================================================
Average Effective Annual Fees/Charges Per Unit/Suite/Bed
--------------------------------------------------------
Nine
Months Year Ended March 31,
Ended ------------------------------------------
Name and Location 12/31/93 1993 1992 1991 1990 1989
- -------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Owned Facility:
The Forum at Brookside
Louisville, Kentucky $19,369 $18,597 $18,112 $17,863 $15,677 $13,800
- -------------------------- -----------------------------------------------------
Managed Facilities:
The Forum at Rancho San
Antonio
Cupertino, California
(management agreement
expires in 1996 and
provides for management
fees equal to 4% of gross
operating revenues) $22,071 $19,300 $13,364 N/A N/A N/A
The Forum-Pueblo Norte
Scottsdale, Arizona
(management agreement
expires in 1993 and
provides for management
fees equal to 4% of gross
operating revenues) $21,818 $21,922 $24,870 $20,930 $18,286 $ 8,844
- -------------------------- ------------------------------------------------------
All Managed Continuing
Care RCs $22,337 $21,916 $17,287 $20,930 $18,286 $ 8,844
========================== =====================================================
All Continuing Care RCs $21,606 $20,685 $17,822 $19,267 $17,608 $10,547
==================================================================================
</TABLE>
-43-
<PAGE>
The following table indicates the number of independent living units
occupied at each of the Company's continuing care RCs as of December 31, 1993,
under each payment method described above:
<TABLE>
<CAPTION>
=======================================================================================
Interest- Refundable
Membership Free Entrance
Name and Location Purchase Loan Fee Rental Total
=======================================================================================
<S> <C> <C> <C> <C> <C>
The Forum at Rancho San Antonio
Cupertino, California 197 N/A N/A -- 197
The Forum-Pueblo Norte
Scottsdale, Arizona 61 N/A 52 48 161
The Forum at Brookside
Louisville, Kentucky N/A 75 23 99 197
=======================================================================================
All Continuing Care RCs 258 75 75 147 555
=======================================================================================
</TABLE>
NURSING HOME
The Company leases one nursing home, namely Lewes Convalescent Center, in
Lewes, Delaware ("Lewes"), which has a capacity of 89 beds, pursuant to a lease
expiring in 2029.
Lewes provides convalescent and rehabilitative treatment of inpatient adults,
including those who are admitted after hospitalization and before returning to
their homes, and is designed to supplement general hospital care, rather than
compete directly with general hospitals. The services furnished at Lewes
include room, board, nursing care, drugs, supplies, medical equipment, other
medical services, social activities and occupational, physical, recreational and
speech therapies. Lewes contains private and semiprivate rooms, and the charge
for a private room is presently $92 per day. Lewes contains a dining room, a
kitchen, a physical therapy section for therapeutic and rehabilitative care,
offices, lounges, a television room and reception areas. The admission,
treatment and discharge of each resident are under the direction of the
resident's attending physician. Although no full-time staff physicians are
retained, Lewes has consulting and on-call physicians as required. Lewes has a
transfer agreement with a nearby hospital, facilitating the transfer of
residents and medical records, and providing access to emergency medical
treatment if required.
The following table indicates the occupancy rate and average effective annual
charges per bed for each of the past five fiscal years and for the nine-month
period ended December 31, 1993, for Lewes:
<TABLE>
<CAPTION>
===============================================================
Average Effective
Annual Charges
Time Period Occupancy Rate Per Bed
- ---------------------------------------------------------------
<S> <C> <C>
Nine Month Period Ended
December 31, 1993 95.3% $28,512
Year ended March 31, 1993 91.1% $26,306
Year ended March 31, 1992 96.0% $26,604
Year ended March 31, 1991 95.9% $27,068
Year ended March 31, 1990 97.7% $25,720
Year ended March 31, 1989 94.9% $30,739
===============================================================
</TABLE>
-44-
<PAGE>
MORTGAGES
Each rental RC formerly owned by the Company and now owned by Newco I, other
than The Lafayette at Country Place/Lexington Country Place, Forum/Pueblo Norte,
Forum/Knightsbridge and Lewes, is subject to a first mortgage lien securing
borrowings under the Refinancing Loan. The outstanding principal amount
outstanding under the Refinancing Loan is $93.3 million, which currently bears
interest at a variable rate equal to 4.3% over one-month LIBOR. The Refinancing
Loan matures on February 1, 2001. The mortgages on the Properties securing the
Refinancing Loan are recorded and are cross-defaulted and cross-collateralized.
See "Refinancing and Other Loans -- Refinancing Loan."
Forum/Knightsbridge is subject to a first mortgage securing a loan made by
Teachers Insurance and Annuity Association of America (the "Teachers' Loan").
The current outstanding principal amount of the Teachers' Loan is $14,978,000,
and the Teachers' Loan bears interest at the rate of 10-1/2% per annum.
Principal and interest are payable in varying monthly installments through and
including December 1, 1997, and a "balloon" payment of $13.5 million is payable
on December 31, 1997. The Company may not prepay the Teachers' Loan prior to
January 1, 1996; thereafter, the Company may prepay the Teachers' Loan without
premium or penalty. Subject to repayment of the Teachers' Loan, the Refinancing
Loan will also be secured by a mortgage lien on Forum/Knightsbridge.
Substantially all of the Company's other assets have also been pledged or
otherwise encumbered as security under the Refinancing Loan.
-45-
<PAGE>
DEPRECIATION
The following table indicates, with respect to each component of each RC owned
or leased by the Company, and of Lewes, upon which depreciation is taken, the
net federal tax basis as of March 31, 1993, rate, method and life claimed with
respect to that component for purposes of depreciation:
<TABLE>
<CAPTION>
=================================================================================
Net Federal
Name and Tax Basis Life
Location Component (3/31/93) Rate Method* (Years)
=================================================================================
<S> <C> <C> <C> <C> <C>
The Forum at Real property $12,943,291 Various SL 15-40
Memorial Woods Personal property 1,141,057 Various ADS/SL 5-10
Houston, Texas
- ---------------------------------------------------------------------------------
The Forum at Real property 25,267,504 Various SL 20-40
Park Lane Personal property 1,154,103 Various ADS/SL 5-10
Dallas, Texas
- ---------------------------------------------------------------------------------
The Forum at Real property 19,939,275 Various SL 40
Deer Creek Personal property 780,488 Various ADS/SL 7-10
Deerfield Beach,
Florida
- ---------------------------------------------------------------------------------
The Forum at Real property 16,466,589 Various SL 40
Tucson Personal property 577,387 Various ADS/SL 5-10
Tucson, Arizona
- ---------------------------------------------------------------------------------
The Forum at Real property 16,754,554 Various SL 40
Desert Harbor Personal property 650,323 Various ADS/SL 7-10
Peoria, Arizona
- ---------------------------------------------------------------------------------
The Forum at Real property 13,307,120 Various SL 20-40
Knightsbridge Personal property 635,410 Various ADS/SL 5-10
Columbus, Ohio
- ---------------------------------------------------------------------------------
The Forum at Real property 13,254,387 Various SL 15-40
Overland Park Personal property 625,815 Various ADS/SL 5-10
Overland Park,
Kansas
- ---------------------------------------------------------------------------------
The Forum at Real property 11,430,314 Various MACRS/SL 15-31
Brookside Personal property 260,164 Various MACRS/SL 5-7
Louisville,
Kentucky
- ---------------------------------------------------------------------------------
The Lafayette at Real property 7,175,856 Various MACRS/SL 15-31
Country Place/ Personal property 258,970 Various MACRS/SL 5-7
Lexington
Country Place
Lexington,
Kentucky
- ---------------------------------------------------------------------------------
Lewes Real property 553,992 Various ACRS/MACRS 15-31
Convalescent Personal property 107,309 Various MACRS 5-7
Center
Lewes, Delaware
==================================================================================
</TABLE>
- ----------
* ACRS = Accelerated cost recovery system
ADS = Alternative depreciation system
MACRS = Modified accelerated cost recovery system
SL = Straight line
-46-
<PAGE>
REAL ESTATE TAXES
The following table indicates, with respect to each RC owned or leased by the
Company, and Lewes, the assessed value, real estate tax rate and annual real
estate taxes for calendar year 1992:
<TABLE>
<CAPTION>
==========================================================================
Assessed Real Estate Annual Real
Name and Location Value Tax Rate Estate Taxes
==========================================================================
<S> <C> <C> <C>
The Forum at Memorial Woods $17,213,240 2.89% $ 497,862
Houston, Texas
- --------------------------------------------------------------------------
The Forum at Park Lane 15,721,380 2.53 397,439
Dallas, Texas
- --------------------------------------------------------------------------
The Forum at Deer Creek 7,184,993 2.57 184,993
Deerfield Beach, Florida
- --------------------------------------------------------------------------
The Forum at Tucson 8,544,375 1.77 151,187
Tucson, Arizona
- --------------------------------------------------------------------------
The Forum at Desert Harbor 9,322,070 1.56 145,804
Peoria, Arizona
- --------------------------------------------------------------------------
The Forum at Knightsbridge 8,757,686 1.77 155,140
Columbus, Ohio
- --------------------------------------------------------------------------
The Forum at Overland Park 7,255,300 1.72 124,861
Overland Park, Kansas
- --------------------------------------------------------------------------
The Forum at Brookside 8,200,000 0.95 78,146
Louisville, Kentucky
- --------------------------------------------------------------------------
The Lafayette at Country Place/ 5,460,000 0.97 52,716
Lexington Country Place
Lexington, Kentucky
- --------------------------------------------------------------------------
Lewes Convalescent Center 441,840 2.98 13,159
All $88,100,884 2.04% $1,801,307
==========================================================================
</TABLE>
SOURCES OF PAYMENT
The independent and assisted living components (if any) of the Company's RCs
receive direct payment for resident occupancy solely on a private pay basis.
The Company's nursing facilities (including the nursing components, if any, of
the Company's RCs) receive payment for resident care directly on a private pay
basis, including payment from private health insurance, and from governmental
reimbursement programs such as the federal Medicare program for certain elderly
and disabled residents, and state Medicaid programs for certain indigent
residents. The following table indicates the approximate percentages of
operating revenues for each of the last five fiscal years and the nine-month
period ended December 31, 1993 derived by the facilities owned or leased by the
Company from private sources, Medicare and Medicaid, and other sources:
-47-
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Nine
Months Ended Fiscal Year ended March 31,
December 31, --------------------------------------
1993 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
================================================================================
All RCs:
Private 85.6% 88.6% 97.3% 95.0% 90.1% 92.9%
Medicare and Medicaid 14.4 11.3 2.4 5.0 9.8 6.9
Other 0 0.1 0.3 0 0.1 0.2
----- ----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
================================================================================
Lewes:
Private 40.5% 37.3% 48.2% 34.0% 38.9% 33.9%
Medicare and Medicaid 58.5 61.7 50.3 65.0 49.2 62.0
Other 1.0 1.0 1.5 1.0 11.9 4.1
----- ----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
================================================================================
All RCs and Lewes:
Private 83.8% 86.5% 94.7% 90.0% 66.1% 48.8%
Medicare and Medicaid 16.1 13.4 5.0 10.0 28.2 48.2
Other 0.1 0.1 0.3 0 5.7 3.0
----- ----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
================================================================================
</TABLE>
Most private insurance carriers reimburse their policyholders, or make direct
payment to facilities, for covered services at rates established by the
facilities. Where applicable, the resident is responsible for any difference
between the insurance proceeds and the total charges. In certain states, Blue
Cross plans pay for covered services at rates negotiated with facilities. In
other states, Blue Cross plans are administered under contracts with facilities
providing for payment under formulae based on the cost of services. The
Medicare program also makes payment under a cost-based reimbursement formula.
Under the Medicaid program, each state is responsible for developing and
administering its own reimbursement formula.
Both governmental and third-party payors have employed cost containment
measures designed to limit payments made to healthcare providers such as the
Company. Those measures include the adoption of initial and continuing
recipient eligibility criteria which may limit payment for services, the
adoption of coverage criteria which limit the services that will be reimbursed
and the establishment of payment ceilings which set the maximum reimbursement
that a provider may receive for services. Furthermore, government reimbursement
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding restrictions, all of
which may materially increase or decrease the rate of program payments to the
Company for its services. There can be no assurance that payments under
governmental and private third-party payor programs will remain at levels
comparable to present levels or will be sufficient to cover the costs allocable
to patients eligible for reimbursement pursuant to such programs. See "Risk
Factors -- Government Regulation" and "Risk Factors -- Reimbursement by Third-
Party Payors."
-48-
<PAGE>
REGULATION AND OTHER FACTORS
RC and nursing home operations are subject to federal, state and local
government regulations. Facilities offering continuing care are subject to
regulation by state agencies. Facilities are subject to periodic inspection by
state healthcare licensing agencies to determine whether the standards necessary
for continued licensure are maintained. In granting and renewing licenses, the
state agencies consider, among other things, buildings, furniture and equipment;
qualifications of administrative personnel and staff; quality of care; and
compliance with laws and regulations relating to operation of facilities. State
licensure of a nursing facility is a prerequisite to certification for
participation in the Medicare and Medicaid programs. The Company believes that
all of the Company's facilities are presently in substantial compliance with all
applicable federal, state and local regulations with respect to certification
and licensure requirements. However, because those standards are subject to
change, there can be no assurance that the Company's facilities will be able to
maintain their certification and licenses upon a change in standards, and future
changes in those standards could necessitate substantial expenditures by the
Company to comply therewith. See "Risk Factors -- Government Regulation." Most
states have licensure requirements for the assisted living components of RCs;
however, those requirements are generally much less comprehensive and stringent
than requirements for licensure of nursing facilities. Most states do not have
licensure requirements for the independent living components of rental RCs.
Certain states in which the Company operates nursing facilities have adopted
certificate of need ("CON") statutes which provide that, prior to construction
of a new nursing facility or provision of new nursing services, a state agency
must determine that a need for the new facility or services exists. A CON for a
new nursing facility is generally issued for a specific maximum amount of
expenditure, and the holder of a CON is generally required to implement the
approved project within a specific time period. In most states, CONs are not
required for the independent and assisted living components of RCs.
COMPETITION
The Company's facilities compete with senior housing and long-term healthcare
facilities of varying similarity in the respective geographical market areas in
which the Company's facilities are located. Competing facilities are operated
on a national, regional and local basis by religious groups and other nonprofit
organizations, as well as by private operators, some of which have substantially
greater resources than the Company. The independent living components of the
Company's RCs face competition from the various types of residential
opportunities available to the elderly. However, the number of luxury
residential communities that offer on-premises healthcare services is limited.
The assisted living and nursing components of the Company's RCs, as well as
Lewes, compete with other assisted living and nursing facilities, and, to a
lesser extent, with general hospitals. Because the target market segment of the
Company's RCs is relatively narrow, the risk of competition may be higher than
with some other types of RCs. Additionally, the Company's facilities may be
subject to competition from new RCs, and assisted living and nursing facilities,
developed in close proximity to them.
Significant competitive factors for attracting residents to the independent
living components of the Company's RCs include price, physical appearance, and
amenities and services offered. Additional competitive factors for attracting
residents to the assisted living and nursing components of the Company's RCs,
and to Lewes, include quality of care, reputation, physician and nursing
services available, and family preferences. The Company believes that its
facilities are generally competitive based on these factors, except that its
facilities are generally more expensive than competing facilities. The assisted
living and nursing components of the Company's RCs, and Lewes, are designed to
supplement, not to compete with, services provided by general hospitals.
The Company experiences competition in the search for nurses, technicians,
aides and other high quality professional and nonprofessional employees.
However, the Company has not historically experienced shortages of key
personnel.
-49-
<PAGE>
INSURANCE
The Company maintains professional liability, comprehensive general liability
and other typical insurance coverage on all its facilities. The Company
believes that its insurance is adequate in amount and coverage.
EMPLOYEES
The Company employs approximately 4,000 persons, of whom approximately 80 are
employed pursuant to collective bargaining agreements. The Company has not
experienced any material labor disputes.
CAPITAL STOCK
The following description of the capital stock of the Company is summary in
nature, and is qualified in its entirety by reference to the provisions of the
Company's Restated Articles of Incorporation (the "Restated Articles of
Incorporation"), which are an exhibit to the Registration Statement of which
this Prospectus is a part.
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of 48,000,000 shares of Common
Stock, without par value, and 2,000,000 shares of Preferred Stock, without par
value. As of the date of the Prospectus, 21,261,625 shares of Common Stock have
been issued and are outstanding and no shares of Preferred Stock are
outstanding. All outstanding shares of Common Stock are fully paid,
nonassessable and not subject to future call.
COMMON STOCK
All holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to the vote of the shareholders. In any
election of directors, each share will be entitled to one vote and the holders
of a majority of the shares voting at the meeting will be able to elect all of
the directors if they choose to do so and, in such event, the other shareholders
will not be able to elect any directors.
Holders of Common Stock are entitled to receive ratably, subject to the rights
of any holders of Preferred Stock, such dividends as may be declared from time-
to-time by the Board of Directors out of any sums legally available therefor.
See "Dividend Policy."
In the event of the liquidation, dissolution or winding-up of the Company, the
holders of Common Stock are entitled to share pro rata in any assets remaining
after payment of the Company's liabilities and payment to outstanding shares of
Preferred Stock. The Common Stock has no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares.
PREFERRED STOCK
Pursuant to the Restated Articles of Incorporation, the Board of Directors has
the authority to determine the designation and number of shares constituting
each series of Preferred Stock, the rights, preferences, privileges and
restrictions, the conversion rights, voting rights, the right to receive
dividends, the right to assets upon any liquidation and other relative benefits,
restrictions and limitations on any series of Preferred Stock without further
shareholder approval, except as otherwise required by law. The Board of
Directors may, by resolution, determine, alter or revoke the rights,
preferences, privileges and restrictions pertaining to any wholly unissued
series.
The ability of the Board of Directors to authorize the issuance of Preferred
Stock without further shareholder approval provides it with flexibility to meet
changing market conditions and to take advantage of financial or business
opportunities that may arise. The issuance of the Preferred Stock may be used,
among
-50-
<PAGE>
other things, to raise capital or serve as consideration in order to finance a
merger with, or acquisition of, another company. The Company has no plans for
such expansion or financing at this time.
In the event the FGI Investors no longer beneficially own a majority of the
outstanding Common Stock, the Board of Directors would have the authority to
issue series of Preferred Stock that could preclude or discourage a tender offer
or other takeover attempt. Issuance of the Preferred Stock by the Board of
Directors, with appropriate voting rights, may also impact on the Board of
Directors' tenure, as holders of the Preferred Stock could utilize their voting
rights, if any, to keep the present Board of Directors and management in place.
Removal of directors members and/or management could become more difficult, for
example, by a large private placement of Preferred Stock with an entity aligned
with the Board of Directors. As a result, shareholders may have more limited
participation in certain transactions, including mergers or tender offers,
whether or not such transactions are favored by incumbent management. The Board
of Directors may be able to fend off a hostile takeover attempt, even though may
shareholders might wish to participate.
The provisions of a particular series of Preferred Stock, as designated by the
Board of Directors, may include restrictions on the Company's ability to pay
dividends on the Common Stock at a time when all dividends and other amounts
payable on, or in respect of, such series of Preferred Stock have not been paid.
Such provisions may also include restrictions on the ability of the Company to
repurchase shares of the Common Stock or to purchase or redeem shares of a
particular series of Preferred Stock if there exists an arrearage in dividends
or sinking fund installments with respect to any other series of Preferred
Stock. In addition, if Preferred Stock is issued as convertible securities
which are converted into Common Stock, the holders of Common Stock could
experience dilution.
SPECIAL WARRANTS
Each Special Warrant will represent the right to purchase one share of Common
Stock upon payment of an exercise price per Special Warrant of $0.01 at any time
prior to 5:00 p.m., Indianapolis time, on June 11, 1999. Each Special Warrant
will be evidenced by, and subject to the terms of, a warrant certificate
substantially similar (with appropriate modifications) to the certificate
evidencing the Warrants and will be subject to the provisions of the Warrant
Agreement, with certain exceptions. The Warrant Offering contemplates the
issuance of up to 149,607 Special Warrants to the Warrant Holder. See "The
Warrant Offering."
PLAN OF DISTRIBUTION
The Common Stock offered pursuant to the Subscription Offering is being
offered by the Company directly to Eligible Shareholders, and the Common Stock
or Special Warrants offered pursuant to the Warrant Offering is being offered by
the Company directly to the Warrant Holder. The Company has not employed any
brokers, dealers or underwriters in connection with the solicitation or exercise
of the Subscription Privilege by Eligible Shareholders or the opportunity being
offered to the Warrant Holder, and no commissions, fees or discounts will be
paid in connection with the Offerings. Certain officers and other employees of
the Company may solicit responses from Eligible Shareholders and the Warrant
Holder, but such officers and other employees will not receive any commissions
or compensation for such services other than their normal employment
compensation.
The Company will pay the fees and expenses of American Stock Transfer & Trust
Company, as Subscription Agent, and has also agreed to indemnify the
Subscription Agent from any liability which it may incur in connection with the
Subscription Offering.
-51-
<PAGE>
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Subscription Offering. The Subscription Agent's
address, which is the address to which Notices of Exercise and payment of
Subscription Price should be delivered, is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL STREET, 46TH FLOOR
NEW YORK, NEW YORK 10005
ATTENTION: REORGANIZATION DEPARTMENT
The Company will pay the fees and expenses of American Stock Transfer & Trust
Company, and has also agreed to indemnify American Stock Transfer & Trust
Company from any liability which it may incur in connection with the
Subscription Offering.
EXPERTS
The consolidated financial statements and financial schedules of the Company
for the three years ended March 31, 1993, included in the 1992 Form 10-K and
incorporated by reference herein, have been audited by KPMG Peat Marwick,
independent auditors. The consolidated financial statements and financial
statement schedules audited by KPMG Peat Marwick have been incorporated herein
by reference in reliance upon the report of KPMG Peat Marwick and on their
authority as experts in accounting and auditing.
LEGAL OPINION
The validity of the Common Stock and Special Warrants to which this Prospectus
relates has been passed upon by Jones, Day, Reavis & Pogue.
-52-
<PAGE>
===============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON
STOCK AND SPECIAL WARRANTS TO PURCHASE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK OR SPECIAL WARRANTS TO PURCHASE SHARES OF COMMON
STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
________________________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
Available Information................... 2
Information Incorporated by Reference... 2
Prospectus Summary...................... 3
Risk Factors............................ 10
The Company............................. 14
Refinancing and Other Loans............. 16
The FRP Recapitalization................ 22
Stock Purchase Agreements............... 23
Dividend Policy......................... 23
Use of Proceeds......................... 24
Capitalization.......................... 25
Pro Forma Financial Information......... 25
The Subscription Offering............... 31
The Warrant Offering.................... 33
Business and Properties of the Company.. 34
Capital Stock........................... 48
Special Warrants........................ 49
Plan of Distribution.................... 49
Subscription Agent...................... 50
Experts................................. 50
Legal Opinion........................... 50
</TABLE>
1,520,212 SHARES
OF COMMON STOCK, WITHOUT PAR VALUE
149,607 SPECIAL WARRANTS
TO PURCHASE SHARES OF
COMMON STOCK, WITHOUT PAR VALUE
FORUM GROUP, INC.
____________________
PROSPECTUS
____________________
FEBRUARY __, 1994
===============================================================================
<PAGE>
PART II
=======
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses in connection with the issuance and distribution of the
securities being registered are as follows:
<TABLE>
<S> <C>
SEC registration fee............................................... $ 2,159
Blue Sky fees and expenses......................................... 10,000
Printing, mailing and distribution expenses........................ 20,000
Legal fees and expenses............................................ 150,000
Accounting fees and expenses....................................... 15,000
Subscription Agent's fees and expenses............................. 10,000
Miscellaneous...................................................... 16,841
--------
Total........................................................... $224,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Indiana Business Corporation Law (the "IBCL") authorizes a corporation to
indemnify its directors, officers, employees and agents against expenses in
certain proceedings provided the indemnified person (i) acted in good faith,
(ii) reasonably believes, if acting in an official capacity, that his conduct
was in the best interest of the corporation or, in all other cases, that his
conduct was at least not opposed to the best interest of the corporation, and
(iii) in the case of criminal proceedings, had reasonable cause to believe that
his conduct was lawful or had no reasonable cause to believe that his conduct
was unlawful. The IBCL provides that a corporation must indemnify its
directors, officers, employees and agents who are wholly successful, on the
merits or otherwise, against expenses in the defense of such proceedings. The
IBCL provides, however, that this indemnification is not exclusive of any other
indemnification rights provided by the articles of incorporation, by-laws,
resolution or other authorization adopted by a majority vote of the voting
shares then issued and outstanding.
Under the IBCL, a corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against the liability under the provisions of the IBCL.
The Restated Articles of Incorporation provide that the Company has the power
to indemnify any director or officer who was or is a party, or is threatened to
be made a party, to any proceeding (other than an action by or in the right of
the Company by reason of the fact that he is or was a member of the Board of
Directors or an officer) against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with such proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Company and, with respect to any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. The Company has
the power to indemnify any director or officer who was or is a party, or is
threatened to be made a party, to any proceeding by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he is or
was a member of the Board of Directors or an officer against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Company, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Company unless, and only to the extent, that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnify for such expenses which such court shall
deem proper. The indemnification provided by the Restated Articles of
Incorporation is not exclusive of any other rights to which those indemnified
may be entitled.
As authorized by the IBCL and the Restated Articles of Incorporation, the
Company has entered into indemnification agreements with each of its directors.
The indemnification agreements provide for, among other things, (i) the
indemnification
II-1
<PAGE>
by the Company of the indemnitees thereunder to the extent permitted by the IBCL
and the Restated Articles of Incorporation, (ii) the advancement of attorneys'
fees and other expenses, and (iii) the establishment, upon approval by the Board
of Directors, of trusts or other funding mechanisms to fund the Company's
indemnification obligations thereunder.
The Company has purchased insurance designed to protect and indemnify the
Company and its directors and officers in case they are required to pay any
amounts arising from certain civil claims, including claims under the Securities
Act which might be made against them by reason of any actual or alleged act,
error, omission, misstatement, misleading statement, neglect or breach of duty.
ITEM 16. EXHIBITS.
2(1) Debtors' Third Amended and Restated Joint Plan of Reorganization,
as modified (incorporated by reference to Exhibit 2(1) to the
Company's Current Report on Form 8-K dated January 23, 1992 (the
"January 1992 Form 8-K"), and Exhibits 2(2), 2(3), 2(4) and 2(5)
to the Company's Current Report on Form 8-K dated April 2, 1992
(the "April 1992 Form 8-K"))
2(2) First Modification of Debtors' Third Amended and Restated Joint
Plan of Reorganization, dated as of February 28, 1992; Second
Modification of Debtors' Third Amended and Restated Joint Plan of
Reorganization, dated as of February 28, 1992; Third Modification
of Debtors' Third Amended and Restated Joint Plan of
Reorganization, dated as of February 28, 1992; Fourth
Modification of Debtors' Third Amended and Restated Joint Plan of
Reorganization, dated as of March 24, 1992 (incorporated by
reference to Exhibits 2 (1-5) to the April 1992 Form 8-K)
2(3) Fifth Modification of Debtors' Third Amended and Restated Joint
Plan of Reorganization, dated as of May 20, 1992 (incorporated by
reference to Exhibit 2 to the Company's Current Report on Form
8-K dated September 10, 1992)
4(1) Warrant Agreement, dated as of June 10, 1993, by and between the
Company and Citicorp USA, Inc. (incorporated by reference to
Exhibit 4(3) to the 1992 Form 10-K)
5(1) Opinion of Jones, Day, Reavis & Pogue regarding legality of
securities being registered
10(1) Recapitalization Agreement, dated as of October 6, 1993, between
the Company and FRP (incorporated by reference to Exhibit 10(1)
to the Company's Current Report on Form 8-K dated October 6, 1993
(the "October 1993 Form 8-K"))
10(2) Stock Purchase Agreement, dated October 6, 1992, by and among the
Company, Forum Holdings and AFG (incorporated by reference to
Exhibit 10(2) to the October 1993 Form 8-K)
10(3) Stock Purchase Agreement, dated November 16, 1993, by and between
the Company and Resources
10(4) Refinancing Loan Agreement (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993 (the "1993 Third Quarter Form 10-Q")
10(5) Commitment Letter, dated October 21, 1993, from Nomura to the
Company relating to the Acquisition Loan*
10(6) Management Agreement, dated as of December 31, 1986, among FRP,
Forum Retirement Operations, L.P. ("Operations"), Forum Health
Partners I- A, L.P., Foulk Manor Associates, L.P. and the Company
(incorporated by reference to Exhibit 10(1) of FRP's Registration
Statement on Form S-2 filed with the Commission on November 10,
1993 (the "FRP Form S-2"))
II-2
<PAGE>
10(7) First Amendment to Management Agreement, dated as of June 29,
1989 (incorporated by reference to Exhibit 10(2) to the FRP
Form S-2)
10(8) Second Amendment to Management Agreement, dated as of September
29, 1989 (incorporated by reference to Exhibit 10(3) to the FRP
Form S-2)
10(9) Third Amendment to Management Agreement, dated as of May 27, 1992
(incorporated by reference to Exhibit 10(4) to the FRP Form S-2)
10(10) Fourth Amendment to Management Agreement, dated as of November 9,
1993 (incorporated by reference to Exhibit 10(5) to the FRP Form
S-2)
10(11) Forum Group, Inc., 1986 Stock Option Plan*
10(12) Option Agreement (MLP), dated as of December 29, 1986, among the
Company, FRP and Operations (incorporated by reference to Exhibit
2(1) to the FRP Form S-2)
10(13) Note Purchase Agreement among Japan Leasing (U.S.A.), Inc.,
Inter-Lease (U.S.A.) Corporation, FRCIILP, and Japan Leasing
(U.S.A.), Inc., as agent (incorporated by reference to Exhibit
10(1) to the Company's Current Report on Form 8-K dated May 15,
1989 (the "May 1989 Form 8-K"))
10(14) Guaranty Issuance Agreement among GATX Realty Corporation, GATX
Leasing Corporation and FRCIILP (incorporated by reference to
Exhibit 10(2) to the May 1989 Form 8-K)
10(15) Note Purchase Agreement among Mitsui Leasing (U.S.A.) Inc., BOT
Leasing America Inc., Redwood Properties, Inc., the Company,
FRCILP, and Mitsui Leasing (U.S.A.) Inc., as agent (incorporated
by reference to Exhibit 10(1) to the Company's Current Report on
Form 8-K dated April 24, 1990 (the "April 1990 Form 8-K"))
10(16) Guaranty Issuance Agreement among GATX Realty Corporation, GATX
Capital Corporation and FRCILP (incorporated by reference to
Exhibit 10(2) to the April 1990 Form 8-K)
10(17) Stock Purchase Agreement, between Forum Holdings and the Company,
dated February 1, 1993 (incorporated by reference to Exhibit 4(1)
to the Company's Current Report on Form 8-K dated February 1,
1993 (the "February 1993 Form 8-K"))
10(18) Agreement in Principle among Apollo Investment Fund, L.P.
("AIF"), Investors Genpar, Inc. ("Genpar"), Evergreen Healthcare,
Ltd. ("Evergreen"), and the Company, dated February 1, 1993
(incorporated by reference to Exhibit 28 to the February 1993
Form 8-K)
10(19) Agreement in Principle among AIF, Genpar, Evergreen, and the
Company, dated April 13, 1993 (incorporated by reference to
Exhibit 2(1) to the Company's Current Report on Form 8-K dated
April 13, 1993 (the "April 1993 Form 8-K"))
10(20) Acquisition Agreement among AIF, FL Advisors, on behalf of one or
more managed accounts, Lion Advisors, L.P. ("Lion Advisors") on
behalf of one or more managed accounts, Genpar, Inc., Evergreen,
and the Company, dated as of April 18, 1993 (incorporated by
reference to Exhibit 2(2) to the April 1993 Form 8-K)
10(21) Letter Agreement between Forum Holdings and the Company, dated as
of April 18, 1993 (incorporated by reference to Exhibit 2(3) to
the April 1993 Form 8-K)
10(22) Indenture, dated as of June 1, 1993, between the Company, as
Issuer, and First Trust National Association, as Trustee,
including form of Senior Subordinated Note (the "Indenture")
(incorporated by reference to Exhibit 4(1) to the 1992 Form 10-K)
II-3
<PAGE>
10(23) Amendment to the Indenture and Notes, dated as of January 31,
1994 (incorporated by reference to the 1993 Third Quarter Form
10-Q)
10(24) Credit Agreement dated as of June 10, 1993, among the Company,
the Lenders named therein, Citibank, N.A. as Issuing Bank and
Citicorp USA, Inc., as Agent (the "Credit Agreement")
(incorporated by reference to Exhibit 10(1) on the 1992 Form
10-K)
10(25) Waiver and Supplement to the Credit Agreement, dated as of
January 31, 1994 (incorporated by reference to the 1993 Third
Quarter Form 10-Q)
10(26) Note Purchase Agreement, dated as of June 14, 1993, among the
Company, and the purchasers parties thereto (incorporated by
reference to Exhibit 4(2) of the 1992 Form 10-K)
10(27) Agreement, dated as of June 6, 1993, among the Company, AIF, FL
Advisors, on behalf of one or more managed accounts, Lion
Advisors, Genpar, and Evergreen (incorporated by reference to
Exhibit 2.2 to the Company's Current Report on Form 8-K dated
June 14, 1993 (the "June 1993 Form 8-K"))
10(28) Agreement, dated as of June 14, 1993, among the Company, AIF, FL
Advisors, on behalf of one or more managed accounts, Lion
Advisors, Genpar, and Evergreen (incorporated by reference to
Exhibit 2.3 to the June 1993 Form 8-K)
13(1) Annual Report on Form 10-K for the year ended March 31, 1993
(filed with the Commission on June 29, 1993)
13(2) Quarterly Report on Form 10-Q for the quarter ended September 30,
1993 (filed with the Commission on November 15, 1993)*
13(3) Quarterly Report on Form 10-Q for the quarter ended December 31,
1993 (filed with the Commission on February 14, 1994)
23(1) Consent of KPMG Peat Marwick
23(2) Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5(1))
24(1) Powers of Attorney*
99(1) Form of Notice of Exercise of Subscription Privilege*
99(2) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees*
99(3) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees*
99(4) Form of Subscription Agent Agreement*
- ------------------
* Previously filed.
ITEM 17. UNDERTAKING
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that, in the opinion of the Commission, the indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against those liabilities (other than
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding)
II-4
<PAGE>
is asserted by a director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Securities
Act, and will be governed by the final adjudication of that issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-2 and has duly caused this Amendment No. 1 to Registration
Statement on Form S-2 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Indianapolis, State of Indiana, on the date
indicated on the cover page of this Registration Statement.
FORUM GROUP, INC.
By: /s/ JOHN H. SHARPE
-----------------------------------
John H. Sharpe,
Vice President, Secretary and
General Counsel
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
Registration Statement on Form S-2 has been signed by the following persons in
the capacities indicated on the date indicated on the cover page of this
Amendment No. 1:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
ROBERT A. WHITMAN* Chairman of the Board, President
- --------------------------------- and Chief Executive Officer
Robert A. Whitman
PAUL A. SHIVELY* Senior Vice President, Treasurer and
- --------------------------------- Chief Financial Officer
Paul A. Shively
PETER P. COPSES* Director
- ---------------------------------
Peter P. Copses
DANIEL A. DECKER* Director
- ---------------------------------
Daniel A. Decker
JAMES A. EDEN* Director
- ---------------------------------
James A. Eden
ASHER O. PACHOLDER* Director
- ---------------------------------
Asher O. Pacholder
WILLIAM G. PETTY, JR.* Director
- ---------------------------------
William G. Petty, Jr.
ANTHONY P. RESSLER* Director
- ---------------------------------
Anthony P. Ressler
D. ELLEN SHUMAN* Director
- ---------------------------------
D. Ellen Shuman
ERIC P. SIEGEL* Director
- ---------------------------------
Eric P. Siegel
MERLIN C. SPENCER* Director
- ---------------------------------
Merlin C. Spencer
GEORGE D. WOODARD* Director
- ---------------------------------
George D. Woodard
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement on Form S-2 pursuant to powers of
attorney executed by the above-named officers and directors and filed herewith.
By: /s/ JOHN H. SHARPE
-----------------------------------
John H. Sharpe
Attorney-in-Fact
II-6
</TABLE>
<PAGE>
JONES, DAY, REAVIS & POGUE
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
(214) 220-3939
February 15, 1994
Forum Group, Inc.
8900 Keystone Crossing, Suite 200
Post Office Box 40498
Indianapolis, Indiana 46240-0498
Ladies and Gentlemen:
We have acted as special counsel to Forum Group, Inc. (the "Company") in
connection with the issuance of up to 1,520,212 shares (the "Shares") of common
stock, without par value ("Common Stock"), and up to 149,607 warrants each
representing the right to purchase one share of Common Stock upon the payment of
the exercise price of $0.01 at any time prior to 5:00 p.m., Indianapolis,
Indiana time, on June 11, 1999 (the "Special Warrants").
We have examined such documents, records and matters of law as we have
deemed necessary for the purposes of this opinion. Based thereupon, we are of
the opinion that:
1. The Shares are authorized and, when the registration statement
(the "Registration Statement") filed by the Company to effect the
registration of the Shares and Special Warrants under the Securities Act
of 1933, as amended, has been declared effective by the Securities and
Exchange Commission (the "Commission") and the Shares are issued and
delivered as contemplated thereby, the Shares will be validly issued,
fully paid and nonassessable;
2. The Special Warrants are authorized and, when the Registration
Statement has been declared effective by the Commission and the Special
Warrants are issued and delivered as contemplated thereby, the Special
Warrants will be validly issued and will constitute legal and binding
obligations of the Company; and
3. The shares of Common Stock issuable upon the exercise of the
Special Warrants are authorized and, when such shares are issued and
delivered as contemplated by the Warrant Agreement and the Special Warrant
Certificate, such shares will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, and to the reference to us under the caption "Legal
Opinion" in the Prospectus constituting a part of the Registration Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
Jones, Day, Reavis & Pogue
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of November 16, 1993 (this
"Agreement"), is made and entered into by and among HEALTHCARE RESOURCES I,
L.P., a Delaware limited partnership ("Purchaser"), and FORUM GROUP, INC., an
Indiana corporation (the "Company").
RECITALS:
--------
A. The Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase from the Company, on the terms and subject to the conditions
set forth herein, an aggregate of 489,840 shares (the "Shares") of common stock,
without par value, of the Company ("Common Stock").
Purchaser and the Company hereby agree as follows:
I. PURCHASE AND SALE
-----------------
1.1. Purchase and Sale. On the terms and subject to conditions set forth
in this Agreement, at the Closing (as defined in Section 1.2), the Company will
issue, sell and deliver to Purchaser, and Purchaser will purchase, accept and
receive from the Company, the Shares for an aggregate purchase price equal to
$1,836,900.
1.2. The Closing. The consummation of the purchase and sale of the Shares
hereunder (the "Closing") will take place at the offices of Jones, Day, Reavis &
Pogue, 599 Lexington Avenue, New York, New York 10022, or the principal
executive offices of the Company located at 8900 Keystone Crossing,
Indianapolis, Indiana 46240, as Purchaser may elect, or such other place as
Purchaser and the Company may agree, at or before 5:00 p.m., Eastern Time, on
the date hereof or such later date as Purchaser and the Company may agree (the
"Closing Date").
1.2.1. Deliveries by the Company. At the Closing, the Company will
deliver to Purchaser (a) a certificate representing the Shares, duly executed by
authorized officers of the Company and registered in the name of Purchaser or
its designee and (b) an opinion of the general counsel of the Company addressed
to Purchaser, dated as of the Closing Date, in form and substance satisfactory
to Purchaser and its counsel, with respect to the matters set forth in Sections
2.1, 2.2, 2.3, 2.4 and 2.7. The obligation of Purchaser to purchase the Shares
is subject to the delivery of such legal opinion.
<PAGE>
1.2.2. Deliveries by Purchaser. At the Closing, Purchaser will deliver to
the Company, by wire transfer of immediately available funds to an account
designated by the Company to Purchaser in writing for such purpose, the
aggregate amount of $1,836,900, representing payment in full of the purchase
price for the Shares.
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to Purchaser as follows:
2.1. Organization. The Company and each of its subsidiaries (a) is a
corporation or other legal entity duly organized, validly existing and in good
standing or otherwise authorized to transact business under the laws of the
jurisdiction of its organization, (b) has all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, and (c) is duly qualified or licensed and in good standing or
otherwise authorized to transact business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or license necessary, except in each case to the
extent that the Company's failure to be so organized, qualified or licensed
would not have a material adverse effect on the business, financial condition or
results of operations of the Company or such subsidiary.
2.2. Capitalization. The authorized capital stock of the Company consists
of 48,000,000 shares of Common Stock and 2,000,000 shares of preferred stock,
without par value, of which 20,771,785 shares of Common Stock are validly issued
and outstanding, fully paid, non-assessable and free of preemptive rights with
no personal liability attaching to the ownership thereof. Except as set forth
in the immediately preceding sentence, there are no shares of capital stock of
the Company authorized, issued or outstanding. Except for (i) the obligation of
the Company to reserve shares of Common Stock pursuant to the Third Amended and
Restated Plan of Reorganization, as modified, of the Company and certain of its
affiliates, as confirmed by the United States Bankruptcy Court for the Southern
District of Indiana, Indianapolis Division (the "Plan of Reorganization"), on
account of certain disputed claims, (ii) warrants, dated June 14, 1993,
entitling Purchaser, Apollo FG Partners, L.P. ("AFG") and Forum Holdings, L.P.
("Forum Holdings"), or their affiliates, to purchase an aggregate of 1.1555
shares of Common Stock for each share of Common Stock issued on or after June
14, 1993 from shares of Common Stock reserved for issuance pursuant to the Plan
of Reorganization, (iii) warrants issued pursuant to the Warrant Agreement,
dated as of June 10, 1993, between the Company and Citicorp USA, Inc., and (iv)
the obligation of the Company to issue, sell and deliver the Shares pursuant to
Article I and to make an offering of shares of Common Stock pursuant to
<PAGE>
Section 4.2, there are no outstanding subscriptions, options, warrants, rights,
convertible securities or any other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of the Company or
obligating the Company to grant, extend or enter into any subscription, option,
warrant, right, convertible security or other similar agreement or commitment.
2.3. Validity of Shares; Etc. The Shares have been duly authorized for
issuance and, when issued to Purchaser or its designee as provided in this
Agreement, will be validly issued, fully paid and non-assessable with no
personal liability attaching to the ownership thereof. At the Closing,
Purchaser or its designee will acquire good and valid title to the Shares, free
and clear of any and all charges, liens, security interests, voting or other
restrictions or other encumbrances of any kind ("Encumbrances").
2.4. Authority; Binding Effect; Etc. (a) The Company has the requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder and the consummation by
the Company of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company upon the unanimous
recommendation of the "Independent Directors," as such term is defined in the
Acquisition Agreement, dated as of April 18, 1993, among Apollo Investment Fund,
L.P., Investors Genpar, Inc., Evergreen Healthcare, Ltd., L.P. and the Company,
acting as a committee of the full Board of Directors of the Company and no other
corporate authorizations, approvals or proceedings are required in connection
with such execution, delivery, performance or consummation. This Agreement has
been duly and validly executed and delivered by the Company and constitutes a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms.
(b) Chapter 42 of the Indiana Business Corporation Law (the "IBCL") does
not apply to the transactions contemplated hereby and, assuming that Section 9.3
of the Restated Articles of Incorporation of the Company is not hereafter
amended, will not apply to any acquisition of securities of the Company by any
person. The provisions of Section 10.1 of Company's Restated Articles of
Incorporation will not apply to the transactions contemplated hereby, and the
transactions contemplated hereby are not prohibited under Chapter 43 of the
IBCL.
2.5. Commission Filings. The Company has filed all required forms,
reports and documents with the Securities and Exchange Commission (the "SEC")
since March 31, 1993, including
<PAGE>
all exhibits thereto (collectively, the "SEC Documents"), each of which complied
in all material respects with all applicable requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as in effect on the dates so filed. None
of the SEC Documents (as of their respective filing dates) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
audited and unaudited consolidated financial statements, together with the notes
thereto, of the Company included (or incorporated by reference) in the SEC
Documents present fairly the financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the results of their
operations for the periods then ended. Such audited and unaudited statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP") for year-end financial information or for
interim financial information, as applicable, and with the instructions to Form
10-K and Regulation S-X. Accordingly, they do not include all the information
and footnotes required by GAAP for complete financial statements; however, in
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Neither the Company nor any of its subsidiaries has any liabilities or
obligations, fixed or contingent, not reflected in such financial statements,
except for liabilities and obligations, none of which are material, incurred in
the ordinary course of business since March 31, 1993.
2.6. Absence of Certain Changes. Except as disclosed in the SEC
Documents, since March 31, 1993, neither the Company nor any of its subsidiaries
has entered into any material transaction or conducted its business and
operations other than in the ordinary course of business consistent with past
practice, or suffered any material adverse effect on its business, financial
condition, results of operations or prospects.
2.7. No Violation. Neither the execution or delivery of this Agreement by
the Company, the performance by the Company of its obligations hereunder nor the
consummation by the Company of the transactions contemplated hereby will (a)
constitute a breach or violation under the Restated Articles of Incorporation or
Code of By-Laws of the Company, or any of its subsidiaries or (b) constitute a
breach, violation or default (or any event which, with notice or lapse of time
or both, would constitute a default) under, or result in the termination of, or
result in the creation of any Encumbrance upon any of the properties or assets
of the Company or any of its subsidiaries under, any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument to which
the Company or any of its subsidiaries is a party or by which they or any of
their respective properties or assets are bound, or (c) constitute a violation
of any order,
<PAGE>
writ, injunction, decree, statute, rule or regulation of any court or
governmental authority applicable to the Company or any of its subsidiaries or
any of their respective properties or assets, except in the case of clause (b)
and (c) above, such breaches, violations, defaults, terminations, accelerations
or creation of Encumbrances which, singly or in the aggregate, could not have a
material adverse effect on the condition (financial or otherwise), results of
operations, assets, liabilities, business or prospects of the Company and its
subsidiaries taken as a whole.
2.8. Survival. All representations, warranties and covenants of the
Company contained in this Agreement will survive the Closing.
III. REPRESENTATION AND WARRANTIES OF PURCHASER
------------------------------------------
Purchaser hereby represents and warrants to the Company as follows:
3.1. Authority; Binding Effect; Etc. Purchaser is a limited partnership
duly organized, validly existing and in good standing under the laws of Delaware
and has the requisite limited partnership power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Purchaser and constitutes a valid and binding
agreement of Purchaser, enforceable against Purchaser in accordance with its
terms.
3.2. Investment Intent; Etc. (a) Purchaser is acquiring the Shares
issuable to Purchaser pursuant to this Agreement for investment and not with a
view to the distribution thereof in violation of the Securities Act. Purchaser
acknowledges that the sale of the Shares has not been registered under the
Securities Act nor any state securities or blue sky laws and that the Shares may
not be resold except pursuant to an effective registration statement or pursuant
to an exemption from registration under the Securities Act and any applicable
state securities law.
(b) Purchaser has such general knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
investment in the Company contemplated hereby.
3.3. No Violation. Assuming the accuracy of the Company's representation
in the second sentence of Section 2.4, neither the execution or delivery of this
Agreement by Purchaser, the performance by Purchaser of its obligations
hereunder nor the consummation by Purchaser of the transactions contemplated
hereby will constitute a breach, violation or default (or any event which, with
notice or lapse of time or both, would constitute a default) under, the charter
documents of Purchaser or any note,
<PAGE>
bond, mortgage, indenture, deed or trust, license, lease, agreement or other
instrument to which Purchaser is a party or by which its properties or assets
are bound, other than such breaches, violations or defaults that do not
materially impair the ability of Purchaser to consummate the transactions
contemplated hereby.
IV. COVENANTS
---------
4.1. Use of Proceeds. The Company will contribute the purchase price
received for the Shares pursuant to Section 1.2.2 to one or more New Investment
Subsidiaries (as such term is defined in the Credit Agreement, dated as of June
10, 1993, among the Company, the lenders named therein, Citibank, N.A., as
Issuing Bank, and Citicorp USA, Inc., as Agent), and the Company will cause one
or more of such New Investment Subsidiaries to use such funds, as working
capital.
4.2. Offering. As promptly as practicable following the Closing, the
Company, at its sole cost and expense, will make a pro rata public offering (the
"Offering") to holders of Common Stock (other than Purchaser, AFG and Forum
Holdings) of 1,370,605 shares of Common Stock at $3.75 per share. In connection
therewith, the Company will, promptly following the Closing, prepare and file
with the SEC under the Securities Act a registration statement relating to the
Offering and will use its reasonable best efforts to cause such registration
statement to become effective as promptly thereafter as practicable. Such
registration statement and any post-effective amendment thereof will comply in
all material respects with the Securities Act and the rules and regulations
thereunder. Only holders of record (other than Purchaser, AFG and Forum
Holdings) of outstanding shares of Common Stock on October 18, 1993 will be
eligible to purchase shares of Common Stock in the Offering, and the right to
purchase shares of Common Stock in the Offering will not be directly or
indirectly assignable or transferable by any such holder.
V. MISCELLANEOUS
-------------
5.1. Entire Agreement. This Agreement contains the entire agreement
between Purchaser and the Company with respect to the transactions contemplated
hereby.
5.2. Notices. All notices and other communications hereunder will be in
writing and will be given (and will be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, telex, facsimile
transmission or other standard form of telecommunications, or by registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
<PAGE>
If to the Company:
Forum Group, Inc.
8900 Keystone Crossing, Suite 200
Indianapolis, IN 46240
Attention: Paul A. Shively, Senior Vice President
Fax No.: (317) 575-1246
with copies to:
John H. Sharpe, Esq.
Forum Group, Inc.
8900 Keystone Crossing, Suite 200
Indianapolis, IN 46240
Fax No.: (317) 575-1246
If to Purchaser:
Healthcare Resources I, L.P.
184 Shuman Boulevard
Naperville, IL 60563
Fax No.: (708) 357-4020
with copies to:
Michael Rosenzweig, Esq.
229 Peachtree Street N.E.
Atlanta, GA 30303
Fax No.: (404) 525-2224
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
5.3. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Indiana applicable to contracts made
and to be performed in that State, without regard to the principles of conflict
of laws.
5.4. Certain Interpretative Matters and Definitions. (a) Unless the
context otherwise requires, (i) all references to Sections or Articles are to
Sections or Articles of this Agreement, (ii) each term defined in this Agreement
has the meaning assigned to it, (iii) all uses of "herein," "hereto," "hereof"
or other words similar thereto in this Agreement refer to this Agreement in its
entirety, and not solely to the Section, Article or provision in which it
appears, (iv) "or" is disjunctive, but not necessarily exclusive, (v) words in
the singular include the plural and vice versa, and (vi) the term "subsidiary"
has the meaning given to that term in Rule 12b-2 of Regulation 12B under the
Exchange Act.
(b) No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which such party
or its counsel participated in the
<PAGE>
drafting thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
5.5. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect. In addition, upon any such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the parties hereby agree that there will be substituted therefor automatically
and without further action by any party thereto, as part of this Agreement, a
valid, legal and enforceable term or provision as similar in its form, substance
and effect to such invalid, illegal or unenforceable term or other provision as
may be possible.
5.6. Enforcement. Each party hereto acknowledges that irreparable harm,
for which there may be no adequate remedy at law and for which the ascertainment
of damages would be difficult, would occur in the event that any of the
provisions of this Agreement was not performed in accordance with its specific
terms or was otherwise breached. Accordingly, each party hereto will be
entitled to an injunction or injunctions to prevent any breach of the provisions
of this Agreement, or any agreement contemplated hereunder, and to enforce
specifically the terms and provisions hereof or thereof in any court of the
United States or any state thereof having jurisdiction, in each instance without
being required to post bond or other security and in addition to, and without
having to prove the inadequacy of, other remedies available at law.
5.7. Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by either of the parties hereto
(other than by Purchaser to an affiliate thereof) without the prior written
consent of the other parties, except by operation of law.
5.8. No Third Party Beneficiaries. This Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their respective
successors and permitted assigns and nothing herein, express or implied, is
intended to or shall confer upon any other person any legal or equitable right,
benefit or remedy of any nature whatsoever, under or by reason of this
Agreement.
5.9. Registration Rights. The parties hereto acknowledge that when issued
to Purchaser as provided in this Agreement, the Shares will be Registrable
Securities as such term is defined in the Equity Registration Rights Agreement,
dated as of June 11, 1993, by and among the Company and the other parties
thereto and that Purchaser will have all rights relating to Registrable
Securities provided for therein with respect to the Shares.
<PAGE>
5.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original but all of which
together will constitute but one agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
HEALTHCARE RESOURCES I, L.P.
By: EH Resources, Inc.,
Its General Partner
By: /s/ William G. Petty, Jr.
-------------------------
Name: William G. Petty, Jr.
----------------------
Title: President
----------
FORUM GROUP, INC.
By: /s/ Paul A. Shively
--------------------
Name: Paul A. Shively
----------------
Title: Senior Vice President
----------------------
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended March 31, 1993 Commission file number 0-6350
FORUM GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 61-0703072
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8900 Keystone Crossing, Suite 200
Post Office Box 40498
Indianapolis, Indiana 46240-0498
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 846-0700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, without par value
Indicate by check mark whether the registrant (l) 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 is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K or any
amendment to this Form 10-K.
( )
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed by reference to the last price at which the stock was sold
on June 18, 1993, is $18,862,000.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
The number of shares outstanding of the registrant's common stock, as of June
18, 1993, is 17,275,982 (excluding 513,993 shares held by a wholly-owned
subsidiary of the registrant).
- - - - -
<PAGE>
PART I
------
ITEM 1. BUSINESS.
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GENERAL
Forum Group, Inc., an Indiana corporation ("Forum Group"), provides senior
housing, and associated convenience and healthcare, services in eleven states
through the operation of twenty-two rental retirement communities ("RCs") and
three lifecare RCs. Forum Group also operates one freestanding nursing home. Of
those facilities, eight are owned by Forum Group, two are leased and sixteen are
managed. Except as described below, each Forum Group RC contains an independent
living component and a full-care nursing component available to residents should
the need arise; and certain Forum Group RCs also include an assisted living
component. One Forum Group RC consists of an assisted living component and a
nursing component, and does not contain an independent living component.
Another Forum Group RC consists of an independent living component and assisted
living component, and does not contain a nursing component, but is adjacent to
and enjoys the benefits of a Forum Group RC which contains a nursing component.
Forum Group was incorporated under the laws of Kentucky on November 13, 1969,
and adopted its present name and changed its corporate domicile to Indiana on
September 8, 1981. Unless the context otherwise requires, "Forum Group" refers
to Forum Group, Inc., and its predecessors and subsidiaries.
PRIOR REORGANIZATION PROCEEDINGS
On February 19, 1991, Forum Group and its affiliates American Medical Services
Association, Inc. ("AMSA"), Excepticon of Illinois, Inc. ("Excepticon/
Illinois"), Forum Delaware, Inc. ("Forum Delaware"), Forum Home Care Services,
Inc., Forum Indiana Health Care, Inc. ("Forum Indiana"), Forum Lifecare, Inc.
("Forum Lifecare"), Forum Kentucky, Inc., Forum Ohio Healthcare, Inc., Grant
Acquisition Corp. ("GAC"), Greenville Retirement Community Development
Corporation ("Greenville"), Post Oak Joint Venture ("Post Oak") and RLI, Inc.
(collectively, the "Forum Debtors"), filed voluntary petitions for
reorganization under chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") with the United States Bankruptcy Court for the Southern
District of Indiana, Indianapolis Division (the "Bankruptcy Court"), cases nos.
IP 91-1678-FJO-11 through IP 91-1690-FJO-11, inclusive (the "Reorganization
Proceedings"). The Forum Debtors were continued in the management and
possession of their businesses and properties as debtors-in-possession pursuant
to Sections 1107 and 1108 of the Bankruptcy Code.
On May 1, 1991, Forum Group gave written notice of rejection of the lease
agreement (the "Lincoln Heights Lease") between Forum Retirement Operations,
L.P. ("Operations"), an affiliated operating partnership of Forum Retirement
Partners, L.P. (the "Partnership"), a publicly-traded master limited partnership
sponsored by Forum Group, as lessor, and Forum Group, as lessee, covering The
Forum at Lincoln Heights ("Forum/Lincoln Heights"). Forum/Lincoln Heights is a
rental RC in San Antonio, Texas, which was sold by Forum Group to Operations and
leased back by Forum Group from Operations during Forum Group's fiscal year
ended March 31, 1990. The Lincoln Heights Lease would have expired by its terms
on September 30, 1991. On August 15, 1991, Operations filed an application for
allowance and payment of an administrative claim for expenses
2
<PAGE>
relating to the unreimbursed use and occupancy of Forum/Lincoln Heights from
February 19, 1991, through July 20, 1991, by Forum Group. On February 5, 1992,
the Bankruptcy Court entered an order denying Operations' application for the
reason that the Lincoln Heights Lease constituted a financing transaction rather
than a bona fide lease upon which a claim for administrative rent may be based.
On February 14, 1992, Operations appealed the Bankruptcy Court's order to the
United States District Court for the Southern District of Indiana. On February
5, 1993, a settlement was finalized by and among the Partnership, Forum
Retirement, Inc. ("Forum Retirement", the general partner of the Partnership),
Operations, and Forum Group providing, inter alia, the following: (i) the
----- ----
payment by Forum Group of $125,000 in respect of Operation's administrative
claim, (ii) the allowance by Forum Group of a general unsecured claim in the
amount of $1,237,609 in respect of Operation's general unsecured claim, and
(iii) the allowance by Forum Group of a general unsecured claim in the amount of
$10,000,000 in respect of a claim by Forum Retirement arising from a promissory
note made October 22, 1986 by Forum Group in favor of Forum Retirement. As part
of the settlement, Operations dismissed its appeal of the Bankruptcy Court's
order. The settlement was negotiated at arm's length among the parties.
On April 2, 1992 (the "Effective Date"), the Bankruptcy Court entered an order
confirming the Debtors' Third Amended and Restated Joint Plan of Reorganization,
dated as of January 17, 1992, as modified by the First, Second and Third
Modifications thereof, dated as of February 28, 1992, and the Fourth
Modification thereof, dated as of March 24, 1992 (collectively, the "Debtors'
Modified Third Amended Plan"). The Debtors' Modified Third Amended Plan
generally provided for (i) the cancellation of the 32,548,108 pre-reorganization
shares of common stock of Forum Group ("Preconfirmation Common Shares"), (ii)
the issuance of 10,000,000 common shares of reorganized Forum Group ("Common
Shares"), (iii) the Forum Debtors' secured creditors to be paid in full, (iv)
the Forum Debtors' unsecured creditors to receive approximately 93% of the
Common Shares, and (v) Forum Group's shareholders to receive approximately 7% of
the Common Shares; and contemplated the sale and refinancing of assets to
provide working capital and pay down secured bank debt. On the Effective Date,
Forum Group had unaudited consolidated total assets of approximately
$356,055,000 and unaudited consolidated total liabilities of approximately
$334,556,000.
Also on April 2, 1992, and pursuant to the Debtors' Modified Third Amended
Plan:
(a) Forum Group adopted Restated Articles of Incorporation, and an
Amended and Restated Code of By-Laws.
(b) All of the assets of Post Oak, a Texas general partnership of
which Forum Group was the managing venturer and in which Forum Group had
an 80% beneficial interest, those assets being The Forum at Memorial
Woods, a rental RC in Houston, Texas, comprising 209 independent living
units, 36 assisted living suites and 96 nursing beds, were transferred
to Forum Group in lieu of foreclosure of the liens upon those assets
securing the intercompany claims due and owing by Post Oak to Forum
Group. Upon the transfer, those intercompany claims were extinguished,
and Post Oak was dissolved and liquidated.
3
<PAGE>
(c) AMSA, Forum Delaware, GAC and Medical Corporation of America,
wholly-owned subsidiary corporations of Forum Group, were merged into
Forum Group.
(d) Terry R. Hershberger, Bruce R. Karr, Charles E. Lanham, John
D. Peterson, Robert H. Reynolds, John W. Ryan, Paul A. Shively, John W.
Swann and Lewis F. Wood, Jr., resigned as members of Forum Group's
Board of Directors (the "Board").
(e) Larry W. Bonds, Bruce A. Cripe, Asher O. Pacholder, Harvey M.
Schuster, Merlin C. Spencer, DBA, and George D. Woodard were elected as
directors of Forum Group, for a term expiring at the 1994 annual
meeting of shareholders of Forum Group.
(f) Vincent J. Spedale ceased to serve as the Acting Chief Executive
Officer (CEO), and Mr. Bonds assumed the position of President and CEO
of Forum Group.
(g) Forum Group, its pre-petition bank lenders (Manufacturers
Hanover Trust Company, Ameritrust Company National Association, Third
National Bank in Nashville, Nationsbank of North Carolina, N.A., and Bank
One, Indianapolis, N.A.) (the "Banks"), and Manufacturers Hanover Trust
Company, as agent for the Banks, entered into a Senior Secured Term Loan
Agreement (the "Senior Secured Term Loan Agreement"), and executed and
delivered other documents (specifically including, but not limited to,
term notes) incident to the loan (the "Senior Secured Term Loan").
Also on April 2, 1992, Forum Group completed the sale of two rental RCs, The
Broadway Plaza at Cityview and The Forum at Westlake Hills, to Fort Austin
Limited Partnership ("Fort Austin") for $37,000,000. Those two RCs contained a
total of 364 independent living units, 70 assisted living suites and 211 nursing
beds. Forum Group's net book value of the assets sold was approximately
$50,000,000; consequently, Forum Group incurred a book loss of approximately
$13,000,000 on the transaction. The net proceeds of the transaction, in the
amount of $36,723,000, were used by Forum Group to pay down its secured bank
debt and interest accrued thereon (approximately $24,583,000), to pay accrued
real estate taxes (approximately $1,526,000), to fund a cash collateral account
to be used for working capital purposes (approximately $1,197,000) and to fund a
letter of credit account (approximately $1,417,000).
CERTAIN POST-REORGANIZATION EVENTS
On April 14, 1992, Mr. Cripe was elected Chairman of the Board of Forum Group.
Mr. Cripe is also Vice President of Telco Capital Corporation, a Chicago-based
holding company with interests in furniture manufacturing, automated textile
machinery, military footwear, sale and management of real estate, property and
casualty insurance, and cable television. Mr. Cripe was Vice Chairman of the
creditor's committee during the Reorganization Proceedings ("the Creditors'
Committee"), and replaced Mr. Wood, who served as Chairman of the Board of Forum
Group during the Reorganization Proceedings.
On April 20, 1992, Forum Indiana and Greenville, wholly-owned subsidiary
corporations of Forum Group, were merged into Forum Group; and on May 7, 1992,
Excepticon/Illinois, a wholly-owned subsidiary corporation of Forum Group, was
merged into Forum Group.
4
<PAGE>
On May 29, 1992, the Board approved a new operating plan, the objectives of
which were to focus Forum Group on RC operations and to reduce overhead
operating expenses. The new operating plan entailed, among other things, a
significant organizational restructuring, including a reduction in force. Forum
Group presently has approximately 50 employees at its Indianapolis headquarters
and 4,000 employees nationwide. In accordance with the new operating plan,
Forum Group has concentrated its resources and future efforts on operation of
existing RCs.
On September 10, 1992, the Bankruptcy Court authorized and approved a Fifth
Modification of the Debtors' Modified Third Amended Plan giving Forum Group the
option either to cancel Common Shares which had been reserved in accordance with
the Debtors' Modified Third Amended Plan for the payment of disputed general
unsecured claims ("Reserved Common Shares") not issued in satisfaction of
general unsecured claims, or to distribute those shares pro rata to holders of
--- ----
allowed claims and interests as of the record date for the initial distribution.
On April 17, 1993, the Board adopted a resolution providing for the cancellation
of Reserved Common Shares not issued in payment of general unsecured claims.
Consequently, there will be no supplemental distribution to shareholders of
Reserved Shares not issued in payment of general unsecured claims. As of June
18, 1993, 1,808,225 Reserved Common Shares continue to be reserved for possible
issuance to holders of general unsecured claims.
On October 16, 1992, the Board received an offer from Apollo Advisors, L.P.
("Apollo Advisors"), Evergreen Healthcare, Ltd. ("Evergreen"), and Hampstead
Group, Inc. ("Hampstead"), summarizing the terms and conditions upon which
certain accounts managed by Apollo, Evergreen, Hampstead and certain related
assignees thereof would purchase from Forum Group (i) 1,000,000 preferred
shares, and (ii) warrants to purchase 18,000,000 common shares, for an aggregate
purchase price of $15,000,000. On October 16, 1992, the Board rejected the
offer.
On November 2, 1992, several members of the Board voted to remove Mr. Bonds as
President and CEO of Forum Group. Also on November 2, 1992, Bruce R. Karr
resigned as Vice President, Secretary and General Counsel of Forum Group. John
H. Sharpe, previously Assistant General Counsel of Forum Group, was appointed
Acting Secretary of Forum Group.
On November 13, 1992, Mr. Bonds commenced litigation (the "Bonds'
Litigation") in Superior Court Room No. 7 of Marion County, Indiana, against
Forum Group and Messrs. Cripe, Schuster and Spencer, contending that the action
to remove him as President and CEO was improper, and seeking various remedies,
including injunctive relief and monetary damages. On November 13, 1992, the
presiding court issued a temporary restraining order prohibiting Forum Group and
Messrs. Cripe, Schuster and Spencer from precluding Mr. Bonds from performing
his functions as President and CEO. On November 23, 1992, the presiding court
issued a preliminary injunction in favor of Mr. Bonds.
On December 8, 1992, Mr. Sharpe became Vice President, Secretary and General
Counsel of Forum Group.
5
<PAGE>
On December 17, 1992, Paul A. Shively, previously a Senior Vice President and
Chief Financial Officer ("CFO") of Forum Group, replaced Mr. Bonds as President
and CEO. Mr. Shively continued his duties as CFO and Treasurer of Forum Group.
On December 18, 1992, a settlement agreement was entered into by and among
Messrs. Bonds, Cripe, Pacholder, Schuster, Spencer, Woodard and Forum Group,
which provided for, among other things, (i) Mr. Bonds' resignation as President
and CEO of Forum Group, and as a director of Forum Group and certain of its
affiliates, (ii) the dismissal of the Bonds' Litigation, (iii) the releasing by
the parties of certain rights and claims against each other, and (iv) Forum
Group's indemnification of the parties with respect to certain attorneys' fees
and expenses incurred in conjunction with the Bonds' Litigation.
On January 22, 1993, Dr. Spencer was elected Chairman of the Board, replacing
Mr. Cripe. Dr. Spencer has been a consultant to the retirement and senior
living industry since 1972 and was an advisor to the Creditors' Committee during
the Reorganization Proceedings. He has been a director of Forum Group since
April, 1992.
THE 1993 RECAPITALIZATION AND RELATED EVENTS
Forum Group lacked sufficient funds to pay the full amount of the principal
payment due on December 31, 1992, under the Senior Secured Term Loan Agreement
(approximately $13,500,000, the "December 31 Payment"). Prior to that date
Forum Group negotiated with the Banks (or their successors in interest) to defer
a portion of the December 31 Payment. As a result of those negotiations, on
December 31, 1992, Forum Group and the Banks entered into a First Amendment to
the Senior Secured Term Loan Agreement which provided, among other things, that
(i) upon the occurrence of certain events, payment of the unpaid portion of the
December 31 Payment could be deferred until June 30, 1994, (ii) a deferral fee
(the "Deferral Fee") in an amount of $1,000,000 would be paid to the Banks on
December 31, 1992, with an additional payment of $500,000 due on March 31, 1994,
if the Senior Secured Term Loan was not repaid in full by that date, and (iii)
if Forum Group paid the unpaid balance of the December 31 Payment on or before
January 31, 1993, all fees theretofore paid by Forum Group with the exception of
$50,000 would be credited against the unpaid portion of the December 31 Payment.
On February 1, 1993, Forum Group entered into an agreement (the "Stock
Purchase Agreement") with Forum Holdings, L.P. ("Forum Holdings"), a limited
partnership organized by Hampstead, whereby Forum Holdings, among other things,
purchased 25,000 newly issued shares of Series A Preferred Stock (the "Series A
Preferred Stock") of Forum Group for $5,000,000, the net proceeds of which were
used to pay the unpaid portion of the December 31 Payment. As a consequence of
that payment, the Banks credited $950,000 of the Deferral Fee against the
December 31 Payment.
Also on February 1, 1993, Forum Group entered into an agreement (the "February
1 Agreement in Principle") with Apollo Investment Fund, L.P. ("AIF"), an
affiliate of Apollo Advisors, Investors Genpar, Inc. ("Genpar"), the former
general partner of Forum Holdings, and Evergreen whereby those entities would
purchase, for $15,000,000, a number of newly issued Common Shares that, together
with the shares issuable upon exchange of the Series A Preferred
6
<PAGE>
Stock, would equal approximately 51% of the outstanding post-closing Common
Stock, and warrants to purchase a number of shares equal to approximately 10% of
the outstanding Common Shares at an aggregate exercise price of $6,000,000. The
February 1 Agreement in Principle was subject to several terms and conditions,
including the completion of a definitive agreement providing for, among other
things, the restructuring of the Senior Secured Term Loan and the funding of an
approximately $40,000,000 new credit facility, the net proceeds of which would
be used to repay amounts due under the Senior Secured Term Loan Agreement. The
February 1 Agreement in Principle also gave the purchasers the right to
substantially match "acceptable offers" from third parties in the period
preceding consummation of the contemplated transactions.
On February 18, 1993, Forum Group received a proposal from the Multicare
Companies, Inc. ("Multicare"), to acquire a substantial interest in Forum Group.
Multi care's proposal generally contemplated an investment in excess of
$15,000,000, at a price of $3.00 per Common Share acquired, and appeared to
include an offer to purchase outstanding Common Shares at a price of $3.00 per
share. Multicare's proposal was subject to, among other conditions, the
completion of due diligence, acceptable documentation and termination of the
February 1 Agreement in Principle. The Board allowed Multicare to commence due
diligence activities. However, Multicare withdrew its proposal on or about
March 15, 1993.
On March 10, 1993, Forum Group received a proposal from Dalfort Corporation
("Dalfort") on behalf of itself and certain affiliates. Dalfort's proposal
contemplated (i) the purchase of a number of newly issued Common Shares that
would equal 51% of the outstanding post-closing Common Shares for approximately
$21,500,000, (ii) the purchase from Forum Group of $25,000,000 principal amount
of junior secured notes, and (iii) an offer to purchase outstanding Common
Shares at a price of $3.00 per share. The proposal was subject to, among other
conditions, completion of due diligence, acceptable documentation and
termination of the February 1 Agreement in Principle. The Board allowed Dalfort
to commence due diligence activities.
On April 1, 1993, Dalfort and Forum/Classic, L.P. ("Forum/Classic") presented
Forum Group with a revised offer (the "Forum/Classic Offer") to (i) purchase a
number of newly issued Common Shares and a minimum of 2,450 shares of $1,000
liquidation preference Series B Preferred Stock for an aggregate price of
approximately $26,500,000, (ii) purchase from Forum Group a $20,000,000
principal amount Junior Secured Note and (iii) merge an affiliate of
Forum/Classic with and into Forum Group in accordance with a plan of merger,
pursuant to which all outstanding Common Shares would be converted into the
right to receive $3.62 per share in cash. The Forum/Classic Offer was subject
to certain conditions, including the condition that the right to substantially
match contained in the February 1 Agreement in Principle not be exercised.
On April 5, 1993, in accordance with the February 1 Agreement in Principle,
Forum Group delivered to the other parties thereto notice of the Forum/Classic
Offer.
On April 13, 1993, the purchasers under the February 1 Agreement in Principle
presented the Board with a revised offer to (i) replace the Senior Secured Term
Loan with (a) a new bank credit facility of up to $50,000,000 (the "New Term
Loan Agreement") through a consortium of lenders for which Citicorp USA, Inc.
("Citicorp") would serve as agent, and (b) up to $40,000,000
7
<PAGE>
aggregate principal amount of senior subordinated notes (the "New Senior
Subordinated Notes"), and (ii) acquire Common Shares either by (a) purchasing,
for $20,000,000, a number of newly issued Common Shares that would equal 37.8%
of the number of outstanding post-closing Common Shares, including Common Shares
issuable upon the exchange of the Series A Preferred Stock (the "Non-Liquidity
Transaction"), or (b) purchasing, for $20,000,000, a number of newly issued
Common Shares that would equal 39.9% of the number of outstanding post-closing
Common Shares, including Common Shares issuable upon the exchange of the Series
A Preferred Stock, and also providing shareholders (other than the purchasers
and their affiliates) the opportunity to receive $3.62 per share, in cash, for
their Common Shares (the "Liquidity Transaction"). On April 13, 1993, Forum
Group entered into a letter agreement (the "April 13 Letter Agreement") with the
purchasers under the February 1 Agreement in Principle, accepting the general
terms of that proposal but reserving the right to further consider the Liquidity
and Non-Liquidity Transactions. On April 17, 1993, the Board voted to proceed
with the Non-Liquidity Transaction.
On April 18, 1993, AIF, FL Advisors, L.P., on behalf of one or more managed
accounts ("FL Advisors"), Lion Advisors, L.P., on behalf of one or more managed
accounts ("Lion Advisors") (AIF, FL Advisors and Lion Advisors collectively,
"Apollo"), Genpar and Evergreen (the foregoing parties and their respective
assignees and designees, collectively, together with Forum Holdings, the
"Investors") and Forum Group entered into a definitive acquisition agreement
incorporating the terms of the April 13 Letter Agreement and the Non-Liquidity
Transaction (the "April 18 Agreement"), and Forum Holdings and Forum Group
entered into a letter agreement (the "April 18 Letter Agreement") pursuant to
which Forum Holdings exchanged the Series A Preferred Stock for 25,000 shares of
Series B Preferred Stock, without par value (the "Series B Preferred Stock") of
Forum Group. On the terms and subject to the conditions set forth in the April
18 Letter Agreement and the Stock Purchase Agreement, each share of the Series B
Preferred Stock owned by Forum Holdings was exchangeable, at Forum Holdings'
option, for 100 Common Shares.
On June 6, 1993, in connection with certain litigation relating to the
transactions contemplated by the April 18 Agreement and certain other matters
(see Item 3, "Legal Proceedings"), Forum Group and the Investors entered into an
agreement (the "June 6 Agreement") modifying the April 18 Agreement to provide
for the Liquidity Transaction.
On June 14, 1993, Forum Group and the Investors entered into an agreement (the
"June 14 Agreement") providing, among other things, that the $3.62 per Common
Share to be offered pursuant to the Liquidity Transaction will not be subject to
adjustment, that the Investors will provide all funds to be used in acquiring
Common Shares pursuant to the Liquidity Transaction, and that the Liquidity
Transaction will be completed by September 30, 1993, subject only to regulatory
and other legal constraints.
On June 14, 1993 (the "Closing Date"), the transactions (other than the
Liquidity Transaction), contemplated by the Acquisition Agreement were
consummated (the "Closing"). Prior to the Closing, Genpar assigned its rights
and obligations under the Acquisition Agreement to Forum Holdings, and Evergreen
assigned its rights and obligations under the Acquisition Agreement to
Healthcare Resources I, L.P. ("Resources"). Pursuant to the terms of the
Acquisition Agreement, AIF, FL Advisors and Lion Advisors designated AIF
8
<PAGE>
individually and Lion Advisors on behalf of its client, Artemis Finance SNC, as
purchasers under the Acquisition Agreement.
At the Closing, the Investors collectively purchased from Forum Group, for an
aggregate price of $20 million in cash, (i) 7,098,200 newly issued Common Shares
and (ii) warrants ("Warrants") entitling the Investors to purchase for a nominal
price an aggregate of 1.1555 Common Shares for each Reserved Common Share issued
on or after the Closing Date. At the Closing, Apollo, Forum Holdings and
Resources, individually, purchased 3,549,100 Common Shares, 1,774,550 Common
Shares and 1,774,550 Common Shares, respectively, and Warrants to purchase
.4622, .4622 and .2311 Common Shares, respectively, for each Reserved Common
Share issued on or after the Closing Date. In addition, at the Closing, Forum
Holdings exchanged 25,000 shares of Series B Preferred Stock of the registrant
for 2,500,000 Common Shares. At the Closing, Forum Group also (i) entered into
the New Term Loan Agreement, (ii) issued and sold $40,000,000 aggregate
principal amount of New Senior Subordinated Notes (one-half of which were
purchased by an affiliate of Apollo for a managed account and one-half of which
were purchased by the limited partners of Forum Holdings), and (iii) prepaid all
amounts outstanding under the Senior Secured Term Loan (approximately
$94,586,000). In connection with the New Term Loan Agreement, Forum Group issued
to Citicorp warrants exercisable during a six-year term to purchase 550,205
Common Shares at an initial purchase price equal to $2.74 per Common Share,
subject to recomputation upon the completion of the Liquidity Transaction,
specified annual increases and other adjustments.
Immediately following the Closing, Apollo (together with certain of its
affiliates), Forum Holdings and Resources owned 5,356,614 Common Shares,
4,274,550 Common Shares and 1,774,550 Common Shares, respectively, or 31.0%,
24.7% and 10.3%, respectively, of the total number of shares of Common Shares
then outstanding. For purposes of computing the foregoing percentages, 513,993
Common Shares held by Forum Retirement, a wholly-owned subsidiary of Forum
Group, were treated as not being outstanding.
Pursuant to the Acquisition Agreement, the Investors agreed that as promptly
as practicable after the Closing they will, or will cause Forum Group to, effect
the Liquidity Transaction, which will provide each shareholder of Forum Group
(other than the Investors and their affiliates) with an option either (i) to
retain a percentage equity interest in Forum Group substantially identical to
such shareholder's percentage equity interest immediately prior to the
consummation of such transaction or (ii) to receive, in cash, $3.62 per Common
Share (without adjustment). Pursuant to the Acquisition Agreement, the
Investors agreed to provide any and all funds to be paid to shareholders of
Forum Group pursuant to the Liquidity Transaction.
As of the Closing Date, (i) Forum Group's Board consisted of 11 directors,
(ii) two of Forum Group's directors previously in office (Messrs. Cripe and
Schuster) had resigned, leaving Messrs. Spencer, Woodard and Pacholder as the
only directors of Forum Group then in office, and (iii) seven persons (three of
whom were designated by Apollo (Peter Copses, Antony Ressler and Eric Siegel),
three of whom were designated by Forum Holdings (Daniel Decker, D. Ellen Shuman
and Robert Whitman) and one of whom was designated by Resources (William Petty,
Jr.) had been elected as directors of Forum Group effective as of the close of
business on June 16, 1993.
9
<PAGE>
The Investors plan to make available to Forum Group, upon terms acceptable to
them, up to $30,000,000 in additional equity solely for acquisitions by Forum
Group of retirement/healthcare facilities that, in the opinion of the Investors,
are in the best interests of Forum Group. However, there can be no assurance as
to whether, or the terms upon which, the Investors will make additional equity
available to Forum Group or Forum Group will make acquisitions of additional
retirement/healthcare facilities.
The Acquisition Agreement provides that no merger, stock split or similar
corporate action having the effect of "squeezing-out" minority shareholders will
be taken by Forum Group prior to December 31, 1995, without the consent of
either (i) the holders of a majority of the Common Shares actually voting on the
matter and not held by the Investors and their affiliates or (ii) a majority of
the directors of Forum Group who are neither officers or employees of Forum
Group or affiliates of the Investors.
Forum Group is required under the Acquisition Agreement to reimburse the
Investors upon request for all fees, costs and expenses incurred in connection
with the Acquisition Agreement and the transactions contemplated thereby,
including the Liquidity Transaction. Pursuant to the Acquisition Agreement,
Forum Group has agreed, subject to certain exceptions, to indemnify each of the
Investors, their respective affiliates and certain other related persons from
and against all losses, claims, liabilities, damages, costs and expenses or
actions in respect thereof arising out of any actual or threatened claim against
such party by a person other than Forum Group related to or arising out of or in
connection with the Acquisition Agreement or any actions taken by an indemnified
party pursuant thereto or the transactions contemplated thereby. Subject to
certain limitations, Forum Group and the Investors have also agreed to indemnify
each other and certain related persons from and against losses, damages or
expenses resulting from inaccuracies or breaches of their respective
representations, warranties or covenants contained in the Acquisition
Agreement.
See Item 3, "Legal Proceedings" for a discussion of certain litigation
relating to certain of the foregoing transactions.
ITEM 2. PROPERTIES.
Forum Group presently owns, leases or manages the following facilities:
<TABLE>
<CAPTION>
Number of Units
Number of Facilities and/or Beds
----------------------------- -------------------------------
Owned Leased Managed Total Owned Leased Managed Total
----- ------ ------- ----- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental Retirement
Communities 7 1 14 22 1,860 211 2,612 4,683
Lifecare Retirement
Communities 1 -0- 2 3 276 -0- 673 949
Nursing Homes -0- 1 -0- 1 -0- 90 -0- 90
--- --- --- -- ----- --- ----- -----
8 2 16 26 2,136 301 3,285 5,722
=== === === == ===== === ===== =====
</TABLE>
10
<PAGE>
For each of Forum Group's last three fiscal years, the percentage of total
revenues contributed by each of the foregoing classes of facilities was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Rental Retirement
Communities $71,889 $68,719 $66,783
Lifecare Retirement
Communities 15,780 9,762 8,053
Nursing Homes 2,670 2,718 7,932
</TABLE>
For the fiscal year ended March 31, 1993, the overall average occupancy rate
for the facilities owned or leased by Forum Group throughout the year was
approximately 83%. The degree of utilization of each facility is dependent on
many factors. Occupancy rates may be adversely affected by the opening of newly
developed facilities and the expansion or renovation of existing facilities.
RENTAL RETIREMENT COMMUNITIES
Forum Group owns rental RCs in Arizona (2), Florida, Kansas, Ohio and Texas
(2); leases a rental RC in Kentucky; and manages rental RCs in California (2),
Delaware (6), Florida, Indiana, New Mexico, South Carolina and Texas (2).
Except as described below, each Forum Group rental RC contains an independent
living component and a nursing component; and certain Forum Group rental RCs
also include an assisted living component. One Forum Group rental RC consists
of an assisted living component and a nursing component, and does not contain an
independent living component. Another Forum Group rental RC consists of an
independent living component and an assisted living component, and does not
contain a nursing component, but is adjacent to and enjoys the benefits of a
Forum Group rental RC which contains a nursing component.
The independent living component (if any) of each Forum Group rental RC
contains a variety of accommodations, together with amenities such as dining
facilities, lounges and game and craft rooms. All residents of the independent
living components are provided security, meals and housekeeping and linen
service. Emergency healthcare service is available twenty-four hours a day from
an on-site nursing staff, and each independent living unit is equipped with an
emergency call system. The independent living components of Forum Group rental
RCs consist of apartments, villas and, in the case of two RCs, condominiums.
Rental RC independent living first person residency fees presently range from
$850 to $5,920 per month, depending on the size of accommodations. Each rental
RC apartment and villa resident enters into a residency agreement that may be
terminated by the resident on short notice, and each rental RC condominium
resident enters into a residency agreement coterminous with his or her
ownership. Although there can be no assurance that, as apartment and villa
residency agreements expire or are terminated, available apartments and villas
will be reoccupied, 80-90% of the residents of the apartments and villas
historically have renewed their residency agreements from year to year. All
residents of the independent living components of Forum
11
<PAGE>
Group rental RCs are assured space (subject to availability) in the assisted
living (if any) and nursing components should the need therefor arise.
The nursing component (if any) of each Forum Group rental RC provides
residents a full range of nursing care. Residents have private or semiprivate
rooms, and share communal dining and social facilities. In most instances, each
resident of the independent living component of a Forum Group rental RC is
entitled to care in the assisted living (if any) or nursing component at no
extra charge for up to a specified number of days annually or an aggregate of a
specified number of days during the resident's lifetime. After utilizing this
accrued time, the resident pays for both independent living occupancy, and
assisted living or nursing care, until cancelling one or the other. The charge
for a semi-private nursing bed presently ranges from $70 to $184 per day.
The assisted living component (if any) of each Forum Group rental RC provides
residents a semistructured environment that encourages independent living.
Residents have private or semiprivate suites, eat meals in a private dining
room, and are provided the added services of scheduled activities, housekeeping
and linen service, preventive health surveillance, periodic health monitoring,
assistance with activities of daily living and emergency care. The charge for a
private assisted living suite presently ranges from $36 to $133 per day.
Forum Group rental RCs provide ancillary healthcare services, including the
operation of an adult day care center on the premises of one RC.
The following table indicates the name, location, capacity, occupancy rate and
average effective annual fees/charges per unit/suite/bed for each of the last
five fiscal years (each of the last five calendar years in the case of RCs owned
by affiliated operating partnerships of the Partnership), of each Forum Group
rental RC:
12
<PAGE>
<TABLE>
<CAPTION>
Capacity Occupancy Rate
Assisted Total Units/ Year Ended March 31,
Independent Living Nursing Suites/Beds
Name and Location Living Units Suites Beds 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Owned Facilities:
The Forum at Memorial 203 37 96 336 73.5% 49.7% 29.6% 16.2% N/A
Woods
Houston, Texas
The Forum at Park Lane 192 38 90 320 84.7% 57.7% 23.7% N/A N/A
Dallas, Texas
The Forum at Deer Creek 164 45 60 269 92.9% 60.2% 28.9% N/A N/A
Deerfield Beach, Florida
The Forum at Tucson 149 30 67 246 90.7% 55.2% 31.9% 8.5% N/A
Tucson, Arizona
The Forum at Desert 155 30 57 242 91.7% 62.8% 27.3% 6.2% N/A
Harbor
Peoria, Arizona
The Forum at 120 60 60 240 94.1% 70.3% 42.4% 22.7% N/A
Knightsbridge
Columbus, Ohio
(ground lease expires
2028*)
The Forum at Overland 117 30 60 207 94.7% 65.6% 48.8% 21.0% N/A
Park --- --- --- -----
Overland Park, Kansas 1,100 270 490 1,860
----- --- --- -----
Leased Facility:
The Lafayette at Country
Place/Lexington Country
Place
Lexington, Kentucky
(leases expire 2010 and
2016, respectively) 100 -0- 111 211 96.7% 94.3% 94.3% 92.9% 94.2%
----- --- --- -----
100 -0- 111 211
----- --- --- -----
Managed Facilities:
The Montevista at 123 15 120 258 83.7% 81.1% 74.3% 58.9% 40.9%
Coronado**
El Paso, Texas
(management agreement
expires upon the
expiration or
termination of the term
of the Company, and
provides for
management fees equal to
8% of
gross operating revenues)
<CAPTION>
Average Effective Annual Fees/Charges
Per Unit/Suite/Bed
Year Ended March 31,
Name and Location 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Owned Facilities:
The Forum at Memorial $25,668 $29,194 $30,649 $ 9,445 N/A
Woods
Houston, Texas
The Forum at Park Lane $25,323 $27,868 $29,242 N/A N/A
Dallas, Texas
The Forum at Deer Creek $21,612 $23,452 $25,083 N/A N/A
Deerfield Beach, Florida
The Forum at Tucson $21,810 $24,670 $26,404 $11,217 N/A
Tucson, Arizona
The Forum at Desert $20,516 $21,660 $24,769 $37,206 N/A
Harbor
Peoria, Arizona
The Forum at $27,091 $29,973 $30,452 $ 7,377 N/A
Knightsbridge
Columbus, Ohio
(ground lease expires
2028*)
The Forum at Overland $22,092 $24,872 $25,991 $21,514 N/A
Park
Overland Park, Kansas
Leased Facility:
The Lafayette at Country
Place/Lexington Country
Place
Lexington, Kentucky $22,373 $11,031 $10,619 $10,140 $ 9,269
(leases expire 2010 and
2016, respectively)
Managed Facilities:
The Montevista at $22,065 $20,321 $19,823 $17,690 $12,145
Coronado**
El Paso, Texas
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for
management fees equal to
8% of
gross operating revenues)
- ----------
</TABLE>
* All lease and management agreement expiration dates in this report assume the
exercise of all available extension and/or renewal options.
**Owned by an affiliated entity.
***Years ended December 31, 1992, 1991, 1990, 1989 and 1988, in the case of RCs
owned by affiliated operating partnerships of the Partnership.
13
<PAGE>
<TABLE>
<CAPTION>
Capacity
Assisted Occupancy Rate-Year Ended March 31,
Independent Living Nursing Total Units/
Name and Location Living Units Suites Beds Suites/Beds 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Park Summit of Coral
Springs**
Coral Springs, Florida
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) 197 24 35 256 89.1% 76.3% 76.3% 77.4% 62.6%
The Forum at Lincoln
Heights**
San Antonio, Texas
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) 152 30 60 242 90.9% 68.5% 56.3% 17.1% N/A
Forwood Manor*
Wilmington, Delaware
(management agreement
expires upon the
expiration or
termination of the term
of Forum Retirement
Communities II, L.P.
("FRCIILP")
(59.4%-owned), and
provides for management
fees equal to (i) for
the first six years a
varying percentage of
net cash flow after
debt service, and (ii)
thereafter, 5% of gross
operating revenues) 119 30 60 209 93.8% 76.7% 67.1% 64.8% 23.2%
The Remington Club at
Rancho Bernardo - Phase
I**
San Diego, California
(management agreement
expires upon the
expiration or
termination of the term
of FRCIILP, and
provides for management
fees equal to (i) for
the first six years, a
varying percentage of
net cash flow after
debt service, and (ii)
thereafter, 5% of gross
operating revenues) 146 -0- 59 205 81.0% 79.5% 78.9% 90.4% 64.2%
<CAPTION>
Average Effective Annual Fees/Charges
Per Unit/Suite/Bed - Year Ended March 31,
Name and Location 1993 1992 1991 1990 1989***
<S> <C> <C> <C> <C> <C>
The Park Summit of Coral
Springs**
Coral Springs, Florida
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating $22,629 $25,072 $24,177 $21,596 $19,451
revenues)
The Forum at Lincoln
Heights**
San Antonio, Texas
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) $25,168 $18,858 $22,779 $10,190 N/A
Forwood Manor*
Wilmington, Delaware
(management agreement
expires upon the
expiration or
termination of the term
of Forum Retirement
Communities II, L.P.
("FRCIILP")
(59.4%-owned), and
provides for management
fees equal to (i) for
the first six years a
varying percentage of
net cash flow after
debt service, and (ii)
thereafter, 5% of gross
operating revenues) $30,584 $32,073 $31,339 $24,193 $19,322
The Remington Club at
Rancho Bernardo - Phase
I**
San Diego, California
(management agreement
expires upon the
expiration or
termination of the term
of FRCIILP, and
provides for management
fees equal to (i) for
the first six years, a
varying percentage of
net cash flow after
debt service, and (ii)
thereafter, 5% of gross
operating revenues) $33,783 $31,625 $31,606 $26,006 $28,085
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Capacity
Assisted Occupancy Rate-Year Ended March 31,
Independent Living Nursing Total Units/
Name and Location Living Units Suites Beds Suites/Beds 1993 1992 1991 1990 1989***
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stonegates (50%-Owned)*
Greenville, Delaware
(management agreement
expires in 2004, and
provides for management
fees equal to 8% of
gross operating
revenues) 162 -0- 39 201 92.5% 92.3% 93.1% 93.5% 92.3%
The Remington Club at
Rancho Bernardo - Phase
II**
San Diego, California
(management agreement
expires upon the
expiration or
termination of the term
of Forum Retirement
Communities I, L.P.
("FRCILP")
(58.95%-owned), and
provides for management
fees equal to (i) for the
first six years, a
varying percentage of
net cash flow after
debt service, and (ii)
thereafter, 5% of gross
operating revenues) 100 100 -0- 200 75.0% 47.2% 26.3% N/A N/A
The Forum at the
Crossing*
Indianapolis, Indiana
(management agreement
expires upon the
expiration or
termination of the term
of FRCIILP, and
provides for management
fees equal to 5% of
gross operating
revenues) 117 14 60 191 93.1% 93.2% 95.3% 91.4% 91.1%
The Montebello on
Academy**
Albuquerque, New Mexico
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) 114 15 60 189 97.4% 85.0% 87.4% 80.8% 65.8%
Millcroft**
Newark, Delaware
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) 62 -0- 100 162 91.4% 87.9% 90.0% 93.6% 95.2%
<CAPTION>
Average Effective
Annual Fees/Charges
Per Unit/Suite/Bed - Year Ended March 31
Name and Location 1993 1992 1991 1990 1989***
<S> <C> <C> <C> <C> <C>
Stonegates (50%-Owned)*
Greenville, Delaware
(management agreement
expires in 2004, and
provides for management
fees equal to 8% of
gross operating
revenues) $25,566 $24,514 $23,287 $22,659 $21,334
The Remington Club at
Rancho Bernardo - Phase
II**
San Diego, California
(management agreement
expires upon the
expiration or
termination of the term
of Forum Retirement
Communities I, L.P.
("FRCILP")
(58.95%-owned), and
provides for management
fees equal to (i) for the
first six years, a
varying percentage of
net cash flow after
debt service, and (ii)
thereafter, 5% of gross
operating revenues) $29,880 $31,088 $33,110 N/A N/A
The Forum at the
Crossing*
Indianapolis, Indiana
(management agreement
expires upon the
expiration or
termination of the term
of FRCIILP, and
provides for management
fees equal to 5% of
gross operating
revenues) $26,465 $26,038 $24,128 $22,898 $21,178
The Montebello on
Academy**
Albuquerque, New Mexico
(management agreement
expires upon the
expiration or 114
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) $25,339 $25,722 $24,804 $24,815 $22,005
Millcroft**
Newark, Delaware
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) $27,615 $27,087 $25,071 $23,308 $23,167
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Capacity
Assisted Occupancy Rate-Year Ended March 31,
Independent Living Nursing Total Units/
Name and Location Living Units Suites Beds Suites/Beds 1993 1992 1991 1990 1989***
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shipley Manor**
Wilmington, Delaware
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) 61 -0- 82 143 90.2% 85.9% 90.8% 90.7% 97.6%
Myrtle Beach Manor**
North Myrtle Beach,
South Carolina
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) 59 -0- 80 139 93.5% 79.4% 86.1% 88.6% 87.5%
Foulk Manor North**
Wilmington, Delaware
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operations
revenues) 57 11 46 114 86.8% 88.1% 82.7% 84.6% 89.4%
Foulk Manor**
Wilmington, Delaware
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) -0- 51 52 103 86.4% 70.9% 83.5% 87.0% 93.8%
----- --- ----- -----
1,469 290 853 2,615
----- --- ----- -----
2,669 560 1,454 4,683
===== === ===== =====
</TABLE>
<TABLE>
<CAPTION>
Average Effective Annual Fees/Charges
Per Unit/Suite/Bed - Year Ended March 31,
Name and Location 1993 1992 1991 1990 1989***
<S> <C> <C> <C> <C> <C>
Shipley Manor**
Wilmington, Delaware
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) $28,129 $29,396 $26,655 $24,826 $23,482
Myrtle Beach Manor**
North Myrtle Beach,
South Carolina
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operating
revenues) $20,974 $20,752 $19,349 $17,872 $17,152
Foulk Manor North**
Wilmington, Delaware
(management agreement
expires upon the
expiration or
termination of the term
of the Partnership, and
provides for management
fees equal to 8% of
gross operations
revenues) $29,180 $26,711 $25,678 $23,601 $22,155
Foulk Manor**
Wilmington, Delaware
(management agreement
expires upon the
expiration or
termination of the term
of the Company, and
provides for management
fees equal to 8% of
gross operating
revenues) $28,116 $31,512 $29,583 $26,735 $25,656
</TABLE>
16
<PAGE>
LIFECARE RETIREMENT COMMUNITIES
Forum Group owns one lifecare RC, namely The Forum at Brookside ("Forum/
Brookside"), in Louisville, Kentucky; and manages two lifecare RCs, namely The
Forum - Pueblo Norte ("Forum/Pueblo Norte"), in Scottsdale, Arizona, and The
Forum at Rancho San Antonio, in Cupertino, California ("Forum/Rancho San
Antonio"). Forum/Brookside and Forum/Pueblo Norte were acquired by their
respective owners from other developers subsequent to commencement of
operations; Forum/Rancho San Antonio was developed by Forum Lifecare, a wholly-
owned subsidiary corporation of Forum Group.
Each Forum Group lifecare RC contains an independent living component and a
nursing component; and Forum/Brookside and Forum/Rancho San Antonio also include
an assisted living component. The accommodations and services provided in the
various components of Forum Group lifecare RCs are substantially the same as
those provided in the various components of Forum Group rental RCs.
Forum Group lifecare RCs differ from Forum Group rental RCs in the method(s)
of payment by current and former independent living residents. At Forum Group
rental RCs, independent living residents generally make no "front-end" payment
and only pay monthly residency fees. At Forum Group lifecare RCs, independent
living residents generally make substantial "front-end" payments and pay monthly
residency (and, in the case of two lifecare RCs, healthcare) fees that are
substantially less than monthly residency fees for comparable accommodations at
Forum Group rental RCs. In addition, independent living residents of Forum
Group lifecare RCs who transfer to the assisted living (if any) or nursing
component generally pay healthcare fees which are substantially less than those
paid by independent living residents of Forum Group rental RCs who so transfer.
Each of Forum/Pueblo Norte and Forum/Rancho San Antonio is owned by a
nonprofit cooperative housing corporation sponsored by Forum Lifecare. At those
RCs, the "front-end" payment takes the form of the purchase price of a
membership in the cooperative housing corporation. Each membership is allocated
to an independent living unit in the RC, and the purchase of a membership
entitles the purchaser to a long-term proprietary lease of the unit. Upon resale
of the membership, the resident (or his or her estate) and the cooperative
housing corporation share equally any excess of the sale proceeds over the
resident's membership purchase price. At Forum/Pueblo Norte, independent living
residents may elect to purchase memberships subject to an option in favor of the
cooperative housing corporation to repurchase upon cessation of occupancy at a
price which reduces to zero over six or sixty months. The assisted living (if
any) and nursing components of each of Forum/Pueblo Norte and Forum/Rancho San
Antonio are leased to a separate nonprofit corporation, the sole member of which
is Forum Lifecare, and each member/independent living resident is required to
enter into a healthcare agreement with that lessee. Membership purchase prices
at Forum/Pueblo Norte and Forum/Rancho San Antonio presently range from $68,250
to $236,250, and $199,000 to $630,000, respectively; first person monthly
residency fees at those RCs for independent living residents purchasing
memberships presently range from $910 to $1,500, and $1,035 to $2,335,
respectively; and first person monthly healthcare fees at those RCs for members
presently range from $230 to $412, respectively.
At Forum/Brookside, the "front-end" payment takes the form of an interest-free
loan to the owner of the RC, which may or may not be repaid in whole or in part
(depending upon the refund option selected by the resident) from the
17
<PAGE>
proceeds of the next "front-end" payment in respect of the subject unit.
Required interest-free loans at Forum/Brookside presently range from $62,140 to
$159,900; and first person monthly residency fees at that RC for independent
living residents making interest-free loans presently range from $740 to $1,300.
At each of Forum/Brookside and Forum/Pueblo Norte, certain independent living
residents are parties to residency agreements with the previous sponsors which
were assumed by the current owners. Under those agreements, the "front-end"
payments took the form of an entrance fee which is 100% (in the case of
Forum/Brookside) or 90% (in the case of Forum/Pueblo Norte), as the case may be,
refundable to the resident (or his or her estate) from the next entrance fee
paid in respect of the subject unit. Refundable entrance fees at
Forum/Brookside and Forum/Pueblo Norte ranged from $31,500 to $111,000; and
first person monthly residency fees at those RCs for independent living
residents paying refundable entrance fees presently range from $494 to $1,119,
and $893 to $1,754, respectively.
At Forum/Brookside and Forum/Pueblo Norte, independent living residents are
also offered the alternative of a rental residency agreement. In addition, the
second phase of the independent living component of Forum/Rancho San Antonio has
not been certified as a lifecare RC, and units in that phase are presently
available only on a rental basis. First person rental residency fees at Forum
Brookside, Forum/Pueblo Norte and Forum/Rancho San Antonio presently range from
$1,275 to $2,625, $1,000 to $2,730, and $1,035 to $1,835, respectively.
The following table indicates the name, location capacity, occupancy rate and
average effective annual fees/charges per unit/suite/bed for each of the last
five fiscal years, of each Forum Group lifecare RC:
18
<PAGE>
<TABLE>
<CAPTION>
Capacity
Assisted Occupancy Rate-Year Ended March 31,
Independent Living Nursing Total Units/
Name and Location Living Units Suites Beds Suites/Beds 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Owned Facility:
The Forum at Brookside
Louisville, Kentucky 216 20 40 276 89.1% 77.3% 67.9% 63.0% 37.1%
--- -- -- ---
216 20 40 276
--- -- -- ---
Managed Facilities:
The Forum at Rancho San
Antonio Cupertino, California
(management agreement expires
in 1996 and provides for
management fees equal to $4
of gross operating revenues) 319 34 48 401 55.9% 34.3% N/A N/A N/A
The Forum-Pueblo Norte
Scottsdale, Arizona
(management agreement expires
in 1993 and provides for
management fees equal to 4%
of gross operating revenues) 169 -0- 103 272 93.0% 56.2% 63.5% 69.9% 70.0%
--- --- --- ---
488 34 151 673
--- --- --- ---
704 54 191 949
=== === === ===
</TABLE>
<TABLE>
<CAPTION>
Average Effective Annual Fees/Charges
Per Unit/Suite/Bed - Year Ended March 31,
Name and Location 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Owned Facility:
The Forum at Brookside
Louisville, Kentucky $17,463 $18,112 $17,863 $15,677 $13,800
Managed Facilities:
The Forum at Rancho San
Antonio Cupertino, California
(management agreement expires
in 1996 and provides for
management fees equal to $4
of gross operating revenues) $18,439 $13,364 N/A N/A N/A
The Forum-Pueblo Norte
Scottsdale, Arizona
(management agreement expires
in 1993 and provides for
management fees equal to 4%
of gross operating revenues) $20,276 $24,870 $20,930 $18,286 $ 8,844
</TABLE>
19
<PAGE>
The following table indicates the number of independent living units occupied
at each Forum Group lifecare RC as of May 31, 1993, under each payment method
described above:
<TABLE>
<CAPTION>
Refundable
Membership Interest- Entrance
Name and Location Purchase Free Loan Fee Rental Total
- ----------------- ---------- --------- --------- ------ -----
<S> <C> <C> <C> <C> <C>
The Forum at Rancho San
Antonio
Cupertino, California 148 N/A N/A 33 181
The Forum-Pueblo Norte
Scottsdale, Arizona 48 N/A 68 41 157
The Forum at Brookside
Louisville, Kentucky N/A 45 24 116 185
--- --- --- --- ---
196 45 92 190 523
=== === === === ===
</TABLE>
NURSING HOMES
Forum Group leases one nursing home, namely Lewes Convalescent Center, in
Lewes, Delaware ("Lewes"), which has a capacity of 90 beds, pursuant to a lease
expiring in 2029.
Lewes provides convalescent and rehabilitative treatment of inpatient adults,
including those who are admitted after hospitalization and before returning to
their homes, and is designed to supplement general hospital care, rather than
compete directly with general hospitals. The services furnished by Lewes
include room, board, nursing care, drugs, supplies, medical equipment, other
medical services, social activities, and occupational, physical, recreational
and speech therapies. Lewes contains private and semiprivate rooms, and the
charge for a private room is presently $92 per day. Lewes contains a dining
room, a kitchen, a physical therapy section for therapeutic and rehabilitative
care, offices, lounges, a television room and reception areas. The admission,
treatment and discharge of each resident are under the direction of the
resident's attending physician. Although no full-time staff physicians are
retained, Lewes has consulting and on-call physicians as required. Lewes has a
transfer agreement with a nearby hospital, facilitating the transfer of
residents and medical records, and providing access to emergency medical
treatment if required.
The following table indicates the occupancy rate and average effective annual
charges per bed for each of the past five fiscal years, for Lewes:
20
<PAGE>
<TABLE>
<CAPTION>
Average Effective
Occupancy Annual Charges
Year ended March 31, Rate Per Bed
- ----------------------- ---------- -----------------
<S> <C> <C>
1993 91.1% $26,306
1992 96.0% $26,604
1991 95.9% $27,068
1990 97.7% $25,720
1989 91.9% $30,739
</TABLE>
MORTGAGES
On the Closing Date all borrowings under the Senior Secured Term Loan
Agreement were fully repaid and retired with the proceeds from the New Term Loan
Agreement, the New Senior Notes and other funds. All assets of Forum Group
which had served as collateral for the Senior Secured Term Loan, including first
mortgages on all rental RCs owned by Forum other than The Forum at Knightsbridge
("Forum/Knightsbridge") were released. On the Closing Date, each rental RC
owned by Forum Group, other than Forum/Knightsbridge and Lewes, became subject
to a first mortgage securing borrowings under the New Term Loan Agreement
(substantially all of Forum Group's other assets have also been pledged or
otherwise encumbered as security under the New Term Loan Agreement). The
current principal amount outstanding under the New Term Loan Agreement is
$50,000,000; and outstanding borrowings under the New Term Loan Agreement bear
interest at either the prime rate plus two percent (2%) or the Eurodollar rate
plus three and one-half percent (3.5%). Interest is to be paid quarterly.
Principal payments are to be paid quarterly, with $1,000,000 due on December 31,
1993 and March 31, 1994; $1,500,000 thereafter through March 31, 1995;
$2,250,000 thereafter through March 31, 1996; and $2,750,000 thereafter to
maturity on March 31, 1999.
Forum/Knightsbridge is subject to a first mortgage securing a loan made by
Teachers Insurance and Annuity Association of America (the "Teachers' Loan").
The current outstanding principal amount of the Teachers' Loan is $14,978,000,
and the Teachers' Loan bears interest at the rate of 10-1/2% per annum.
Principal and interest are payable in varying monthly installments through and
including December 1, 1997, and a "balloon" payment of $13,500,000 is payable on
December 31, 1997. Forum Group may not prepay the Teachers' Loan prior to
January l, 1996; thereafter, Forum Group may prepay the Teachers' Loan without
premium or penalty.
DEPRECIATION
The following table indicates, with respect to each component of each RC owned
or leased by Forum Group, and of Lewes, upon which depreciation is taken, the
net federal tax basis as of March 31, 1993, rate, method and life claimed with
respect to that component for purposes of depreciation:
21
<PAGE>
<TABLE>
<CAPTION>
Net Federal
Tax Basis Life
Name and Location Component (3/31/93) Rate Method* (Years)
- ----------------- --------- --------- ---- ------- -------
<S> <C> <C> <C> <C> <C>
The Forum at Real property $12,943,291 Various SL 15-40
Memorial Woods Personal property 1,141,057 Various ADS/SL 5-10
Houston, Texas
The Forum at Real property 25,267,504 Various SL 20-40
Park Lane Personal property 1,154,103 Various ADS/SL 5-10
Dallas, Texas
The Forum at Real property 19,939,275 Various SL 40
Deer Creek Personal property 780,488 Various ADS/SL 7-10
Deerfield Beach,
Florida
The Forum at Real property 16,466,589 Various SL 40
Tucson Personal property 577,387 Various ADS/SL 5-10
Tucson, Arizona
The Forum at Real property 16,754,554 Various SL 40
Desert Harbor Personal property 650,323 Various ADS/SL 7-10
Peoria, Arizona
The Forum at Real property 13,307,120 Various SL 20-40
Knightsbridge Personal property 635,410 Various ADS/SL 5-10
Columbus, Ohio
The Forum at Real property 13,254,387 Various SL 15-40
Overland Park Personal property 625,815 Various ADS/SL 5-10
Overland Park,
Kansas
The Forum at Real property 11,430,314 Various MACRS/SL 15-31
Brookside Personal property 260,164 Various MACRS/SL 5-7
Louisville,
Kentucky
The Lafayette at Real property 7,175,856 Various MACRS/SL 15-31
Country Place/ Personal property 258,970 Various MACRS/SL 5-7
Lexington
Country Place
Lexington,
Kentucky
Lewes Real property 553,992 Various ACRS/MACRS 15-31
Convalescent Personal property 107,309 Various MACRS 5-7
Center
Lewes, Delaware
</TABLE>
- ----------
* ACRS = Accelerated cost recovery system
ADS = Alternative depreciation system
MACRS = Modified accelerated cost recovery system
SL = Straight line
__________
22
<PAGE>
REAL ESTATE TAXES
The following table indicates, with respect to each RC owned or leased by
Forum Group, and Lewes, the assessed value, real estate tax rate and annual real
estate taxes for calendar year 1992:
<TABLE>
<CAPTION>
Assessed Real Estate Annual Real
Name and Location Value Tax Rate Estate Taxes
- ----------------- ------------ ------------ ------------
<S> <C> <C> <C>
The Forum at Memorial Woods $17,213,240 2.89% $ 497,862
Houston, Texas
The Forum at Park Lane 15,721,380 2.53 397,439
Dallas, Texas
The Forum at Deer Creek 7,184,993 2.57 184,993
Deerfield Beach, Florida
The Forum at Tucson 8,544,375 1.77 151,187
Tucson, Arizona
The Forum at Desert Harbor 9,322,070 1.56 145,804
Peoria, Arizona
The Forum at Knightsbridge 8,757,686 1.77 155,140
Columbus, Ohio
The Forum at Overland Park 7,255,300 1.72 124,861
Overland Park, Kansas
The Forum at Brookside 8,200,000 0.95 78,146
Louisville, Kentucky
The Lafayette at Country Place/ 5,460,000 0.97 52,716
Lexington Country Place
Lexington, Kentucky
Lewes Convalescent Center 441,840 2.98 13,159
Lewes, Delaware
----------- ---- ----------
$88,100,884 2.04% $1,801,307
=========== ==== ==========
</TABLE>
SOURCES OF PAYMENT
The independent and assisted living components (if any) of Forum Group RCs
receive direct payment for resident occupancy solely on a private pay basis.
Forum Group nursing facilities (including the nursing components, if any, of
Forum Group RCs) receive payment for resident care directly on a private pay
basis, including payment from private health insurance, and from governmental
reimbursement programs such as the federal Medicare program for certain elderly
and disabled residents, and state Medicaid programs for certain indigent
residents. The following table indicates the approximate percentages of
operating revenues for each of the last five fiscal years derived by the
facilities owned or leased by Forum Group from private sources, Medicare and
Medicaid, and other sources:
23
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year ended March 31,
--------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Retirement Communities:
Private 88.6% 97.3% 95.0% 90.1% 92.9%
Medicare and Medicaid 11.3 2.4 5.0 9.8 6.9
Other 0.1 0.3 -0- 0.1 0.2
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Other Facilities:
Private 37.3% 48.2% 34.0% 38.9% 33.9%
Medicare and Medicaid 61.7 50.3 65.0 49.2 62.0
Other 1.0 1.5 1.0 11.9 4.1
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Total:
Private 86.5% 94.7% 90.0% 66.1% 48.8%
Medicare and Medicaid 13.4 5.0 10.0 28.2 48.2
Other 0.1 0.3 -0- 5.7 3.0
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Most private insurance carriers reimburse their policyholders, or make direct
payment to facilities, for covered services at rates established by the
facilities. Where applicable, the resident is responsible for any difference
between the insurance proceeds and the total charges. In certain states, Blue
Cross plans pay for covered services at rates negotiated with facilities. In
other states, Blue Cross plans are administered under contracts with facilities
providing for payment under formulae based on the cost of services. The
Medicare program also makes payment under a cost-based reimbursement formula
plus a return on equity. Under the Medicaid program, each state is responsible
for developing and administering its own reimbursement formula.
Within the statutory framework of the Medicare and Medicaid programs, there
are substantial areas subject to administrative rulings, interpretations and
discretion which affect payment made under those programs. In addition, the
federal or state governments might reduce the funds available under those
programs in the future or require more stringent utilization of healthcare
facilities. Those measures could adversely affect Forum Group's future revenues
and, therefore, the value of Forum Group's facilities.
At any given time, there are numerous federal and state legislative proposals
relating to the funding and reimbursement of healthcare costs. It is difficult
to predict whether those proposals will be adopted or the form in which they
might be adopted. Accordingly, It is not possible to assess the effect of any
of those proposals on Forum Group.
REGULATION AND OTHER FACTORS
RC and nursing home operations are subject to federal, state and local
government regulations. Facilities are subject to periodic inspection by state
24
<PAGE>
licensing agencies to determine whether the standards necessary for continued
licensure are maintained. In granting and renewing licenses, the state agencies
consider, among other things, buildings, furniture and equipment; qualifications
of administrative personnel and staff; quality of care; and compliance with laws
and regulations relating to operation of facilities. State licensure of a
nursing facility is a prerequisite to certification for participation in the
Medicare and Medicaid programs. Forum Group believes that all of Forum Group's
facilities are presently in substantial compliance with all applicable federal,
state and local regulations with respect to licensure requirements. However,
because those standards are subject to change, there can be no assurance that
Forum Group's facilities will be able to maintain their licenses upon a change
in standards, and future changes in those standards could necessitate
substantial expenditures by Forum Group to comply therewith. Most states have
licensure requirements for the assisted living components of RCs; however, those
requirements are generally much less comprehensive and stringent than
requirements for licensure of nursing facilities. Most states do not have
licensure requirements for the independent living components of rental RCs.
Certain states in which Forum Group operates nursing facilities have adopted
certificate of need ("CON") statutes which provide that, prior to construction
of a new nursing facility or provision of new nursing services, a state agency
must determine that a need for the new facility or services exists. A CON for a
new nursing facility is generally issued for a specific maximum amount of
expenditure, and the holder of a CON is generally required to implement the
approved project within a specific time period. In most states, CONs are not
required for the independent and assisted living components of RCs.
COMPETITION
Forum Group facilities compete with senior housing and long-term healthcare
facilities of varying similarity in the respective geographical market areas in
which Forum Group facilities are located. Competing facilities are operated on
a national, regional and local basis by religious groups and other nonprofit
organizations, as well as by private operators, some of which have substantially
greater resources than Forum Group. The independent living components of Forum
Group RCs face competition from the various types of residential opportunities
available to the elderly. However, the number of luxury residential communities
that offer on-premises healthcare services is limited. The assisted living and
nursing components of Forum Group RCs, as well as Lewes, compete with other
assisted living and nursing facilities, and, to a lesser extent, with general
hospitals. Because the target market segment of Forum Group RCs is relatively
narrow, the risk of competition may be higher than with some other types of RCs.
Additionally, Forum Group facilities may be subject to competition from new RCs,
and assisted living and nursing facilities, developed in close proximity to
them.
Significant competitive factors for attracting residents to the independent
living components, of Forum Group RCs include price, physical appearance, and
amenities and services offered. Additional competitive factors for attracting
residents to the assisted living and nursing components of Forum Group RCs, and
to Lewes, include quality of care, reputation, physician and nursing services
available, and family preferences. Forum Group believes that its facilities are
generally competitive based on these factors, except that its facilities are
generally more expensive than competing facilities. The assisted living
25
<PAGE>
and nursing components of Forum Group RCs, and Lewes, are designed to
supplement, not to compete with, services provided by general hospitals.
Forum Group experiences intense competition in the search for nurses,
technicians, aides and other high quality professional and nonprofessional
employees.
INSURANCE
Forum Group maintains professional liability, comprehensive general liability
and other typical insurance coverage on all its facilities. Forum Group
believes that its insurance is adequate in amount and coverage.
EMPLOYEES
Forum Group employs approximately 4,000 persons, of whom approximately 80 are
employed pursuant to collective bargaining agreements. Forum Group has not
experienced any material labor disputes.
ITEM 2. PROPERTIES.
- ------ ----------
The physical properties owned, leased, managed and/or used by Forum Group are
described in Item 1, "Business" of this report. See Note 7 to Consolidated
---
Financial Statements (Predecessor Company) and Note 5 to Consolidated Balance
Sheet (Successor Company) for additional information concerning mortgages and
leases with respect to those properties.
ITEM 3. LEGAL PROCEEDINGS.
- ------ -----------------
FORUM/CLASSIC CLAIMS. On April 29, 1993, Forum/Classic, Dalfort, Diamond
--------------------
Investments, Ltd. and Morris Weiser (collectively, the "Forum/Classic
Plaintiffs") filed suit in the Superior Court of Marion County, Indiana, against
Forum Group, the persons who then comprised the Board (the "Director
Defendants"), and Apollo, Apollo Advisors, Evergreen, Genpar, and Forum Holdings
(collectively, the "Investor Defendants"). The Forum/Classic Plaintiffs
alleged, among other things, that the Director Defendants breached their
fiduciary duties by entering into the Acquisition Agreement (as originally in
effect) and that the Investor Defendants knowingly participated in such alleged
breaches of fiduciary duties. The Forum/Classic Plaintiffs further alleged that
Forum Group breached an alleged contract to enter into certain transactions
proposed by Forum/Classic and Dalfort and that the Investor Defendants induced
such breach and interfered with an alleged business relationship between
Forum/Classic and Dalfort and Forum Group. The Forum/Classic Plaintiffs sought
on behalf of themselves and alleged other similarly situated shareholders, among
other things, (i) the rescission of the Acquisition Agreement (as originally in
effect) and certain related agreements and the issuance of the Series B
Preferred Stock, (ii) an injunction prohibiting the consummation of the
transactions contemplated by the Acquisition Agreement (as originally in effect)
and certain related agreements, (iii) an order requiring Forum Group to
consummate the transactions proposed by Forum Classic and Dalfort, (iv)
attorneys' fees, (v) expenses, and (vi) punitive damages against the Director
Defendants and the Investor Defendants. A hearing was held in the matter on May
19 and 20, 1993. The hearing was of a preliminary nature as to the Director
Defendants and final as to all other defendants on all of the claims for
injunctive relief. On June 4, 1993, the presiding court
26
<PAGE>
entered an order (the "Order") enjoining the defendants from taking any action
to consummate the Non-Liquidity Transaction but otherwise permitting the
defendants to proceed with the transactions contemplated by the Acquisition
Agreement, provided that it was modified to provide for the Liquidity
Transaction. The court also concluded that (i) the decision by the Forum
Group's Board of Directors to enter into the February 1 Agreement in Principle
was made in good faith after reasonable investigation, the February 1 Agreement
in Principle is conclusively presumed to be valid, and Forum Group is bound
thereby and (ii) no contract existed between Forum Group and Forum/Classic or
Dalfort. On June 11, 1993, the Forum/Classic Plaintiffs filed a motion (the
"Contempt Motion") to find Forum Group and the Investor Defendants in contempt
of the Order. The Forum/Classic Plaintiffs alleged in the Contempt Motion,
among other things, that, because the June 6 Agreement provided that the $3.62
per Common Share was subject to adjustment for dilution based on the issuance of
Common Shares or for the payment of certain administrative claims, in each case
under the Debtors' Modified Third Amended Plan, the consummation of the
transactions contemplated by the April 18 Agreement, as modified by the June 6
Agreement, would violate the Order. Although the court denied the Contempt
Motion, it amended the Order to make it clear that the Liquidity Transaction, in
order to be consistent with the Order, must provide for the payment of $3.62 per
Common Share without adjustment. A hearing date for final adjudication of the
claims against the Directors has not been set. On June 4, 1993, the
Forum/Classic Plaintiffs filed a pleading with the presiding court which is a
preliminary step in an appeal.
MELANIE MEREDITH CLAIMS. On July 23, 1986, Melanie Meredith, her son and her
-----------------------
parents instituted an action against Forum Group in connection with Ms.
Meredith's pregnancy and the birth of her son. The action was filed in the
Superior Court of Marion County, Indiana, and transferred to the Circuit Court
of Johnson County, Indiana. Ms. Meredith was a resident of Riverview Manor
Nursing Home during the period Forum Group owned that facility. Plaintiffs
allege that Ms. Meredith's son was conceived in 1985 following a sexual assault
by another resident of that facility. In the complaint, Ms. Meredith requested
undifferentiated compensatory and punitive damages under various theories in an
unspecified amount, her son requested compensatory damages in the amount of
$500,000 and her parents requested compensatory damages in the sum of $200,000.
Forum Group's principal general liability insurance carrier has asserted that
punitive damages are not covered under its policy. The parents' claim was
dismissed and not appealed. On July 25, 1991, the Indiana Supreme Court,
reversing a decision of the Indiana Court of Appeals, ruled that Ms. Meredith's
son's "wrongful life" claim was not cognizable under Indiana law and that Forum
Group was therefore entitled to judgment thereon as a matter of law. The
Indiana Supreme Court also remanded for trial Ms. Meredith's son's claim for
negligent failure to detect his mother's pregnancy and enable prenatal care.
Ms. Meredith and her son filed a joint claim against Forum Group in the
Reorganization Proceedings in the amount of $20,000,000. On December 2, 1992
the Bankruptcy Court issued an order disallowing all claims for punitive
damages. Further proceedings before the trial court are expected with respect
to claims for compensatory damages.
MADDOCK LITIGATION. On May 7, 1992, Charles S. Maddock, a resident of
------------------
Stonegates, a condominium RC in Greenville, Delaware, instituted an action
against Greenville Retirement Community, L.P. ("GRCLP"), the developer and
managing agent of, and owner of the service units (i.e., nursing, kitchen and
----
dining facilities) at, Stonegates, in the Court of Chancery of the State of
Delaware in and for New Castle County ("State Court Action"). Forum Group is
the sole general partner of, and the owner of a 50% beneficial interest in,
GRCLP.
27
<PAGE>
Forum Group is also the operator and manager of Stonegates pursuant to an
operation and management agreement with GRCLP under which, inter alia, GRCLP
----- ----
delegated to Forum Group all of GRCLP's duties and responsibilities as managing
agent of Stonegates. Mr. Maddock alleges that (i) GRCLP violated the
condominium declaration and plan by using two condominium apartment units for a
sales office, a dining room and a health care unit, by moving the door to the
nursing facility, and by purportedly reserving other condominium apartment units
for persons requiring assisted living care; (ii) GRCLP failed to pay its share
of condominium common expenses; (iii) GRCLP violated its obligation to operate
and maintain Stonegates according to the highest standards achievable consistent
with its overall plan for Stonegates, and otherwise violated its management
agreement with the condominium council; (iv) there is no justification for
GRCLP's right to appoint three of the five members of the condominium council;
and (v) GRCLP's option to repurchase condominium units, as well as the
requirement that a condominium unit owner be a party to a residence agreement
with GRCLP, are unreasonable restraints on alienation of property. By way of
prayer for relief, Mr. Maddock seeks that (i) GRCLP be required to restore the
two condominium apartment units to their former use, and to bear all costs of
the initial change of use and the restoration; (ii) GRCLP be enjoined from
reserving condominium apartment units for persons requiring assisted living
care; (iii) GRCLP be required to account for and pay its share of condominium
common expenses; (iv) the management agreement between the condominium council
and GRCLP, and the operation and management agreement between GRCLP and Forum
Group, be terminated; (v) GRCLP's right to appoint three of the five members of
the condominium council be declared invalid; and (vi) GRCLP's option to
repurchase condominium units, as well as the requirement that a condominium unit
owner be a party to a residence agreement with GRCLP, be declared invalid. On
August 21, 1992, Forum Group instituted an action (the "Bankruptcy Court
Action") alleging that the relief requested in the State Court Action
effectively asserts a claim against Forum Group, the assertion of which is
barred under the terms of the Debtors' Modified Third Amended Plan, and
requesting injunctive relief preventing the further prosecution of the State
Court Action. On November 19, 1992, the Bankruptcy Court denied a motion by Mr.
Maddock to dismiss the Bankruptcy Court Action, and on January 11, 1993, Mr.
Maddock filed a motion with the Bankruptcy Court to modify the pending temporary
restraining order by allowing him to amend his complaint in the Delaware State
Court Action to remove "all mention of Forum from each count of the complaint".
Hearing on the issuance of a preliminary injunction, and on Mr. Maddock's most
recent motion, has been continued pending further discussions among the parties.
CHAPTER 11 PROCEEDINGS. Forum Group has objected to various claims filed
----------------------
against the Forum Debtors in the Reorganization Proceedings in addition to those
specifically described above, and further proceedings on those claims have been
and/or will be conducted before the Bankruptcy Court. As of March 31, 1993,
approximately 441,000 Reserved Shares were reserved for possible issuance to
holders of disputed general unsecured claims.
MALPRACTICE AND NEGLIGENCE CLAIMS. Forum Group has been named as a defendant
---------------------------------
in several professional malpractice and negligence actions, and may be subject
to other claims arising from services provided to residents of its facilities.
To the extent those claims arose before the Effective Date, they have received
or will receive treatment under the Debtors' Modified Third Amended Plan. Forum
Group maintains professional liability insurance, comprehensive general
liability insurance and other typical insurance coverage on its facilities.
Management believes that those actions are either adequately insured or reserved
against, or, to the extent (if any) they are not insured or reserved
28
<PAGE>
against, will not materially adversely affect Forum Group's financial condition
or operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
------ ---------------------------------------------------
No matters were submitted during the fourth quarter of the fiscal year for
which this report is filed to a vote of security holders.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
------ ----------------------------------------------------------------
MATTERS.
- -------
(a) Market Information. The principal United States market in which Common
------------------
Shares are being traded is the over-the-counter market (symbol: FOURQ). Common
Share price quotations can be found in The Wall Street Journal. At May 28,
-----------------------
1993, eight securities firms maintained inventories of Common Shares and acted
as market makers.
The high and low bid prices for Preconfirmation Common Shares and Common
Shares, as the case may be, for each full quarterly period within the two most
recent fiscal years, as reported in the National Association of Securities
Dealers, Inc. Automated Quotation System, were as follows:
<TABLE>
<CAPTION>
High Low
------- ---
<S> <C> <C>
Preconfirmation Common Shares:
Quarter ended June 30, 1991 $ 3/16 $ 3/32
Quarter ended September 30, 1991 3/16 1/16
Quarter ended December 31, 1991 3/32 1/32
Quarter ended March 31, 1992 3/32 1/32
Common Shares:
Quarter ended June 30, 1992 $1-3/4 $1-1/2
Quarter ended September 30, 1992 1-1/2 1-3/8
Quarter ended December 31, 1992 1-5/8 1-1/2
Quarter ended March 31, 1993 2-7/8 2-1/2
</TABLE>
(b) Holders. The approximate number of record holders of Common Shares as of
-------
June 11, 1993, was 3,400.
(c) Dividends. No cash dividends were declared on Preconfirmation Common
---------
Shares or Common Shares during Forum Group's two most recent fiscal years. The
New Term Loan Agreement prohibits Forum Group from paying any cash dividends on
Common Shares.
ITEM 6. SELECTED FINANCIAL DATA.
------ -----------------------
Selected financial data for Forum Group and its consolidated subsidiaries is
set forth below. The statement of operations and balance sheet data for the
fiscal year ended March 31, 1993 and the balance sheet data for the fiscal year
ended March 31, 1992 reflect the implementation of fresh-start accounting in
29
<PAGE>
conjunction with Forum Group's Chapter 11 reorganization. The statement of
operations data for all fiscal years ended prior to March 31, 1993 and the
balance sheet data for all fiscal years ended prior to March 31, 1992 do not
reflect the implementation of fresh-start accounting and, accordingly, are not
comparable to the data referred to in the preceding sentence. All such
financial data should be read in conjunction with the consolidated financial
statements (including the notes thereto) included elsewhere in this report.
30
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
--------- ----------- ----------- --------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS
- --------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 92,110 $ 79,768 $ 93,399 $ 108,835 $ 81,007
Loss from operations (7,359) (115,747) (109,198) (127,098)
Cumulative effect of
change in accounting
principle -0- -0- -0- -0- 1,360
Extraordinary gain -0- 116,195(1) -0- -0- -0-
Net income (loss) (7,359) 448 (109,198) (10,322) (25,738)
Per Common Share (2):
Income (loss) before
change in accounting
principle and extra-
ordinary gain (0.98) (3.56) (3.35) (0.32) (0.83)
Cumulative effect of
change in accounting
principle -0- -0- -0- -0- 0.04
Extraordinary gain -0- 3.57 -0- -0- -0-
Net income (loss) (0.98) 0.01 (3.35) (0.32) (0.79)
Dividends declared per
Common Share -0- -0- -0- 0.045 0.06
BALANCE SHEET:
- --------------------------
Total assets 348,641 393,046 468,848 517,350 409,250
Long-term obligations 226,540 260,791 409,633(3) 333,388 236,777
Shareholders' equity 18,445 19,394 521 109,231 121,016
Book value per Common
Share (b) 2.46 1.94 0.02 3.36 3.72
- --------------------------
</TABLE>
(1) Reflects gain from the extinguishment of debt pursuant to the
Reorganization Proceedings.
(2) Per share data for the fiscal year ended March 31, 1993 is based on
7,493,000 Common Shares issued and outstanding. Per share data for
the fiscal year ended March 31, 1992, is based on 10,000,000 Common
Shares issuable and outstanding. Per share data for the fiscal
years ended March 31, 1991, 1990 and 1989 is based on 32,548,108
Preconfirmation Common Shares.
(3) Includes liabilities subject to settlement in the Reorganization
Proceedings as of March 31, 1991.
31
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------ ---------------------------------------------------------------
RESULTS OF OPERATIONS.
- ---------------------
SUCCESSOR COMPANY
- -----------------
All consolidated financial statements for any period subsequent to March 31,
1992, are referred to herein as "Successor Company" as they reflect periods
subsequent to the implementation of fresh-start reporting and are not comparable
to the consolidated financial statements for periods prior to the implementation
of fresh-start reporting. The following discussion should be read in
conjunction with the consolidated financial statements (including the notes
thereto) included elsewhere in this report.
During fiscal year 1993, Forum Group concentrated its efforts in
implementation of a new operating plan, the objectives of which are to focus
Forum Group on RC operations and to reduce overhead and operating expenses. The
new operating plan entails, among other things, a significant organizational
restructuring, including a reduction in force. Costs and expenses for the fiscal
year ended March 31, 1993, included $767,000 ($0.10 per Common Share) of non-
recurring severance cost associated with a reduction in the number of employees
at the home office. The net loss for the year ended March 31, 1993 was
$7,359,000 ($0.98 per Common Share).
Forum Group emerged from Chapter 11 proceedings at the beginning of fiscal
year 1993 with a debt structure that required substantial principal payments
that could not be supported solely by anticipated cash from operations, but
required the liquidation of assets and/or refinancing of indebtedness. By the
end of the calendar year 1992, it became apparent that Forum Group could not
meet such amortization requirements and, accordingly, Forum Group began to
pursue, among other possible transactions, a possible debt refinancing or
recapitalization.
RESULTS OF OPERATIONS
Fiscal year 1993 was Forum Group's first year of operations subsequent to its
reorganization under Chapter 11 of the Bankruptcy Code. Consequently, Forum
Group's results of operations for fiscal year 1993 are not comparable to Forum
Group's results of operations for fiscal year 1992.
NET OPERATING REVENUES. Consolidated net operating revenues for fiscal year
----------------------
1993 were $90,963,000 (of which $27,294,000 was attributable to consolidated
joint ventures in which Forum Group is a participant). Consolidated net
operating revenues increased $6,307,000 (7.5%) compared to fiscal year 1992,
primarily as a result of improved occupancy. Combined occupancy, excluding
Forum/Rancho San Antonio, at March 31, 1993 was 89%, compared to 76% at March
31, 1992.
OTHER INCOME. Other income for fiscal year 1993 was $1,147,000, compared to
------------
other expense in fiscal year 1992 of $5,267,000. Other income and other expense
included Forum Group's share of the net losses of affiliated partnerships which
were $139,000 and $5,714,000 in 1993 and 1992, respectively. The decreases in
these losses were primarily due to increased occupancy and reduced expenses at
the RCs owned by these partnerships.
OPERATING GENERAL AND ADMINISTRATIVE EXPENSES. Operating expenses, including
---------------------------------------------
depreciation and amortization, for fiscal year 1993 were $79,356,000 (of which
$24,587,000 was attributable to consolidated joint ventures in which Forum Group
is a participant). This amount, which includes $8,939,000 of depreciation and
amortization (of which $4,979,000 was attributable to consolidated joint
ventures in which Forum Group is a participant), represents a decrease of
$7,944,000 (9.1%) as compared to fiscal year 1992, primarily as a result of
ongoing cost control efforts, as offset by normal inflationary increases and
increases attributable to increased occupancy.
32
<PAGE>
General and administrative expenses for fiscal year 1993 were $5,411,000, (of
which $128,000 was attributable to consolidated joint ventures in which Forum
Group was a participant). This amount represents a decrease of $1,565,000
(22.4%) as compared to fiscal 1992, primarily as a result of planned reductions
in overhead operating expenses. These expenses included $767,000 of non-
recurring severance cost associated with a reduction in the number of employees
at the home office.
INTEREST EXPENSE
Interest expense for fiscal year 1993 was $18,046,000. Based on interest
rates currently in effect and certain other assumptions, Forum Group estimates
that interest expense for fiscal year 1993 would have been approximately
$18,499,000 had the Recapitalization described below been consummated at the
beginning of fiscal year 1993.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES. Forum Group's principal sources of funds are
-------------------------------
cash generated from operating activities and asset sales. Forum Group's
liquidity requirements relate primarily to the funding of working capital needs,
and principal and interest payments on indebtedness (and, for fiscal year 1994,
will include substantial expenses associated with the Recapitalization and the
Liquidity Transaction). At March 31, 1993, Forum Group had cash and cash
equivalents of $5,723,000, accounts receivable of $2,925,000 and notes
investments and other receivables of $3,225,000. Following the consummation of
the Recapitalization on June 14, 1993, but prior to the payment of associated
expenses, Forum Group had cash and cash equivalents of approximately
$14,000,000.
Forum Group believes that, after giving effect to the Recapitalization, (i)
cash from operations, (ii) cash and cash equivalents, (iii) accounts receivable,
and (iv) notes, investments and other receivables (collectively, "Current
Items"), will provide adequate liquidity to meet its foreseeable working capital
requirements.
At the beginning of fiscal year 1993, Forum Group had one lifecare RC, namely
Forum/Rancho San Antonio, located in Cupertino, California, under construction.
The first phase of the independent living component of Forum/Rancho San Antonio
opened during September, 1991. During August, 1992, the health center opened,
and the entire community comprising 319 independent living units, 34 assisted
living suites, 48 nursing beds and various common areas, is now available for
occupancy. However, the second phase of the independent living component,
comprising 110 of the 319 independent living units, has not yet received certain
approvals required by state law in order to furnish continuing care. By law,
sales of memberships relating to units in the second phase of the independent
living component of Forum/Rancho San Antonio cannot be consummated until
contracts covering at least 60% of the available units therein have been entered
into. At March 31, 1993, contracts covering approximately 55% of such units had
been entered into and, in connection therewith, refundable deposits in amounts
equal to 20% of the sales price of each related membership unit were collected
and placed in escrow pending the closing of the sale thereof. Although Forum
Group believes that contracts covering an incremental number of units sufficient
to satisfy the aforementioned 60% threshold will be entered into in the near
future, there can be no assurance with respect thereto. At the present time
residents of the second phase occupy their living units under rental agreements.
At March 31, 1993, combined occupancy was 56%. Forum/Rancho San Antonio is owned
by a cooperative, the members of which are certain residents of Forum/Rancho San
Antonio's independent living units and Forum Lifecare, Inc., as owner of
memberships associated with certain independent living units. Permanent
financing of Forum/Rancho San Antonio is provided by the sale of memberships in
the cooperative. Construction financing in the amount of $79,750,000 had been
arranged for Forum/Rancho San Antonio through Bank of America National Trust and
Savings Association (which holds a trust mortgage on the property), with
additional funds provided through Unibank A/S (which holds a second mortgage on
the property) and, at March 31, 1993, the outstanding balance of construction
financing was $26,443,000, which is due on July 1, 1993, but is expected to be
extended to January,
33
<PAGE>
1994. While it is anticipated that such construction financing will be
refinanced, there can be no assurance as to whether, on the terms upon which,
any such refinancing may ultimately be effected.
On April 2, 1992, Forum Group completed the sale of two rental RCs, The
Broadway Plaza at Cityview ("Broadway Plaza"), in Fort Worth, Texas, and The
Forum at Westlake Hills ("Forum/Westlake Hills"), in Austin, Texas, to an assign
of American Retirement Corporation. The net proceeds of the transaction, in the
amount of $36,723,000, were used by Forum Group to pay down its secured bank
debt by $11,533,000, pay accrued interest thereon of $13,050,000 and pay accrued
real estate taxes of $1,526,000. Remaining net proceeds of the transaction were
used to establish (i) a cash collateral account of $9,197,000 to be used for
working capital purposes, including a disbursement subaccount of $3,000,000 to
be used only to make advances to Forum Lifecare, Inc., a subsidiary of Forum
Group, to (y) pay occupancy fees and rent under occupancy and lease agreements
for independent living units at Forum/Rancho San Antonio, and (z) make working
capital loans to Rancho San Antonio Retirement Housing Corporation, and (ii) a
letter of credit account of $1,417,000 to secure amounts payable pursuant to a
letter of credit guaranty. Those two RCs generated $2,554,000 of operating
income during fiscal year 1992.
RECAPITALIZATION. As described in item 1, "Business", Forum Group was
----------------
substantially recapitalized pursuant to the transactions contemplated by the
Acquisition Agreement (the "Recapitalization"). The principal components of the
Recapitalization included (i) the issuance and sale by Forum Group on February
1, 1993 of 25,000 shares of preferred stock (which ultimately were exchanged for
2,500,000 newly issued Common Shares on June 14, 1993) for an aggregate purchase
price of $5,000,000, (ii) the issuance and sale by Forum Group on June 14, 1993
of 7,098,200 Common Shares (together with warrants exercisable to purchase at a
nominal price an aggregate of 1.1555 Common Shares for each Reserved Share
issued on or after the Closing Date) for an aggregate purchase price of
$20,000,000, (iii) the borrowing by Forum Group on June 14, 1993 of $50,000,000
pursuant to the New Term Loan Agreement, (iv) the issuance and sale by Forum
Group on June 14, 1993 of $40,000,000 aggregate principal amount of New Senior
Subordinated Notes, and (v) the prepayment by Forum Group on June 14, 1993 of
all amounts outstanding under the Senior Secured Term Loan Agreement.
The New Term Loan requires that interest be paid quarterly at either the prime
rate plus 2% or the Eurodollar rate plus 3.5%, and requires quarterly principal
payments of $1,000,000 on December 31, 1993, and March 31, 1994; $1,500,000
through March, 1995; $2,250,000 through March 31, 1996; and $2,750,000
thereafter to maturity on March 31, 1999. The New Senior Subordinated Notes
require that interest be paid semi-annually at 12.5% to maturity in 2003 (at
which time the entire principal amount becomes due).
Scheduled principal payments (including scheduled principal payments under the
New Term Loan Agreement and The Forum/Rancho San Antonio construction financing
described above) on the Forum Group's consolidated indebtedness are due in
fiscal years 1994, 1995 and 1996 in the respective aggregate amounts of
$31,017,000, $35,017,000 and $38,017,000. Forum Group believes that it will
have sufficient liquidity and capital resources (including proceeds from
possible asset sales) to make such scheduled principal payments or to refinance
the underlying indebtedness at or prior to the due dates therefor. There can be
no assurance, however, as to whether, or the terms upon which, any such asset
sales or refinancing will be affected.
Forum Group will continue to monitor conditions in the capital markets and, if
appropriate in light of then-current market conditions, Forum Group's then
existing capital structure and requirements and other factors determined to be
relevant, may seek to refinance all or a portion of its or its subsidiaries' or
affiliates' existing indebtedness. In addition, Forum Group may seek to raise
equity capital to fund ongoing capital requirements, possible acquisitions of
businesses and assets or for other corporate purposes. There can be no
assurance that any such transactions will be completed or, if so, as to the
timing or terms thereof.
34
<PAGE>
TAXES. As of March 31, 1993, Forum Group had net operating loss (NOL)
-----
carryforwards of approximately $150,000,000, before the application of certain
loss carryforward limitations. Tax laws limit the carryforwards of NOLs as a
result of Forum Group's Chapter 11 reorganization and the second change in
ownership resulting from the completion of the Recapitalization. As a result of
these limitations, there may be significant reductions in, or possible
elimination of, the amount of available NOLs which may be utilized. Management
is currently determining the impact of certain elections and alternatives which
may be available related to the use of these NOL carryforwards. The NOLs will
expire, if not utilized, in varying amounts through fiscal year 2008.
IMPACT OF INFLATION AND CHANGING PRICES. Forum Group does not consider the
---------------------------------------
effects of inflation to be material to the overall operating results of its
business.
PREDECESSOR COMPANY
- -------------------
All consolidated financial statements for any period prior to March 31, 1992,
are referred to herein as "Predecessor Company" as they reflect the periods
prior to the implementation of fresh-start reporting and are not comparable to
the consolidated financial statements for periods after the implementation of
fresh-start reporting. The following discussion should be read in conjunction
with the consolidated financial statements (including the notes thereto)
included elsewhere in this report.
Fiscal year 1992 was a period of operational and financial change, culminating
in the reorganization of Forum Group under Chapter 11 of the Bankruptcy Code.
Occupancy of and net operating income from the RCs owned and leased by Forum
Group and its affiliated partnerships continued to improve, and the first phase
of the independent living component of Forum/Rancho San Antonio was opened while
the balance of the project remained under construction.
Forum Group had net income of $448,000 for fiscal year 1992, compared to net
losses of $109,198,000 for fiscal year 1991. Fiscal year 1992 net income
included the effect of a $116,195,000 extraordinary gain from the extinguishment
of debt. Net income per Preconfirmation Common Share for fiscal year 1992 was
$0.01, including $3.57 from the extraordinary gain, compared to a net loss per
Preconfirmation Common Share for fiscal year 1991 of $3.35.
In accordance with Statement of Position 90-7 of the American Institute of
Certified Public Accountants, Forum Group applied fresh-start reporting to its
consolidated balance sheet as of March 31, 1992. Forum Group's consolidated
statements of operations for the year ended March 31, 1992, include the
adjustments related to the implementation of fresh-start reporting. Those
adjustments resulted in a net, one-time charge to income of $62,261,000 ($1.91
per Preconfirmation Common Share). Net income for fiscal year 1992 also
included a charge of $9,013,000 ($0.28 per Preconfirmation Common Share) related
to the Reorganization Proceedings and a $12,771,000 ($0.39 per Preconfirmation
Common Share) reduction in the carrying value of certain RCs sold by Forum Group
as of the Effective Date.
NET OPERATING REVENUES. Consolidated net operating revenues for fiscal year
----------------------
1992 were $322,000 (of which $3,454,000 was attributable to consolidated joint
ventures in which Forum Group is a participant), (0.3%) lower than consolidated
net operating revenues for fiscal year 1991. The discontinuation of operation
of eight nonretirement facilities during fiscal year 1991 reduced net operating
revenues by approximately $5,261,000 (6% of consolidated net operating revenues
for fiscal year 1991). An additional $16,631,000 (20% of consolidated net
operating revenues for fiscal year 1991) reduction was due to expiration of
Forum Group's lease (the "I-A Lease") of four RCs from Forum Health Partners I-
A, L.P., an affiliated operating partnership of the Partnership, during fiscal
year 1991 and rejection of the Lincoln Heights Lease. However, those reductions
were partially offset by an approximately
35
<PAGE>
$20,120,000 (24% of consolidated net operating revenues for fiscal year 1991)
revenue increase from increased occupancy of newly-developed rental RCs.
FACILITY SALES AND OTHER INCOME. Facility sales and other income decreased by
--------------------------------
$13,309,000 in fiscal year 1992. Of that decrease, $5,047,000 was the result of
an increase in the amount of recognized losses representing Forum Group's share
of the losses of the Partnership, an affiliated unconsolidated partnership. The
balance of the decrease resulted from the lack of significant asset sale
activity during fiscal year 1992.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating expenses, including
----------------------------------------------
depreciation and amortization for fiscal year 1992 were $87,300,000 (of which
$19,482,000 was attributable to consolidated joint ventures in which Forum Group
is a participant), representing a $16,557,000 (16%) decrease from the previous
fiscal year. This decrease was due principally to (i) expiration of the I-A
Lease and rejection of the Lincoln Heights Lease ($19,924,000), and (ii)
discontinuation of operation of eight nonretirement facilities ($4,886,000).
Those decreases were partially offset by increased operating expenses
($8,122,000) at existing RCs as occupancy increased.
General and administrative expenses for fiscal year 1992 were $6,976,000 (of
which $144,000 was attributable to consolidated joint ventures in which Forum
Group is a participant), representing a $2,048,000 (23%) decrease from fiscal
year 1991, due to (i) planned reductions in corporate overhead, and (ii) a
$1,000,000 decrease in the provision for supplemental retirement benefits
payable to corporate officers.
INVESTMENT INCOME AND GAIN (LOSS) ON INVESTMENTS. Investment income,
------------------------------------------------
including dividends and interest, and gain (loss) on investments increased by
$10,091,000 in fiscal year 1992, compared to investment income and gain (loss)
on investments for the prior fiscal year. The principal reason for this
fluctuation was a nonrecurring $10,400,000 write-down of Forum Group's
investment in National Enterprises, Inc. ("National"), in fiscal year 1991.
LOSS ON DISCONTINUED PROJECTS. During fiscal year 1992, no loss on
-----------------------------
discontinued projects was recorded. The loss on discontinued projects in fiscal
year 1991 resulted from the write-down or write-off of development costs
associated with discontinued projects wherein projects with associated costs of
$15,977,000 were determined to be financially or otherwise infeasible. Land
acquired for those projects was written down to its net realizable value and
reclassified on the balance sheets to land held for resale.
INTEREST EXPENSE. Net interest expense decreased by $12,799,000 in fiscal
----------------
year 1992, compared to net interest expense for fiscal year 1991. The decrease
was principally attributable to a $13,322,000 incurred interest cost decrease
and a $523,000 decrease in the amount of interest capitalized to project costs.
The decrease in incurred interest cost was principally attributable to a
$10,281,000 increase in contractual interest not accrued on certain subordinated
notes and debentures in anticipation that the plan of reorganization would not
provide for its funding. The balance of the decrease was due to favorable
interest rate changes.
RESTRUCTURING AND REORGANIZATION COSTS. During fiscal year 1992, various
--------------------------------------
items related to the reorganization of Forum Group and the implementation of
fresh-start reporting have been recorded. Those represent nonrecurring
adjustments recorded to reflect properly the total anticipated costs
attributable to the Reorganization Proceedings, in the amount of $9,013,000.
EFFECT OF FRESH-START REPORTING. The effect of fresh-start reporting, a
-------------------------------
nonrecurring charge to income of $62,261,000 in fiscal year 1992, represented
valuation adjustments based on estimated values of consolidated assets and
liabilities.
REDUCTION IN CARRYING VALUE OF PROPERTY. During fiscal year 1992, Forum Group
---------------------------------------
accepted an offer from ARC to purchase two rental RCs for $37,000,000. A
reduction in the carrying value of those RCs, in the amount
36
<PAGE>
of $12,771,000, was recorded to recognize the impairment of value represented by
the impending transaction. The transaction was completed during fiscal year
1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
------ --------------------------------------------
The following consolidated financial statements and supplementary financial
information are filed under this Item:
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Independent Auditors' Report (Successor Company)....... 38
Consolidated Balance Sheets (Successor Company)
- March 31, 1993 and 1992............................ 39
Consolidated Statement of Operations
(Successor Company) - Year ended March 31, 1993...... 40
Consolidated Statement of Shareholders' Equity
(Successor Company) - Year ended March 31, 1993...... 41
Consolidated Statement of Cash Flows
(Successor Company) - Year ended March 31, 1993...... 42
Notes to Consolidated Financial Statements
(Successor Company).................................. 43 - 53
Independent Auditors' Report
(Predecessor Company)................................ 54
Consolidated Statements of Operations
(Predecessor Company) - Years ended
March 31, 1992 and 1991............................. 55
Consolidated Statements of Shareholders' Equity
(Predecessor Company) - Years ended
March 31, 1992 and 1991............................. 56
Consolidated Statements of Cash Flows
(Predecessor Company) - Years ended
March 31, 1992 and 1991............................. 57
Notes to Consolidated Financial Statements
(Predecessor Company)................................ 58 - 69
Quarterly Financial Data............................... 70
</TABLE>
37
<PAGE>
(LOGO OF KPMG PEAT MARWICK APPEARS HERE)
Independent Auditors' Report
- ----------------------------
The Board of Directors and Shareholders
Forum Group, Inc. (Successor Company):
We have audited the accompanying consolidated balance sheets of Forum Group,
Inc. and subsidiaries (Successor Company) as of March 31, 1993 and 1992 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year ended March 31, 1993. These consolidated financial
statements are the responsibility of Forum Group's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Forum Group, Inc.
and subsidiaries (Successor Company) as of March 31, 1993 and 1992 and the
results of their operations and their cash flows for the year ended March 31,
1993 in conformity with generally accepted accounting principles.
As discussed in note 1, Forum Group's reorganization plan was confirmed by the
U.S. Bankruptcy Court effective April 2, 1992 (March 31, 1992 for financial
reporting purposes). In accordance with Statement of Position No. 90-7 of the
American Institute of Certified Public Accountants, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," Forum Group accounted for
the reorganization using fresh-start reporting. Accordingly, all consolidated
financial statements as of March 31, 1992 and for any period subsequent to that
date are referred to as "Successor Company" as they reflect the periods
subsequent to the implementation of fresh-start reporting and are not comparable
to the consolidated financial statements for periods prior to the implementation
of fresh-start reporting.
/s/ KPMG Peat Marwick
May 14, 1993, except as to the fifth through
seventh paragraphs of note 1, which are
as of June 14, 1993
38
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Consolidated Balance Sheets
March 31, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
Assets 1993 1992
------ ---- ----
<S> <C> <C>
Property and equipment:
Land and improvements $ 43,042 43,084
Buildings and leasehold improvements 262,042 249,548
Furniture and equipment 14,246 11,641
-------- -------
319,330 304,273
Less accumulated depreciation 8,793 -
-------- -------
310,537 304,273
Properties under sales commitment - 36,723
Project under construction - 8,537
-------- -------
NET PROPERTY AND EQUIPMENT 310,537 349,533
======== =======
Investments:
Forum Retirement Partners, L.P. 3,795 4,230
Greenville Retirement Community, L.P. 3,763 4,047
National Enterprises, Inc. - 600
-------- -------
7,558 8,877
-------- -------
Cash and cash equivalents 5,723 7,542
Accounts receivable, less allowance for doubtful
accounts of $219 and $109 2,925 1,464
Notes, investments and other receivables 3,225 3,138
Land held for resale 1,638 3,534
Restricted cash 12,803 15,600
Deferred costs and other assets 4,232 3,358
-------- -------
$348,641 393,046
-------- -------
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S> <C> <C>
Liabilities:
Long-term debt, including $54,206 due within one year 226,540 260,791
Trade accounts payable 2,064 3,173
Construction costs payable - 6,287
Accrued interest 866 13,838
Other accrued expenses 18,346 24,400
Resident deposits and refundable resident fees 20,178 19,407
Deferred income 4,585 2,520
TOTAL LIABILITIES -------- -------
272,579 330,416
Cooperative memberships 55,910 40,702
Other partners' equity 1,707 2,534
Shareholders' equity:
Preferred stock - Series B, no par value - authorized
2,000 shares, issued 25 shares 4,870 -
Common stock, no par value - authorized 48,000 shares,
issued 7,493 shares 20,934 19,394
Accumulated deficit (7,359) -
-------- -------
18,445 19,394
-------- -------
$348,641 393,046
-------- -------
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Consolidated Statement of Operations
Year ended March 31, 1993
(in thousands except per share amount)
<TABLE>
<S> <C>
Revenues:
Net operating revenues $ 90,963
Other income 1,147
-------
Total revenues 92,110
-------
Costs and expenses:
Operating expenses 70,417
General and administrative expenses 5,411
Depreciation and amortization 8,939
-------
Total costs and expenses 84,767
-------
7,343
Investment income 1,192
Interest expense (18,046)
Loss before other partners' interest (9,511)
Other partners' and cooperative members' interest in losses of
consolidated companies 2,152
------
Net loss $ (7,359)
-----
Loss per common share $ (0.98)
Average number of common shares outstanding 7,493
------
</TABLE>
See notes to consolidated financial statements.
40
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Consolidated Statement of Shareholders' Equity
Year ended March 31, 1993
(in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Number of Number of Accumulated
Shares Amount Shares Amount Deficit
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balances at April 1, 1992 -- $ -- 10,000 $19,394 --
Net loss -- -- -- -- (7,359)
Adjustments to estimated amounts -- -- -- 1,540 --
recorded upon reorganization
Reduction on issuable shares -- -- 2,507 -- --
from the resolution of disputed
general unsecured claims
Issuance of preferred stock, net 25 4,870 -- -- --
--- ------ ----- ------ ------
Balances at March 31, 1993 25 $4,870 7,493 $20,934 (7,359)
=== ====== ====== ======= =====
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Consolidated Statement of Cash Flows
Year ended March 31, 1993
(in thousands)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(7,359)
Adjustments to reconcile net loss to cash used by
operating activities:
Depreciation and amortization 9,186
Other partners' and cooperative members' interest
in losses of consolidated companies (2,152)
Net losses of Forum Retirement Partners, L.P. and Greenville
Retirement Community, L.P. 256
Accrued revenues and expenses, net (2,494)
-----
Net cash used by operating activities (2,563)
-----
Cash flows from investing activities:
Proceeds from facility sales, net 36,723
Additions to property and equipment (12,853)
Proceeds from disposals of property and equipment 46
Proceeds from disposals of land held for resale 396
Distributions from Greenville Retirement Community, L.P. 463
Notes, investments and other receivables 1,413
------
Net cash provided by investing activities 26,188
------
Cash flows from financing activities:
Proceeds from long-term debt, notes and debentures 14,327
Payments on long-term debt, notes and debentures (36,394)
Payments of Predecessor Company liabilities (28,395)
Proceeds from issuance of preferred stock, net 4,870
Proceeds from cooperative memberships 16,845
Deferred financing and other costs (265)
Resident deposits 771
Restricted cash 2,797
------
Net cash used by financing activities (25,444)
------
Net decrease in cash and cash equivalents (1,819)
Cash and cash equivalents at beginning of year 7,542
------
Cash and cash equivalents at end of year $ 5,723
======
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
March 31, 1993 and 1992
(1) Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
- ---------------------
On April 2, 1992, the reorganization plan of Forum Group, Inc. ("Forum Group")
and eleven of its subsidiaries was confirmed by the U.S. Bankruptcy Court. The
confirmed plan provides for secured and certain other creditors to receive
current and/or deferred cash payments equal to their allowed claims and for
general unsecured and subordinated creditors to receive approximately 95% of the
shares of common stock of the reorganized company. The plan was effective for
financial reporting purposes as of March 31, 1992. In accordance with Statement
of Position No. 90-7 ("SOP 90-7") of the American Institute of Certified Public
Accountants, Forum Group accounted for the reorganization using fresh-start
reporting (see note 2). Accordingly, all consolidated financial statements as
of March 31, 1992, and for any period subsequent to that date, are referred to
as "Successor Company" as they reflect the periods subsequent to the
implementation of fresh-start reporting and are not comparable to the
consolidated financial statements for periods prior to the implementation of
fresh-start reporting.
Forum Group operates in the senior housing industry, with particular emphasis on
the operation of full-service retirement communities ("RCs"). Forum Group also
operates one nursing home. The consolidated financial statements include the
accounts of Forum Group and its subsidiaries and partnerships over which it
exercises significant control. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The debt repayment provisions of the reorganization plan were designed on the
basis of Forum Group's projected cash flows from operating properties, sales of
cooperative memberships of its lifecare communities, and the sale or refinancing
of certain of its RCs. As discussed in note 4, two RCs were sold on April 2,
1992, and the proceeds were used to reduce the senior secured term notes, pay
accrued interest and establish funds for working capital. Other projected cash
flows from sales and refinancings contemplated in the reorganization plan have
not yet been achieved, and Forum Group has reached an agreement with a group of
investors which provides for an equity investment and a restructuring of long-
term debt. Forum Group believes that current projections of cash flows from
operations and sales of cooperative memberships will be adequate to meet its
restructured obligations. Although the carrying value of its properties has
been reduced to current estimated realizable values, the accompanying
consolidated balance sheets do not include additional adjustments that may be
necessary in the future if Forum Group's plans are not implemented as
projected.
43
<PAGE>
2
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
Refinancing Agreements
- ----------------------
On February 1, 1993, Forum Group entered into agreements with several investors
(the "Investors") which provided for the issuance of 25,000 new shares of
convertible preferred stock for $5,000,000 (the net proceeds of which were used
to pay amounts due and payable under the senior secured term notes) and
contemplated additional transactions whereby the Investors would acquire a
substantial percentage of Forum Group's common stock.
On April 29, 1993, litigation was commenced against Forum Group, its directors
and the Investors alleging, among other things, that Forum Group breached an
alleged contract with two of the plaintiffs and seeking, among other things,
that the transactions contemplated under the agreements with the Investors be
rescinded. On June 4, 1993, the presiding court ruled that no contract existed
among the plaintiffs and Forum Group but that Forum Group and the Investors were
prohibited from consummating a transaction which did not provide for a
"liquidity option" whereby Forum Group's shareholders would be given the option
either to retain their equity interest or sell their shares for $3.62 per share.
The presiding court did not enter final judgment with respect to the claims
against the directors, which may be set for final hearing at a future date. On
June 6, 1993, and June 14, 1993, Forum Group and the Investors modified their
agreement to provide for the liquidity option.
On June 14, 1993, Forum Group consummated a transaction with the Investors.
Significant features of the transaction include:
.The 25,000 shares of preferred stock were converted into 2,500,000 shares of
common stock.
.The Investors acquired 7,098,200 newly-issued common shares and certain
warrants for the acquisition of additional common shares for an aggregate
purchase price of $20 million. The warrants entitle the Investors to acquire
1.1555 shares of common stock for each share of common stock issued in
settlement of disputed general unsecured claims (see note 2).
.The former senior secured term notes (see note 5) were retired with the
proceeds of a new senior credit facility of $50 million, new senior subordinated
notes of $40 million and other funds. The new senior credit facility requires
that interest be paid quarterly at either the prime rate plus 2% or the
Eurodollar rate plus 3.5%, and requires amortization payments as follows:
quarterly principal payments of $1,000,000 on December 31, 1993 and March 31,
1994; thereafter quarterly principal payments of $1,500,000 through March 1995;
$2,250,000 through March 1996; and $2,750,000 thereafter to maturity on March
31, 1999. The senior subordinated notes require interest semi-annually at 12.5%
to maturity in 2003.
44
<PAGE>
3
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
. The Investors and Forum Group will provide a liquidity option whereby
shareholders will be given the option either to retain their equity
interest or to receive, in cash, $3.62 per share. The Investors will
provide the funds necessary to acquire any shares tendered through the
liquidity option.
Following this transaction, the Investors own 64% of the outstanding common
stock of Forum Group (excluding any common shares acquired as part of the
liquidity option).
Revenues
- --------
Routine service revenues, generated by monthly charges for independent living
units and daily or monthly charges for assisted living suites and nursing beds,
are recognized based on the terms of the residency and admission agreements.
Ancillary service revenues, generated on a fee for service basis for
supplementary items requested by residents, are recognized as the services are
provided.
Net operating revenues include amounts estimated by management to be
reimbursable by Medicaid, Medicare and other cost-based programs. Cost-based
reimbursements are subject to examination by agencies administering the
programs, and provisions are made for potential adjustments that may result. To
the extent those provisions vary from settlements, operations are charged or
credited when the adjustments become known. Advance payments received for
services are deferred until the related services have been provided.
Facility sales are recognized at closing, less provisions for estimated future
costs to be incurred. Gains on the sale of facilities that are contingent upon
future results are deferred until those results are achieved.
Property and Equipment
- ----------------------
Property and equipment are carried at management's estimate of their value as of
March 31, 1992, with subsequent additions recorded at cost. If management
believes the value of certain property is not recoverable, the carrying value is
reduced to the estimated recoverable value. Capital leases are recorded at the
lower of the fair market value of the assets leased or the present value of the
minimum lease payments at inception. Depreciation and amortization are computed
on a straight-line basis over the estimated useful lives of the related assets.
Memberships in certain RCs owned by cooperative housing corporations controlled
by Forum Group are sold to the residents of the RCs. The proceeds from the
cooperative memberships are deferred until Forum Group no longer controls the
corporation at which time a sale of the property will be recognized.
45
<PAGE>
4
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
Investments
- -----------
Investments in limited partnerships are carried at Forum Group's percentage
interest in the estimated net value of the RCs owned by the partnership as of
March 31, 1992, plus Forum Group's share of income or loss, less distributions.
Any difference between Forum Group's carrying value of limited partnership
investments and its percentage interest in the partnerships' underlying book
value is amortized over the remaining life of the partnerships' properties.
Cash Equivalents
- ----------------
Cash equivalents represent commercial paper and other income-producing
securities which have an original maturity of less than three months and are
readily convertible to cash, and are stated at cost which approximates market.
Restricted Cash
- ---------------
At March 31, 1993 and 1992, restricted cash includes $5,681,000 and $4,028,000,
respectively, deposited by present and prospective residents of lifecare RCs;
$3,251,000 and $3,209,000, respectively, of resident security deposits; and
$3,871,000 and $8,363,300, respectively, funded under long-term debt and
restricted to specific purposes.
Deferred Costs
- --------------
Fees and other costs incurred to obtain long-term financing are amortized over
the term of the related debt on a straight-line basis. Costs incurred in the
initial occupancy of RCs are amortized on the straight-line method over the
shorter of the life expectancy of the initial residents or the term of the
initial residency agreement, generally one year. Deferred costs at March 31,
1993 also include costs related to the potential refinancing agreement of
$1,000,000.
Deferred Income
- ---------------
Deferred income represents resident advanced fees under lifecare residency
agreements which are recognized as income over the estimated useful lives of the
RCs.
Shareholders' Equity
- --------------------
Forum Group has 1,000,000 authorized Series A nonvoting preferred shares and
1,000,000 authorized Series B voting preferred shares (of which 25,000 shares
have been issued in connection with the refinancing agreement), all without par
value.
46
<PAGE>
5
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
Retirement Agreements
---------------------
Forum Group has retirement agreements with certain current and former
officers under which each officer, upon retirement and fifteen years of
service, is to be paid 50% of average annual compensation, as defined, for
a period of fifteen years. Upon disability or death prior to retirement,
benefits are to be paid for a period of ten years based on compensation as
calculated for retirement benefits. Certain former officers of Forum Group
are to receive monthly payments of $8,600 through April, 1994.
Federal Income Taxes
--------------------
Forum Group has adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" under which income tax expense is the
amount of income taxes expected to be payable for the current year, plus or
minus the change in deferred income tax liabilities or assets established
for expected future income tax consequences resulting from differences
between the book and tax bases of assets and liabilities.
Loss Per Share
--------------
Loss per share is based on the weighted average number of common shares
issued and outstanding. Had the common shares reserved for the settlement
of disputed general unsecured claims (see note 2) been issued at the
beginning of fiscal 1993, the net loss for the year ended March 31, 1993
would have been $.93 per share.
(2) Fresh-start Reporting
---------------------
In accordance with SOP 90-7, Forum Group accounted for the reorganization
using fresh-start reporting. Accordingly, all assets and liabilities were
adjusted to reflect their reorganization value, which approximated
estimated fair value as of March 31, 1992. Based on management's estimates
of the fair value of Forum Group's consolidated assets, a reorganization
value of $393,046,000 was established. The factors considered in
determining the estimated fair value of assets are as follows:
. Property and equipment were valued using an income approach which
converted the estimated operating cash flow during a six-year period
and the estimated value at the end of six years into a value estimate.
The estimated cash flow for each RC was based on management's 1993
operating budgets, annual revenue and expense increases ranging from
3.5% to 4.75%, management fees of 3% and annual capital expenditures
of $100,000 per facility. Discount rates ranging from 10% to 15.5%
were used to compute the value of the estimated cash flows, and
capitalization rates ranging from 12.5% to 14.5% were used to compute
the estimated value at the end of the period. Two RC's were valued at
$36,723,000, the net proceeds from the April 2, 1992, sale.
47
<PAGE>
6
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
. Investments in Forum Retirement Partners, L.P. (the "Partnership"), and
Greenville Retirement Community, L.P. ("Greenville") (see note 3), were
valued on the basis of Forum Group's percentage interest in the
estimated net value of the RCs owned by those partnerships using similar
valuation techniques and assumptions. The investment in National
Enterprises, Inc. ("National") was valued at $600,000 based on
management's estimate of the net realizable value of that investment.
. All other assets were valued based on management's estimate of their net
realizable value. Deferred costs and other assets with no continuing
independent benefit were eliminated.
. All liabilities were adjusted to reflect the payment terms included in
the reorganization plan. An additional liability of $1,380,000 was
recorded to reflect management's estimate of future costs of providing
management services for the Partnership's RCs (see note 3).
. Cooperative memberships are reflected at the cash proceeds from the
sale of memberships, and other partners' equity is reflected at the net
amounts contributed, less an allocation of the losses of the
partnerships.
Of the up to 10,000,000 shares of common stock issuable pursuant to the
reorganization plan, approximately 441,000 shares as of March 31, 1993 are
reserved pending the final settlement of disputed general unsecured claims
(including those items discussed in note 6) totalling approximately $8,580,000.
Upon final resolution of those claims, remaining shares held in reserve will be
cancelled. Management is currently unable to determine the ultimate disposition
of those shares.
In fiscal year 1993, the estimated amount recorded for assets and liabilities,
principally the investment in National, legal fees and amounts estimated payable
on mechanics liens, were recovered or settled at amounts less than Forum Group
had estimated and accrued as of March 31, 1992. Common stock has been increased
by $1,540,000 based on the amount actually recovered or paid and management's
estimate of remaining amounts to be recovered or paid as of March 31, 1993.
(Continued)
48
<PAGE>
7
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
(3) Investments
-----------
The investment in the Partnership, which owns and operates nine RCs,
represents a 22.85% equity interest. As of March 31, 1993, the carrying
value of Forum Group's limited partners' interests in the publicly-traded
partnership exceeded the quoted market price by $1,850,000. Other income
for 1993 includes losses of $536,000 representing Forum Group's share of
the Partnership's losses. Summary information for the Partnership as of
and for the year ended December 31, 1992, is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net property $100,411
Other assets 9,356
--------
Less liabilities 109,767
79,345
========
Net assets $ 30,422
========
Revenues $ 41,905
Costs and expenses 48,017
--------
Net loss $ 6,112
========
</TABLE>
To support distributions to limited partners, all management fees due to
Forum Group since the inception of the Partnership, totalling $13,100,000
through March 31, 1993, have been deferred and not recognized as income by
Forum Group. Management fees through December 31, 1993, are also to be
deferred.
The investment in Greenville, which owns and operates one RC, represents a
50% equity interest. Other income for 1993 includes income of $308,000
representing Forum Group's share of Greenville's income. Summary
information for Greenville as of and for the year ended December 31, 1992,
is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net property $21,206
Other assets 1,094
-------
22,300
Less liabilities 23,167
-------
Net deficit $ 867
=======
Revenues $ 5,861
Costs and expenses 5,246
-------
Net income $ 615
=======
</TABLE>
49 (Continued)
<PAGE>
8
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
At March 31, 1993, Forum Group, as the 50% general partner of Greenville,
was contingently liable on Greenville's $4,644,000 first mortgage loan
which matures on January 1, 1994.
The investment in National consists of $786,000 in principal amount of
4-3/4% Convertible Subordinated Debentures due 1996 and notes receivable of
$2,052,000. National filed a voluntary petition for reorganization under
Chapter 11 of the Bankruptcy Code in December 1990, and has subsequently
begun to liquidate. Based on an ongoing evaluation of information filed
with the Bankruptcy Court, Forum Group has written-off its investment in
National as an adjustment in the allocation of the reorganization value
during fiscal 1993.
(4) Income Taxes
------------
As of March 31, 1993, income tax loss carryforwards for regular and
alternative minimum tax purposes were estimated to be approximately
$150,000,000 and $145,000,000, respectively, before the application of
certain loss carryforward limitations. Upon the completion of the
refinancing agreements, Forum Group incurred a second change in ownership
within two years of its bankruptcy reorganization, which may result in a
second significant limitation on the use of tax loss carryforwards and
built-in losses as of the date of the ownership change. These tax loss
carryforwards will expire in varying amounts through fiscal year 2008. For
financial reporting purposes, any future benefit of these tax loss
carryforwards will be reported as a direct addition to paid-in capital.
Deferred tax assets at March 31, 1993 and 1992, are fully reserved.
(5) Long-term Debt
--------------
Long-term debt comprised the following at March 31 (in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Senior secured term notes $ 94,586 $119,077
Mortgage loans 92,210 95,219
Construction loans 26,443 32,097
Capitalized leases 8,825 8,935
Other 4,476 5,463
-------- --------
$226,540 $260,791
======== ========
</TABLE>
50
<PAGE>
9
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
The senior secured term notes require interest monthly at the lead bank's
reference rate with a minimum rate of 6.5% through June 30, 1992, and the lead
bank's reference rate plus 2% (to be reduced by .25% as each principal
installment is made) with a minimum of 8.5% (reducing commensurately) thereafter
(effective rate of 8.5% at March 31, 1993). Principal payments are required in
semi-annual installments of $13,443,000 to maturity on June 30, 1996. The loan
agreement also requires principal payments of 50% of excess cash flow, as
defined, and 100% of the net after-tax cash proceeds from the sale of major
assets, as defined. The loan agreement also contains limitations on capital
expenditures, investments and additional indebtedness, and prohibits future cash
dividends. On April 2, 1992, the senior secured term notes were reduced by
$11,533,000 and accrued interest was reduced by $13,050,000 with the proceeds
from the sale of two RCs and other major assets. In connection with the sale,
the purchaser provided Forum Group a loan in the amount of $682,500, payable in
equal semi-annual installments with interest at the prime rate plus 2.5% to
maturity in April 1998.
Forum Retirement Communities I, L.P., a consolidated affiliate of Forum Group,
has a mortgage loan on one RC with a balance of $26,138,000 and $28,500,000 at
March 31, 1993 and 1992, respectively, with several of its limited partners.
Forum Group is the sole general partner (with a 15% beneficial interest) and a
limited partner (with a 43.95% beneficial interest). Interest is due quarterly
at LIBOR plus 1.5% (4.8% and 5.5% at March 31, 1993 and 1992, respectively),
with quarterly principal payments beginning in May 1993 based on 30-year
amortization to maturity in February 1999.
Forum Retirement Communities II, L.P., a consolidated affiliate of Forum Group,
has a mortgage loan on three RCs with a balance of $47,470,000 and $48,000,000
at March 31, 1993 and 1992, respectively, with several of its limited partners.
Forum Group is the sole general partner (with a 6.25% beneficial interest) and a
limited partner (with a 53.15% beneficial interest). Interest at LIBOR plus
1.3% (4.6% and 5.3% at March 31, 1993 and 1992, respectively) and principal
payments based on 30-year amortization are due quarterly to maturity in May
1996.
Forum Group has a mortgage loan on one RC with a balance of $14,978,000 and
$15,066,000 at March 31, 1993 and 1992, respectively, which requires monthly
payments including interest at 10.5%, plus a payment of $300,000 in April 1994,
to maturity in December 1997. Other mortgage loans with balances of $3,624,000
and $3,653,000 at March 31, 1993 and 1992, respectively, require monthly
payments including interest at variable rates to maturity in 1996 and 1999.
51 (Continued)
<PAGE>
10
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
Construction loans are secured by mortgages on one RC and bear interest
payable monthly ranging from the prime rate plus 2% to the prime rate plus
4% (effective rate of 8.3% and 6.7% at March 31, 1993 and 1992,
respectively). Proceeds from the sale of cooperative memberships are to be
used to retire the loans, which mature in July 1993. Forum Group believes
that sales of cooperative memberships will not be adequate to retire these
loans upon maturity. Based on discussions with the lenders, management
believes the loans will be extended until adequate sales proceeds are
available to retire the loans.
Future minimum payments under capitalized leases approximate $1,100,000 for
each of the five years ending March 31, 1998, with approximately
$10,500,000 due thereafter, including imputed interest of approximately
$7,200,000. Property and equipment at March 31, 1993 and 1992 include
$10,319,000 and $11,722,000, respectively, of assets under capital leases,
consisting principally of buildings and leasehold improvements,and related
accumulated depreciation was $300,000 and $1,940,000, respectively.
Other mortgage loans and long-term debt are secured by facilities and land
owned by Forum Group. In addition, Forum Group his outstanding letters of
credit in the amount of $7,300,000 at March 31, 1993.
At March 31, 1993, scheduled maturities of long-term debt during the next
five years (based on current interest rates) were $54,206,000 in 1994,
$28,227,000 in 1995, $28,254,000 in 1996, $67,626,000 in 1997 and
$15,724,000 in 1998. Cash paid for interest was $30,539,000 in fiscal year
1993.
(6) Commitments and Contingencies
-----------------------------
In 1986, a resident of a nursing home then owned by Forum Group instituted
an action alleging that the resident's son was conceived following a sexual
assault by another resident of that facility, and requesting
undifferentiated compensatory and punitive damages. Forum Group's
principal general liability insurance carrier has asserted that punitive
damages are not covered under its policy. In July 1991, the Indiana
Supreme Court ruled that the wrongful life claim was not cognizable under
Indiana law and that Forum Group was entitled to judgment as a matter of
law. The Indiana Supreme Court also remanded for trial the plaintiff's
son's claim for negligent failure to detect his mother's pregnancy and
enable prenatal care. The plaintiff and her son filed a joint claim
against Forum Group in the reorganization proceedings in the amount of
$20,000,000. Forum Group objected to this claim, and reserved an
appropriate number of common shares for their account. The Bankruptcy
Court has disallowed the punitive damages portion of the claim and the
claim for compensatory damages is now before the trial court. Management
believes that Forum Group has substantial defenses to the claims, that any
compensatory damages will be fully covered by insurance, and that the
outcome of the proceedings will not materially adversely affect Forum
Group's financial condition or operating results.
52 (Continued)
<PAGE>
11
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
In May 1992, a resident of the RC owned by Greenville instituted an action
seeking, among other things, the termination of the RC's management agreement
with Forum Group, the elimination of Greenville's option to repurchase
condominium units, and the elimination of the requirement that a condominium
unit owner be a party to a residence agreement. In September 1992, the
Bankruptcy Court temporarily enjoined further prosecution of this action,
finding that the claims asserted violated Forum Group's reorganization plan.
The matter is currently pending before the Bankruptcy Court. Management
believes that Forum Group and Greenville have substantial defenses to these
claims. However, an adverse outcome of the proceeding may materially adversely
affect Forum Group's financial condition or operating results.
Forum Group and its subsidiaries have been named as defendants in several other
professional malpractice and negligence actions, and may be subject to other
claims arising from services provided to residents of their facilities. To the
extent those claims arose before the effective date of the reorganization plan,
they have received or will receive treatment under the plan. Forum Group
maintains professional liability insurance, comprehensive general liability
insurance and other typical insurance coverage on its facilities. Management
believes that those claims are either adequately insured or, to the extent (if
any) they are not insured, will not materially adversely affect Forum Group's
financial condition or operating results.
53
<PAGE>
(LOGO OF KPMG PEAT MARWICK APPEARS HERE)
Independent Auditors' Report
- ----------------------------
The Board of Directors and Shareholders
Forum Group, Inc. (Predecessor Company):
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Forum Group, Inc. and subsidiaries
(Predecessor Company) for the years ended March 31, 1992 and 1991. These
consolidated financial statements are the responsibility of Forum Group's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about 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 consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Forum Group, Inc. and subsidiaries (Predecessor Company) for the years ended
March 31, 1992 and 1991 in conformity with generally accepted accounting
principles.
As discussed in note 1, Forum Group's reorganization plan was confirmed by the
U.S. Bankruptcy Court effective April 2, 1992 (March 31, 1992, for financial
reporting purposes). In accordance with Statement of Position No. 90-7 of the
American Institute of Certified Public Accountants, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," Forum Group accounted for
the reorganization using fresh-start reporting. Accordingly, all consolidated
financial statements for any period prior to March 31, 1992, are referred to as
"Predecessor Company" as they reflect the periods prior to the implementation of
fresh-start reporting and are not comparable to the consolidated financial
statements for periods after the implementation of fresh-start reporting.
/s/ KPMG Peat Marwick
Indianapolis, Indiana
May 14, 1993
54
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Consolidated Statements of Operations
Year ended March 31, 1992 and 1991
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Revenues: 1992 1991
--------- ---------
<S> <C> <C>
Net operating revenues $ 84,656 84,978
Facility sales, net 379 8,822
Other income (expense) (5,267) (401)
--------- --------
Total revenues 79,768 93,399
--------- --------
Costs and expenses:
Operating expenses 75,348 91,543
General and administrative expenses 6,976 9,024
Depreciation and amortization 11,952 12,314
--------- --------
Total costs and expenses 94,276 112,881
--------- --------
(14,508) (19,482)
Other:
Investment income 1,327 1,760
Gain (loss) on investments - (10,524)
Loss on discontinued projects - (15,977)
Interest expense (contractual interest
of $31,810 and $34,328) (20,209) (33,008)
Income tax benefit - 339
Reorganization expenses (9,013) (546)
Restructuring expenses - (2,423)
Effect of fresh-start reporting (62,261) -
Reduction in carrying value of property (12,771) (32,300)
--------- --------
Loss before other partners' interest and
extraordinary gain (117,435) (112,161)
Other partners' interest in losses of
consolidated partnerships 1,688 2,963
--------- --------
Loss before extraordinary gain (115,747) (109,198)
Extraordinary gain on extinguishment of debt 116,195 -
--------- --------
Net income (loss) $ 448 (109,198)
========= ========
Income (loss) per common share:
Loss before extraordinary gain $ (3.56) (3.35)
Extraordinary gain 3.57 -
--------- --------
Net income (loss) $ 0.01 (3.35)
========= ========
Average number of common shares outstanding 32.548 32.548
========= ========
See notes to consolidated financial statements.
</TABLE>
55
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Consolidated Statements of Shareholders' Equity
Year ended March 31, 1992 and 1991
(in thousands)
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Number of shares Retained
------------------------- earnings
Successor Predecessor (accumulated)
Company Company Amount deficit
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
BALANCES AT APRIL 1, 1990 - 32,548 $ 105,477 3,754
Net loss - - - (109,198)
Dividends rescinded - - - 488
----------- ----------- --------- --------
BALANCES AT MARCH 31, 1991 - 32,548 105,477 (104,956)
Net income - - - 448
Cancellation of shares
of predecessor company
and elimination of
deficit - (32,548) (104,508) 104,508
Issuance of shares of
successor company 10,000 - 18,425 -
----------- ----------- --------- --------
BALANCES AT MARCH 31, 1992 10,000 - $ 19,394 -
----------- ----------- --------- --------
</TABLE>
See notes to consolidated financial statements.
56
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Consolidated Statements of Cash Flows
Year ended March 31, 1992 and 1991
(in thousands)
<TABLE>
<CAPTION>
1992 1991
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 448 (109,198)
Adjustments to reconcile net income (loss) to
cash provided (used) by operating activities:
Depreciation and amortization 11,952 12,314
Other amortization 807 5,260
Effect of fresh-start reporting 62,261 -
Extraordinary gain on extinguishment of debt (116,195) -
Loss on discontinued projects - 15,977
Reduction in carrying value of property 12,771 32,300
Loss (gain) on investments - 10,524
Facility sales, net (379) (8,822)
Deferred interest on debentures - 1,825
Notes, investments and other receivables 148 3,627
Accrued and refundable income taxes 182 1,732
Accrued interest 8,192 7,633
Other accrued revenues and expenses, net 17,885 5,367
Other partners' interest in losses of
consolidated partnerships (1,688) (2,963)
Losses of Forum Retirement Partners, L.P. 5,714 667
Other 344 286
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES -------- --------
2,442 (23,471)
-------- --------
Cash flows from investing activities:
Additions to property and equipment (36,304) (56,278)
Disposals of property and equipment 972 26,229
Disposals of land held for resale 6,580 -
Net investments in limited partnerships - 499
Collections and advances on notes receivable 154 1,783
NET CASH USED BY INVESTING ACTIVITIES -------- --------
(28,598) (27,767)
--------- --------
Cash flows from financing activities:
Proceeds from long-term debt, notes and debentures 36,430 73,863
Payments on long-term debt, notes and debentures (47,699) (27,174)
Proceeds from cooperative memberships 40,702 -
Deferred financing and other costs (136) (3,195)
Net contributions by other partners - 3,129
Other 1,961 541
NET CASH PROVIDED BY FINANCING ACTIVITIES --------- --------
31,258 47,164
--------- --------
Net increase (decrease) in cash and cash equivalents 5,102 (4,074)
Cash and cash equivalents at beginning of year 2,440 6,514
--------- --------
Cash and cash equivalents at end of year $ 7,542 2,440
--------- --------
See notes to consolidated financial statements.
==============================================================================
</TABLE>
57
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
Years ended March 31, 1992 and 1991
(1) Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
---------------------
On April 2, 1992, the reorganization plan of Forum Group, Inc. ("Forum
Group") and eleven of its subsidiaries was confirmed by the U.S. Bankruptcy
Court. The confirmed plan provides for secured and certain other creditors
to receive current and/or deferred cash payments equal to their allowed
claims and for general unsecured and subordinated creditors to receive
approximately 95% of the shares of common stock of the reorganized company.
The plan was effective for financial reporting purposes as of March 31,
1992. In accordance with Statement of Position No. 90-7 ("SOP 90-7") of
the American Institute of Certified Public Accountants, Forum Group
accounted for the reorganization using fresh-start reporting (see note 2).
Accordingly, all consolidated financial statements for any period prior to
March 31, 1992 are referred to as "Predecessor Company" as they reflect the
periods prior to the implementation of fresh-start reporting and are not
comparable to the consolidated financial statements for periods after the
implementation of fresh-start reporting.
Costs incurred in connection with the reorganization proceedings, primarily
professional fees, are reflected as reorganization expenses in the
accompanying consolidated statements of operations. Similar costs incurred
in attempts to restructure debt obligations before the voluntary petition
was filed are reflected as restructuring expenses. As Forum Group
anticipated that the plan would not provide for the funding of accrued
interest on the subordinated notes and debentures, interest on those
obligations from the date the voluntary petition was filed was no longer
accrued. Contractual interest on those obligations amounted to $11,601,000
and $1,320,000 in excess of reported interest expense for fiscal years 1992
and 1991, respectively.
Forum Group operates in the senior housing industry, with particular
emphasis on the operation of full-service retirement communities ("RCs").
Forum Group also operates one nursing home. The consolidated financial
statements include the accounts of Forum Group and its subsidiaries and
partnerships over which it exercises significant control. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Revenues
--------
Routine service revenues, generated by monthly charges for independent
living units and daily or monthly charges for assisted living suites and
nursing beds, are recognized based on the terms of the residency and
admission agreements. Ancillary service revenues, generated on a fee for
service basis for supplementary items requested by residents, are
recognized as the services are provided.
(Continued)
-58-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
Net operating revenues include amounts estimated by management to be
reimbursable by Medicaid, Medicare and other cost-based programs.
Cost-based reimbursements are subject to examination by agencies
administering the programs, and provisions are made for potential
adjustments that may result. To the extent those provisions vary from
settlements, operations are charged or credited when the adjustments become
final. Advance payments received for services are deferred until the
related services have been provided.
Facility sales are recognized at closing, less provisions for estimated
future costs to be incurred. Gains on the sale of facilities that are
contingent upon future results are deferred until those results are
achieved.
Property and Equipment
----------------------
If management believes the value of certain property is not recoverable,
the carrying value is reduced to the estimated recoverable value. When a
project is determined to be infeasible, costs associated with the project
not expected to be recovered through the sale of property are written off.
Capital leases are recorded the lower of the fair market value of the
assets leased or the present value of the minimum lease payments at
inception. Depreciation and amortization are computed on a straight-line
basis over the estimated useful lives of the related assets.
Memberships in certain RCs owned by cooperative housing corporations
controlled by Forum Group are sold to the residents of the RCs. The
proceeds from the cooperative memberships are deferred until Forum Group no
longer controls the corporation at which time a sale of the property will
be recognized.
Investments
-----------
Investments in limited partnerships are carried at cost plus Forum Group's
share of income or loss, less distributions. Any difference between Forum
Group's carrying value of limited partnership investments and its
percentage interest in the partnerships' underlying book value is amortized
over the remaining life of the partnerships' properties.
Cash Equivalents
----------------
Cash equivalents represent commercial paper and other income-producing
securities which have an original maturity of less than three months and
are readily convertible to cash, and are stated at cost which approximates
market.
(Continued)
-59-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
Deferred Costs
--------------
Fees and other costs incurred to obtain long-term financing are amortized
over the term of the related debt on a straight-line basis. Costs incurred
in the initial occupancy of RCs are amortized on the straight-line method
over the first twelve months after opening the RC.
Deferred Income
---------------
Deferred income primarily represents resident deposits under lifecare
residency agreements. Most of the deposits are recognized as income over
the estimated useful lives of the RCs.
Shareholders' Equity
--------------------
All previously issued and outstanding common shares were cancelled upon
confirmation of the plan, and up to 10,000,000 new shares are to be issued
pursuant to the plan (see note 2).
During fiscal year 1991, the number of authorized common shares was
increased from 50,000,000 to 100,000,000, and the dividend declared for the
quarter ended December 31, 1989, of $488,000 ($0.015 per share) was
rescinded.
Through March 31, 1992, Forum Group had 1,000,000 authorized nonvoting
preferred shares and 1,000,000 authorized voting preferred shares, all
without par value. At March 31, 1992, none of those shares were issued or
outstanding.
Retirement Agreements
---------------------
Forum Group has retirement agreements with certain officers under which
each officer, upon retirement and fifteen years of service, is to be paid
50%, of average annual compensation, as defined, for a period of fifteen
years. Upon disability or death prior to retirement, each officer is, to
receive benefits for a period of ten years based on compensation as
calculated for retirement benefits. Certain former officers of Forum Group
received cash payments of $388,000 upon confirmation of the plan and are to
receive monthly payments of $8,600 through April, 1994.
(Continued)
-60-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
Federal Income Taxes
--------------------
In connection with the adoption of fresh-start reporting, Forum Group
adopted Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). Prior to the adoption of fresh-start
reporting, Forum Group accounted for income taxes under Statement of
Financial Accounting Standards No. 96 ("SFAS 96"). Under both SFAS 109 and
SFAS 96, income tax expense is the amount of income taxes expected to be
payable for the current year, plus or minus the change in deferred income
tax assets and liabilities established for expected future income tax
consequences resulting from differences between the book and tax bases of
assets and liabilities. The effect of the change is not material.
Income (Loss) Per Share
-----------------------
Net income (loss) per common share is based on the weighted average number
of common shares outstanding. Common equivalent shares consisting of stock
options have a nondilutive effect. The reorganization plan significantly
diluted equity interests of the predecessor shareholders.
(2) Plan of Reorganization and Fresh-start Reporting
------------------------------------------------
In accordance with SOP 90-7, since the holders of the previously issued
common stock are to receive less than 50% of the new common stock and the
reorganization value is less than postpetition liabilities and allowed
claims, Forum Group accounted for the reorganization using fresh-start
reporting. Accordingly, all assets and liabilities were adjusted as of
March 31, 1992 to reflect their reorganization value, which approximates
estimated fair value at the effective date.
Based on management's estimate of the fair value of Forum Group's
consolidated assets, a reorganization value of $393,046,000 was
established. The factors considered in determining the estimated fair value
of assets and liabilities are as follows:
. Property and equipment were valued using an income approach which
converted the estimated operating cash flow during a six-year period
and the estimated value at the end of six years into a value
estimate. The estimated operating cash flow was based on
management's 1993 operating budgets, annual revenue and expense
increases ranging from 3.5% to 4.75%, management fees of 3% and
annual capital expenditures of $100,000 per facility. Discount rates
ranging from 10% to 15.5% were used to compute the value of the
estimated cash flows, and capitalization rates ranging from 12.5% to
14.5% were used to compute the estimated value at the end of the
period. Two RC's were valued at $36,723,000, the net proceeds from a
sale which closed April 2, 1992 (see note 4).
(Continued)
-61-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
. Investments in Forum Retirement Partners, L.P. (the "Partnership"),
(see note 3), and Greenville Retirement Community, L.P.
("Greenville"), were valued on the basis of Forum Group's percentage
interest in the estimated net value of the RCs owned by those
partnerships using similar valuation techniques and assumptions. The
investment in National Enterprises, Inc. ("National"), was valued at
$600,000 based on management's estimate of the net realizable value
of that investment.
. All other assets were valued based on management's estimate of their
net realizable value. Deferred costs and other assets with no
continuing independent benefit were eliminated.
. All liabilities were adjusted to reflect the payment terms included
in the reorganization plan. An additional liability of $1,380,000
was recorded to reflect management's estimate of future costs of
providing management services for the Partnership's RCs (see note 3).
. Cooperative memberships are reflected at the net cash proceeds from
the sale of memberships, and other partners' equity are reflected at
the net amounts contributed, less allocation of the losses of the
partnerships.
Of the up to 10,000,000 shares of common stock issuable pursuant to the
plan, approximately 441,000 shares have been reserved pending the final
settlement of disputed general unsecured claims (including certain legal
claims) totalling approximately $8,580,000. Upon final resolution of those
claims, the shares held in reserve will be cancelled. Management is
currently unable to determine the ultimate disposition of those shares.
(Continued)
-62-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
The following summarizes the effect of fresh-start reporting on the condensed
consolidated balance sheet of the Predecessor Company as of March 31, 1992 (in
thousands):
<TABLE>
<CAPTION>
Extin- Effect of
guish- Fresh-
Predecessor ment Start Successor
Company of Debt Reporting Company
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Property and equipment $401,559 - (52,097) 349,462
Investments 14,133 - (5,256) 8,877
Notes, Investments and
other receivables 4,811 - (209) 4,602
Land held for resale 4,400 - (866) 3,534
Other assets 31,325 - (4,754) 26,571
-------- ------- -------
Total Assets $456,228 - (63,182) 393,046
======== ======== ====== =======
Long-term debt 257,078 2,963 - 260,041
Subordinated notes and
debentures 117,525 (117,525) - -
Accrued interest 22,756 (8,918) - 13,838
Resident deposits 7,541 - - 7,541
Deferred income 15,208 - (921) 14,287
Other liabilities (45,849) (11,140) - 34,709
-------- -------- ------- -------
Total Liabilities 465,957 (134,620) (921) 330,416
-------- -------- ------- -------
Cooperative memberships 40,702 - - 40,702
Other partners' equity 2,534 - - 2,534
Shareholders' equity
(deficit) (52,965) 134,620 (62,261) 19,394
-------- -------- ------ -------
$456,228 (63,182) 393,046
======== ======== ====== =======
</TABLE>
(Continued)
-63-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
(3) Investments
-----------
The investment in the Partnership represents a 22.85% equity interest.
Other income (expense) for fiscal years 1992 and 1991 includes losses of
$5,714,000 and $667,000, respectively, representing Forum Group's share of
the Partnership's losses for those years. Summary information of the
Partnership for the year ended December 31, 1991 is as follows (in
thousands):
<TABLE>
<S> <C>
Revenues $43,101
Costs and expenses 51,682
Reductions in carrying value of properties 14,850
-------
Net loss $23,431
=======
</TABLE>
To support distributions to limited partners, all management fees since the
inception of the Partnership, totalling $9,850,000 through March 31, 1992,
have been deferred and not recognized as income by Forum Group. Management
fees through December 31, 1993, are also to be deferred. During fiscal year
1991, Forum Group completed its commitment to purchase $12,500,000 of
limited partners' interests in the Partnership.
Forum Group's investment in National comprised 85,000 shares of preferred
stock, $786,000 in principal amount of 4-3/4% Convertible Subordinated
Debentures due 1996 (effective annual yield of 12%) and notes receivable of
$2,056,000. Subsequent to March 31, 1992, Forum Group sold the preferred
stock for cash of $100,000. During fiscal year 1991, National borrowed
from Forum Group the full amount available on a $650,000 revolving credit
facility which bears interest at Manufacturers Hanover Trust Company's
reference rate plus 2%. Forum Group's investment income included $105,000
in fiscal year 1991 from its investments in National.
Due to continued increasing adverse developments in its real estate
businesses which heightened in 1990, National filed a voluntary petition
for reorganization under Chapter 11 of the Bankruptcy Code in December,
1990. Based on an ongoing evaluation of information filed with the
Bankruptcy Court, Forum Group has concluded that full recovery of its
investment in National is not probable and, accordingly, $1,463,000 and
$10,400,000 of the investment has been charged to operations in 1992 and
1991, respectively, to reflect Forum Group's then-current estimate of the
amount not recoverable.
(Continued)
-64-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
(4) Reduction in Carrying Value of Property
---------------------------------------
Due to difficulties in real estate markets and related factors, Forum Group
had not achieved the occupancy and revenue levels that were expected at
several of its RCs and, accordingly, management believed that the value of
those RCs was not recoverable at March 31, 1991. Based on Forum Group's
evaluation of then-current market conditions, a reduction in the carrying
value of $32,300,000 was recorded in the consolidated financial statements
during 1991. Additional reductions were to be considered necessary in the
future if market conditions further decline. The methodology used to
estimate the property values was an income approach which converted the
estimated operating cash flow before management fees during a six-year
period and the estimated value at the end of six years into a value
estimate. A discount rate of 9.5% was used to compute the value of the
estimated cash flow and a capitalization rate of 10% was used to compute
the estimated sales value.
On April 2, 1992, Forum Group sold two RCs to an independent third party
for $36,723,000. Based on the net sales proceeds, a reduction in carrying
value of the properties of $12,771,000 was recorded during 1992. In
connection with the sale, the purchaser is to provide Forum Group a loan of
$682,500, payable in equal semi-annual installments commencing in October
1992, with interest at the prime rate plus 2.5% to maturity in April 1998.
During fiscal year 1991, development of four RCs was discontinued and
unrecoverable costs incurred in connection with those RCs of $10,077,000
were charged to operations. As unfavorable market conditions existed for
several parcels of land held for resale, the carrying value of that land
was reduced by $5,900,000 during fiscal year 1991 based on Forum Group's
estimate of the expected recovery through the sale of the land.
(5) Facility Sales
--------------
Forum Group continued its planned divestiture of nonretirement facilities.
In fiscal year 1991, six nursing homes were sold at a total sales price of
$18,857,000, resulting in a gain of $5,995,000. In fiscal year 1990, four
facilities for the developmentally disabled and three nursing homes were
sold at a total sales price of $27,640,000, resulting in a gain of
$16,987,000.
In fiscal year 1990, one RC was sold by Forum Group to the Partnership for
$23,545,000 and leased back by Forum Group pursuant to a two-year operating
lease. On May 1, 1991, Forum Group gave the Partnership notice of
rejection of that lease, and the RC is now operated under Forum Group's
management agreement with the Partnership. Forum Group recognized gains on
sales of RCs to the Partnership totalling $386,000 and $1,643,000 in fiscal
years 1992 and 1991, respectively.
(Continued)
-65-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
(6) Income Taxes
------------
In 1992 and 1991, ordinary tax losses were approximately $28,000,000 and
$47,000,000, respectively, and alternative minimum tax losses are
approximately $26,000,000 and $44,000,000, respectively. No further
refunds are available in the three-year carryback period.
Income tax refunds (net of payments) of $104,000 and $1,831,000 were
received during fiscal years 1992 and 1991, respectively. The income tax
benefit differs from the amount expected at 34% of the loss before income
taxes due to the carryforward of net operating losses.
(7) Long-term Debt
--------------
Prior to the confirmation of the reorganization plan, Forum Group was in
default under the terms of substantially all of its long-term debt. Certain
long-term debt obligations of consolidated subsidiaries not reorganized
under Chapter 11 were or may have been in default due to failure to make
required payments or as a result of Forum Group's petition. Although
payments could not have been made with respect to the long-term debt
without approval of the Bankruptcy Court, the following is a description of
the terms of the various debt agreements without regard to the
reorganization plan (see note 2):
Forum Group's term loan bore default interest at 4.25% above the lead
bank's reference rate for domestic rate loans or 5.75% (plus a reserve
factor) above the Eurodollar rate for Eurodollar rate loans. Prior to its
maturity in January 1991, the term loan bore interest at 2.25% above the
lead bank's reference rate or 3.75% above the Eurodollar rate.
Forum Retirement Communities I, L.P., a consolidated affiliate of Forum
Group, has a mortgage on one RC with an original balance of $28,500,000
with several of its limited partners. Forum Group is the sole general
partner (with a 15% beneficial interest) and a limited partner (with a
43.95% beneficial interest). Interest on the mortgage loan is due quarterly
at LIBOR plus 1.5% with quarterly principal payments beginning in May,
1993, based on 30-year amortization and a final maturity in February 1999.
Forum Retirement Communities II, L.P., a consolidated affiliate of Forum
Group, has a mortgage on three RCs with an original balance of $48,000,000
with several of its limited partners. Forum Group is the sole general
partner (with a 6.25% beneficial interest) and a limited partner (with a
53.15% beneficial interest). Interest on the mortgage loan is due quarterly
at LIBOR plus 1.3% with quarterly principal payments beginning in August,
1992, based on 30-year amortization and a final maturity in May 1996.
(Continued)
-66-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
Forum Group financed a RC with a $14,600,000 first mortgage loan which
required monthly payments of $133,590, including interest at 10.5%, to
maturity in July 2000.
Forum Group's secured bridge loans of $25,000,000 bore default interest at
the lead bank's reference rate plus 4% and matured on January 31, 1991.
Prior to maturity, the loans bore interest at the lead bank's reference
rate plus 2%. The loans were secured by RCs and other assets of Forum
Group.
A construction loan was advanced under a commitment from a bank and is
secured by a leasehold mortgage on a lifecare RC. Interest is payable
monthly at LIBOR plus 2.25% or the bank's reference rate plus l%. During
fiscal year 1992, the maturity of this loan was extended from December
1991, to June 1992.
Future minimum payments under capitalized leases approximate $1,100,000 for
each of the five years ending March 31, 1997, with approximately
$12,400,000 due thereafter, including imputed interest of approximately
$8,600,000. Total rental expense amounted to $2,530,000 and $9,592,000 for
fiscal years 1992 and 1991, respectively.
Other long-term debt and industrial development bonds are secured by
facilities owned by Forum Group, and the other notes payable are secured by
land.
During fiscal years 1992 and 1991, Forum Group incurred interest costs of
$23,740,000 and $37,062,000, respectively, of which $3,531,000 and
$4,054,000, respectively, was capitalized. Interest payments were
$11,529,000 and $30,363,000, respectively, during those years.
(8) Subordinated Notes and Debentures
---------------------------------
Prior to the confirmation of the reorganization plan, Forum Group was in
default under the terms of all of its subordinated note and debenture
agreements. Although payments could not have been made with respect to
those notes and debentures without approval of the Bankruptcy Court, the
following is a description of the terms of the various debt agreements
without regard to the reorganization plan (see note 2):
(Continued)
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
The 6.25% convertible subordinated debentures were redeemable by Forum
Group, in whole or in part, at any time, at rates ranging from 106.25% to
100% of principal amount, plus accrued interest, except that the debentures
were not redeemable prior to August 15, 1991, except under certain
circumstances. The debentures were convertible into common shares at any
time prior to maturity, at the option of the holder, at a conversion price
of $11.41 per share. The debentures were redeemable on August 15, 1991, at
the option of the holder, at 110.51% of principal amount, plus accrued
interest. Prior to the commencement of the reorganization proceedings,
Forum Group accrued interest on the debentures at the rate of 1.75% per
annum, which represented an incremental increase in the effective interest
rate to 8%, in order to provide for redemption of the debentures at the
option of the holders. Mandatory sinking fund payments sufficient to retire
$5,250,000 principal amount of the debentures annually, commencing August
15, 1997, were required to retire 70% of the issue prior to maturity.
The 10% senior subordinated notes due 1993 were discounted to yield an
effective interest rate of 13.875%. The notes were redeemable by Forum
Group, in whole or in part, at any time, at 100% of principal amount, plus
accrued interest. Mandatory sinking fund payments sufficient to retire
$2,500,000 principal amount of the notes annually were required to retire
50% of the issue prior to maturity. Forum Group had the noncumulative
option to increase the sinking fund payment in any year by up to an
additional $2,500,000.
Semi-annual payments of $1,667,000 of principal and interest commenced in
March 1989, on the 13% senior subordinated note due 1991.
(9) Shareholders' Equity
--------------------
Options were granted to certain officers and key employees to purchase
common shares pursuant to an incentive stock option plan. The options were
exercisable at the cumulative rate of 20% per year at prices not less than
the market value of the shares at the date of grant. No options were
exercised during the years ended March 31, 1992 or 1991, and all options
were cancelled as of the effective date of the reorganization plan. The
following summarizes data relating to the incentive stock options:
<TABLE>
<CAPTION>
Number Option price
of Shares per share
--------- ------------
<S> <C> <C>
Options outstanding:
March 31, 1990 1,165,250 $1.63 to 8.70
March 31, 1991 1,314,125 0.75 to 8.00
Options exercisable:
March 31, 1990 536,550 1.63 to 8.70
March 31, 1991 659,625 0.75 to 8.00
</TABLE>
(Continued)
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
A nonqualified stock option plan reserved 1,000,000 common shares for issuance
of options to directors, officers and other employees of Forum Group, and to
third parties. During fiscal year 1990, nonofficer directors were issued
options covering 28,000 shares at a price of $2.00 per share. At March 31,
1991, options covering 66,500 shares were outstanding at option prices ranging
from $2.00 to $3.50 per share, and these options were cancelled as of the
effective date of the reorganization plan.
(Continued)
-69-
<PAGE>
Quarterly Financial Data
------------------------
The following quarterly financial data summarize the unaudited quarterly
results for the two fiscal years ended March 31, 1993:
<TABLE>
<CAPTION>
NET OPERATING NET INCOME NET INCOME (LOSS)
REVENUES (LOSS) PER COMMON SHARE
------------- -------------- -----------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Quarters Ended
<S> <C> <C> <C>
June 30, 1991 $19,747 $( 6,720) $(0.21)
September 30, 1991 20,199 (23,605) (0.73)
December 31, 1991 21,492 (10,223) (0.31)
March 31, 1992 23,218 40,996 1.26
June 30, 1992 20,453 ( 3,150) (0.42)
September 30, 1992 22,135 ( 2,116) (0.28)
December 31, 1992 23,445 ( 1,815) (0.24)
March 31, 1993 24,930 ( 278) ( .04)
</TABLE>
Certain significant adjustments were made during fiscal year 1992. Those
adjustments included a $14,144,000 reduction in the carrying value of property
during the second quarter (adjusted to $12,771,000 during the fourth quarter),
and a $62,261,000 valuation charge to income relating to fresh-start reporting
and a $116,195,000 extraordinary gain from extinguishment of debt during the
fourth quarter.
ITEM 9. Disagreements on Accounting and Financial Disclosure. Not
------ -----------------------------------------------------
applicable.
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<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
------- --------------------------------------------------
DIRECTORS
The following table lists the names and ages of all directors of Forum
Group; all positions and offices with Forum Group held by each person; each
person's term of office as director and the period during which he has served
as director; and each person's business experience for the past five years:
<TABLE>
<CAPTION>
TERM OF
OFFICE AS SERVED AS
NAME, PRINCIPAL OCCUPATION A DIRECTOR A DIRECTOR
AND BUSINESS EXPERIENCE EXPIRES SINCE AGE
- -------------------------------------------- ----------- ---------- ---
<S> <C> <C> <C>
Robert A. Whitman 1994 1993 40
Interim Chief Executive Officer of Forum
Group since 1993. President and Co-Chief
Executive Officer of The Hampstead Group,
a privately held investment company, since
1991; theretofore Managing Partner and
Chief Executive Officer Trammell Crow
Ventures, the real estate investment,
banking and investment management unit of
Trammell Crow Company, since 1988, and
Chief Financial Officer for Trammell Crow
Company since 1988.
Daniel A. Decker 1994 1993 40
Managing Director and General Counsel of
The Hampstead Group, a privately held
investment company, since 1990;
theretofore a partner in the law firm of
Decker, Hardt, Munsch and Dinan, P.C.,
since prior to 1988.
</TABLE>
-71-
<PAGE>
<TABLE>
<CAPTION>
OFFICE AS SERVED AS
NAME, PRINCIPAL OCCUPATION A DIRECTOR A DIRECTOR
AND BUSINESS EXPERIENCE EXPIRES SINCE AGE
- -------------------------------------------- ----------- ---------- ---
<S> <C> <C> <C>
Peter P. Copses 1994 1993 34
An officer of Apollo Capital Management,
Inc., and Lion Capital Management, Inc.,
respectively, general partners of Apollo
Advisors, L.P., which act as managing
general partner of Apollo Investment Fund,
L.P., and AIF II, L.P., securities
investment funds, and Lion Advisors, L.P.,
which serves as financial advisor and
representative for Altus Finance and
certain other institutional investors with
respect to securities investments, since
1990; theretofore employed by Donaldson,
Lufkin and Jenrette Securities
Corporation, an investment firm, in 1990,
and theretofore Drexel Burnham Lambert
Incorporated, an investment firm, since
1988; director of Lamonts Apparel, Inc., a
company owning clothing and department
stores, director of Calton Inc., a
homebuilder with operations in New Jersey,
California and Florida.
Asher 0. Pacholder 1994 1992 54
Chairman and Managing Director of Pacholder
Associates, Inc., an investment banking
and advisory firm, since prior to 1988,
Chairman and President of USF&G Pacholder
Fund, Inc., a publicly held closed-end
investment company, since prior to 1988;
director of ICO, Inc., a company engaged
in the oil field services industry, United
Gas Holding Corp., a company engaged in
the gas line transmission industry,
Southland Corporation, a company engaged
in the convenience store industry, and
Trump's Castle Associates, L.P., a company
engaged in the casino industry.
William G. Petty, Jr. 1994 1993 47
Chairman of the Board, President and Chief
Executive Officer of National Heritage,
Inc., a company engaged in the healthcare
industry, since 1992; President and Chief
Executive Officer of Evergreen Healthcare,
Ltd., a company engaged in the healthcare
industry since 1988; Managing Director of
Omega Healthcare Investors, Inc., a
private healthcare investment fund since
prior to 1988.
</TABLE>
-72-
<PAGE>
<TABLE>
<CAPTION>
TERM OF
OFFICE AS SERVED AS
NAME, PRINCIPAL OCCUPATION A DIRECTOR A DIRECTOR
AND BUSINESS EXPERIENCE EXPIRES SINCE AGE
- -------------------------------------------- ----------- ---------- ---
<S> <C> <C> <C>
Antony P. Ressler 1994 1993 32
An officer of Apollo Capital Management,
Inc. and Lion Capital Management, Inc.,
respectively, general partners of Apollo
Advisors, L.P., which acts as managing
general partner of Apollo Investment Fund,
L.P., and AIF II, L.P., securities
investment funds, and Lion Advisors, L.P.,
which serves as financial advisor and
representative for Altus Finance and
certain other institutional investors with
respect to securities investments, since
1990; theretofore Senior Vice President in
the High Yield Bond Department of Drexel
Burnham Lambert Incorporated, an
investment firm, since prior to 1988;
director of Hanna-Barbera Entertainment
Company, Inc., a company engaged in the
entertainment industry; director of
Lamonts Apparel, a company owning clothing
and department stores; director of
Gillette Holdings, Inc., a company which
owns the Vail and Beaver Creek ski resorts
and a meat packing concern.
D. Ellen Shuman 1994 1993 38
Director of Investments - Real Estate for
Yale University Investments Office since
prior to 1988.
</TABLE>
-73-
<PAGE>
<TABLE>
<CAPTION>
TERM OF
OFFICE AS SERVED AS
NAME, PRINCIPAL OCCUPATION A DIRECTOR A DIRECTOR
AND BUSINESS EXPERIENCE EXPIRES SINCE AGE
- -------------------------------------------- ----------- ---------- ---
<S> <C> <C> <C>
Eric B. Siegel 1994 1993 35
An officer of Apollo Capital Management,
Inc. and Lion Capital Management, Inc.,
respectively, general partners of Apollo
Advisors, L.P., which acts as managing
general partner of Apollo Investment Fund,
L.P., and AIF II, L.P., securities
investment funds, and Lion Advisors, L.P.,
which serves as financial advisor and
representative for Altins Finance and
certain other institutional investors with
respect to securities investments, since
1990; theretofore a principal in the law
firm of Cogut, Taylor, Siegel and Engelman
from 1989 to 1990, theretofore an
associate and subsequently a partner in
the law firm of Irell and Manella since
prior to 1988; director of Interco,
Incorporated, a company engaged in shoe
and furniture manufacturing and
distribution; director of Lamonts Apparel,
Inc., a company owning clothing and
department stores.
Merlin C. Spencer 1994 1992 54
Principal of Spencer & Associates, Inc.,
Shawnee Mission, Kansas, a management
consulting firm specializing in the RC
industry, since prior to 1988; industry
consultant to the Creditors' Committee.
George O. Woodard 1994 1992 46
Owner of George D. Woodard, CPA, Carmel,
Indiana, a company which provides
accounting and tax services to the
business community and the general public,
since prior to 1988; Chairman of the
Official Committee of Equity Holders in
the Reorganization Proceedings.
</TABLE>
EXECUTIVE OFFICERS
The following table lists the names and ages of all executive officers of
Forum Group (each of whom serves at the pleasure of the Board); all positions
and offices with Forum Group held by each person; each person's term of office
as an officer and the period during which he has served as an officer; and each
person's business experience during the past five years:
-74-
<PAGE>
<TABLE>
<CAPTION>
SERVED AS AN
EXECUTIVE
NAME, POSITIONS AND OFFICES, OFFICER
AND BUSINESS EXPERIENCE SINCE AGE
- ---------------------------------------------------------- ------------ ---
<S> <C> <C>
Robert A. Whitman 1993 40
Interim Chief Executive Officer of Forum Group since
1993. President and Co-Chief Executive Officer of The
Hampstead Group, a privately held investment company,
since 1991; theretofore Managing Partner and Chief
Executive Officer Trammell Crow Ventures, the real
estate investment, banking and investment management
unit of Trammell Crow Company, since 1988, and Chief
Financial Officer for Trammell Crow Company since 1988.
Paul A. Shively, CPA 1974 50
President, Treasurer and Chief Financial Officer of Forum
Group since 1992; theretofore Senior Vice President,
Treasurer and Chief Financial Officer of Forum Group
since prior to 1988; director of Forum Group, 1988-1992;
director and Secretary of Capital Industries, Inc.
("Capital") a company engaged in the manufacture of air
distribution systems and products, and the sale,
installation and service of heavy-duty truck parts
(formerly a wholly-owned subsidiary corporation
of Forum Group).
Robert A. DeVoss 1990 46
Vice President-Operations of Forum Group since 1992;
theretofore Vice President-Support Services of Forum
Group since 1990; theretofore Senior Director of
Operations of Forum Group since 1989; theretofore
Director of Operations of Forum Group since prior to
1988.
</TABLE>
-75-
<PAGE>
<TABLE>
<CAPTION>
SERVED AS AN
EXECUTIVE
NAME, POSITIONS AND OFFICES, OFFICER
AND BUSINESS EXPERIENCE SINCE AGE
- ---------------------------------------------------------- ------------ ---
<S> <C> <C>
David A. Lewis 1989 41
Vice President-Sales of Forum Group since 1989;
theretofore Senior Director of Sales of Forum Group
since 1988; theretofore Director of Marketing of Forum
Group since prior to 1988.
John H. Sharpe 1992 43
Vice President, Secretary and General Counsel of Forum
Group since 1992; theretofore Assistant General Counsel
of Forum Group since prior to 1988.
</TABLE>
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS.
-------- -----------------------------------------
REMUNERATION
THREE-YEAR COMPENSATION SUMMARY
The following table summarizes the compensation of the Chief Executive Officer
of the Company and each of the other three most highly compensated executive
officers of the Company for the Company's last three fiscal years for services
rendered in all capacities to the Company and its subsidiaries.
<TABLE>
<CAPTION> FISCAL
YEAR ANNUAL COMPENSATION
NAME AND PRINCIPAL ENDED ------------------- ALL OTHER
POSITION MARCH 31 SALARY BONUS COMPENSATION ($)(1)
- -------------------------------- -------- ------ ----- -------------------
<S> <C> <C> <C> <C>
Paul A. Shively, 1993 169,583 -0- 208,057(2)
President and CEO 1992 151,200 30,000
CFO and Treasurer 1991 150,684 -0-
Robert A. DeVoss 1993 112,970 7,500 -0-
Vice President - 1992 97,660 -0-
Operations 1991 93,633 14,000
David A. Lewis 1993 130,294 7,500 -0-
Vice President - Sales 1992 140,028 -0-
1991 137,138 47,668
John H. Sharpe 1993 96,155 15,000 -0-
Vice President, General 1992 88,462 14,167
Counsel and Secretary 1991 83,910 12,500
</TABLE>
1. Pursuant to transition provisions published by the SEC, information
regarding "All Other Compensation" is not presented prior to fiscal 1993.
2. Includes $170,689 paid in connection with the termination of Mr.
Shively's former employment agreement as of December 31, 1992, and $37,368
representing the fair market value of Common Shares issued pursuant to the
Debtors' Modified Third Amended Plan in settlement of Mr. Shively's claim under
Forum Group's former deferred compensation plan.
Effective April 1, 1993, each nonemployee director is compensated at the rate
of $20,000 per year, payable quarterly in advance, plus $2,000 per Board meeting
attended, $250 per committee meeting attended in conjunction with a Board
-76-
<PAGE>
meeting and $500 per committee meeting attended not in conjunction with a Board
meeting.
NONQUALIFIED STOCK OPTION PLAN
On July 8, 1986, Forum Group's shareholders approved the Forum Group, Inc.,
1986 Stock Option Plan (the "Nonqualified Plan"). The Nonqualified Plan does
not qualify as an "incentive stock option" plan within the meaning of Section
422A of the Internal Revenue Code, and options granted under the Nonqualified
Plan are not deemed or construed to be "incentive stock options" under that
Section. There are reserved for issuance, upon the exercise of options granted
under the Nonqualified Plan, 1,000,000 Common Shares. The Nonqualified Plan is
administered, construed and interpreted by the Board of Directors, and its stock
option and compensation committee. Options may be granted to directors,
officers and other employees of Forum Group, and to third parties. During Forum
Group's fiscal year ended March 31, 1993, no options under the Nonqualified Plan
were granted or exercised. Pursuant to the Debtors' Modified Third Amended
Plan, all outstanding options under the Nonqualified Plan were rejected as of
the Effective Date, and no options under the Nonqualified Plan have been granted
since the Effective Date.
EMPLOYEE STOCK PURCHASE PLAN
Forum Group maintains an employee stock purchase plan in which all full-time
employees of Forum Group who have been continuously employed for at least two
years, except certain employees who are members of recognized collective
bargaining units, are eligible to participate. Participating employees may
authorize regular periodic payroll deductions of 2% or 4% of compensation which,
together with a contribution from Forum Group equal to 25% of the employees'
deductions, are used by the plan trustee to make market purchases of Common
Shares for the account of participating employees. During its fiscal year ended
March 31, 1993, Forum Group did not make any contributions to the plan accounts
of executive officers.
SEVERANCE PAY
Forum Group has a policy of paying its officers one week's salary for each
year of service upon termination of employment. In the event that the
employment of either Mr. Shively or Mr. Sharpe is terminated by Forum Group
without cause prior to July 1, 1994, Forum Group will pay the affected
individual an amount equal to six months' salary.
SUPPLEMENTAL RETIREMENT AGREEMENTS
Forum Group has supplemental retirement agreements with Messrs. Shively, Lewis
and DeVoss. Pursuant to those agreements, upon retirement at age 65 or older
and after 15 years of service, each covered officer or his estate will be paid,
for a term certain of fifteen years, an amount per year equal to 50% of his
average annual compensation for the five compensation years which yield the
highest average annual compensation. Also pursuant to those agreements, upon
disability or death prior to retirement and without regard to years of service,
each covered officer or his estate will be paid, for a term certain of ten
years, a disability or death benefit calculated with reference to the officer's
annual compensation as described above. Payments are not reduced for Social
Security or other benefits received by covered officers or their estates. The
estimated annual retirement benefits at normal retirement age of Messrs.
Shively, DeVoss and Lewis, assuming their present salaries remained unchanged,
would be $84,792, $56,485 and $65,147, respectively.
EMPLOYMENT AGREEMENTS
Forum Group is a party to an employment agreement with Mr. Shively, providing
for his employment as the President, Chief Financial Officer and Treasurer of
Forum Group for the period from January 1, 1993 until June 30, 1993. The
Agreement provides for a base salary of $115,000 during the term of the
agreement. The agreement also provides for participation in certain group
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<PAGE>
insurance coverages. The agreement provides that in the event Mr. Shively is
terminated without cause during the term of the agreement, Forum Group will pay
to Mr. Shively an amount equal to unpaid balance of the base salary for the
term.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
------- --------------------------------------------------------------
Set forth below is certain information concerning the only persons known to
Forum Group, as of June 19, 1993, to beneficially own 5% or more of the Common
Shares outstanding and entitled to vote. Except as otherwise noted below, none
of the directors or executive officers of Forum Group beneficially owns any
Common Shares. Messrs. Spencer, Woodard, DeVoss, Lewis and Sharpe beneficially
own 119, 2,602, 40, 39 and 40 Common Shares, respectively, and all 14 directors
and executive officers as a group beneficially own 2,840 Common Shares. (Of the
foregoing shares, Mr. Woodard disclaims beneficial ownership of 16 Common
Shares which are owned by his daughter and 1,000 Common Shares which are owned
by his spouse.) Except as otherwise noted, each person has sole voting and
investment power as to the Common Shares beneficially owned by that person.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME (AND ADDRESS) OF BENEFICIAL OWNER OWNERSHIP (1) CLASS (2)
- ----------------------------------------- ------------------- ----------------
<S> <C> <C>
(a) Certain beneficial owners:
Apollo Investment Fund, L.P. 2,678,307 (3) 15.5%
c/o CIBC Bank and Trust Company
(Cayman) Limited
Edward Street
Georgetown, Grand Cayman,
Cayman Islands
British West Indies
FL Advisors, L.P. 903,757 (3) 5.2%
Two Manhattanville Road
Purchase, New York 10577
Lion Advisors, L.P. 1,774,550 (3) 10.3%
Two Manhattanville Road
Purchase, New York 10577
Kevin E. Foley 1,206,246 (4) 7.0%
Deputy Superintendant of Insurance of
the State of New York
As Rehabilitator of Executive Life
Insurance Company of New York
Jericho, New York 11753-2167
Forum Classic, L.P. 1,834,659 (5) 10.6%
200 West Madison Street
39th Floor
Chicago, Illinois 60606
Forum Holdings, L.P. 4,274,550 (6) 24.7%
4200 Texas Commerce Tower West
2200 Ross Avenue
Dallas, Texas 75201
Healthcare Resources, I, L.P. 1,774,550 (7) 10.3%
184 Shuman Boulevard, Suite 200
Naperville, Illinois 60563
- -----------------
</TABLE>
1. The amounts shown represent Common Shares with respect to which the named
person has sole dispositive power. As a result of the provisions of the
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<PAGE>
Pursuant to a shareholders' agreement (the "Shareholders' Agreement"), entered
into among the Investors at the Closing, the Investors have agreed that, at all
times prior to the 1996 annual meeting of the shareholders of Forum Group (the
"1996 Annual Meeting"), the Board of Directors of Forum Group will consist of
eleven persons: (i) three persons nominated by Apollo, (ii) three persons
nominated by Forum Holdings, (iii) one person nominated by Resources, and (iv)
four persons acceptable to each of the Investors. The Investors further agreed
that from and after the 1996 Annual Meeting, the right to nominate seven of
Forum Group's directors will be allocated among the Investors in proportion to
their relative percentages of Common Share ownership, and that the remaining
four directors will be persons acceptable to each of the Investors.
The Shareholders' Agreement provides for the establishment and maintenance of
an executive committee consisting of at least three directors of Forum Group,
and each of the Investors has agreed to use its respective best efforts to cause
such executive committee to consist of at least three Investor designees
(consisting of one designee designated by each Investor) and such additional
directors of Forum Group, if any, as shall be acceptable to each of the
Investors. Subject to certain exceptions, the executive committee will have and
may exercise all powers of the Board.
Subject to certain exceptions, the Shareholders' Agreement requires that any
Investor that desires to sell all or any portion of its Common Shares must first
give notice to the other Investors, which will then have the right to purchase
such shares at the price and on the other terms specified in such notice. If no
other Investor exercises its right to purchase such shares, the Investor
desiring to sell such shares will be free to do so on the terms and subject to
the conditions set forth in the Shareholders' Agreement (and, under certain
circumstances, will be required to allow one or more of the other Investors to
participate in such sale).
__________________
Shareholders Agreement described below, each of the AIF, FL Advisors, Lion
Advisors, Forum Holdings and Resources may be deemed to have shared voting
power with respect to, and thus to beneficially own, all of the 11,405,714
Common Shares owned by such persons in the aggregate (constituting 66.0% of
Common Shares treated as outstanding as described in footnote 2 below).
See also Item 10, "Directors and Executive Officers of the Registrant".
---
2. The percentages shown are based on 17,275,982 Common Shares outstanding
(excluding 513,993 Common Shares held by a wholly-owned subsidiary of Forum
Group).
3. According to Amendment No. 7 to a Schedule 13D (the "Apollo 13D") jointly
filed with the Securities and Exchange Commission (the "SEC") by AIF, FL
Advisors and Lion Advisors (collectively, the "Apollo Reporting Persons").
According to the Apollo 13D, the Apollo Reporting Persons may be deemed to
constitute a "group" within the meaning of Rule 13d-5(b) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). By
reason of various relationships between Messrs. Copses, Ressler and Siegel
and the Apollo Reporting Persons, Messrs. Copses, Ressler and Siegel may be
deemed to beneficially own the Common Shares owned by the Apollo Reporting
Persons. Each of Messrs. Copses, Ressler and Siegel disclaims beneficial
ownership of such shares. See also Item 10, "Directors and Executive
---
Officers of the Registrant".
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<PAGE>
The Shareholders' Agreement will terminate on June 14, 1998 or, under certain
circumstances, earlier with respect to all or some of the parties thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
------- ----------------------------------------------
Forum Group leases certain equipment from Keystone Group, Inc. ("Keystone"), a
wholly-owned subsidiary corporation of Sovereign Group, Inc., a corporation in
which J. Fred Risk, O. U. Mutz and Bruce R. Karr, former directors and
executive officers of Forum Group, Paul A. Shively, an executive officer and
former director of Forum Group, have 29.6%, 28.4%, 3.0% and 6.5% interests,
respectively. Terry R. Hershberger, a former director of Forum Group who died
on March 2, 1993, had a 6.5% in Sovereign Group, Inc. During its fiscal year
ended March 31, 1993, Forum Group paid Keystone $265,000 in rent.
The foregoing transactions, in the opinion of management, were on terms no
less favorable to Forum Group than terms available from persons not affiliated
with Forum Group.
___________________
4. According to a Schedule 13D filed with the SEC by Mr. Foley.
5. According to a Schedule 13D filed with the SEC by Forum/Classic.
6. According to Amendment No. 4 to a Schedule 13D (the "Forum Holdings 13D")
jointly filed with the SEC by Forum Holdings, Genpar, HRP Management, Ltd.,
HH Genpar Partners, Hampstead Associates, Inc., RAN Genpar Inc. and Incap,
Inc. (collectively, the "Forum Holdings Reporting Persons"). According to
the Forum Holdings 13D, each of the Forum Holdings Reporting Persons (other
than Genpar) may, by reason of certain control relationships, be deemed to
beneficially own all of the Common Shares owned directly by Forum Holdings.
By reason of various relationships between Messrs. Decker and Whitman and
the Forum Holdings Reporting Persons, Messrs. Decker and Whitman may be
deemed to beneficially own the Common Shares owned by the Forum Holdings
Reporting Persons. Each of Messrs. Decker and Whitman disclaims beneficial
ownership of such shares. See also Item 10, "Directors and Executive
---
Officers of the Registrant".
7. According to Amendment No. 4 to a Schedule 13D (the "Resources 13D")
jointly filed with the SEC by Evergreen, Omega/Indiana Care Corp. ("Omega"),
Resources, EH Resources, Inc. and National Heritage, Inc. (collectively,,
the "Resources Reporting Persons"). According to the Resources 13D, the
Resources Reporting Persons (other than Evergreen and Omega) may, by reason
of certain control relationships, be deemed to beneficially own all of the
Common Shares owned directly by Resources. By reason of various
relationships between Mr. Petty and the Resources Reporting Persons, Mr.
Petty may be deemed to beneficially own the Common Shares owned by the
Resources Reporting 'Persons. Mr. Petty disclaims beneficial ownership of
such shares. See also Item 10, "Directors and Executive Officers of
---
the Registrant".
-80-
<PAGE>
During its fiscal year ended March 31, 1993, Forum Group paid Spencer &
Associates, Inc., a corporation of which Dr. Spencer, a director of Forum
Group, is the principal, $194,000 for services as industry consultant to the
Creditors' Committee from February 19, 1991, through August 31, 1991, and
$39,000 for services as a consultant to Forum Group. Additionally, Dr. Spencer
has submitted invoices to Forum Group for consulting services in the approximate
amount of $222,000 for the period preceding June 1, 1993.
On January 11 , 1993, Forum Group entered into an agreement (the "Winton
Agreement") with Winton Associates, Inc. ("Winton"), a wholly-owned subsidiary
of Pacholder Associates, Inc., to provide investment banking services in
connection with the private placement of a $5,000,000 to $10,000,000 bridge loan
for Forum Group. The principal of Pacholder Associates, Inc. is Forum Group
director Asher O. Pacholder. Under the terms of the Winton Agreement, Winton
would receive five percent (5%) of the gross proceeds of any financing provided
by any person not currently a holder of five percent (5%) or more of an
aggregate number of outstanding Common Shares, two percent (2%) of the gross
proceeds of any financing provided by any person (subject to prescribed
exceptions) currently a holder of five percent (5%) or more of the aggregate
number of outstanding Common Shares, and reasonable out of pocket expenses. The
Winton Agreement was modified January 28, 1993, and memorialized February 3,
1993, by substituting "debt and equity financing" In lieu of private placement
of the bridge loan referred to above. The Winton Agreement was further modified
on March 19, 1993, to (i) encompass "debt or equity or a tender offer or other
transaction which results in proceeds to [Forum Group) or its shareholders of at
least $20,000,000 which includes the $5,000,000 purchase of Preferred Shares by
Forum Holdings, L.P. on February 1, 1993", and (ii) replace the fee structure
described in the January 11, 1993, version with a flat fee of $1,000,000 (due
upon closing of a transaction) and reasonable out of pocket expenses.
In accordance with the Winton Agreement, (i) on February 4, 1993; Winton was
paid $100,000 in respect of the purchase of the Series A Preferred Stock by
Forum Holdings, and (ii) on June 18, 1993, Winton was paid $450,000 in respect
of the Closing. On June 14, 1993, Real Vest Management Services, Inc. commenced
litigation against Asher 0. Pacholder, Pacholder Associates, Inc., Winton and
Forum Group, asserting, among other things, its entitlement to one-half of the
fee due Winton as a consequence of the Closing. Forum Group presently intends
to deposit with the presiding court the funds at issue between the plaintiff and
the other defendants.
As discussed in Item l, "Business", in connection with the Recapitalization,
the Investors or their designees purchased Common Shares, Warrants and a portion
of the New Senior Subordinated Notes. Pursuant to the Acquisition Agreement,
Forum Group agreed, among other things, to indemnify the Investors and their
respective affiliates against losses arising out of or in connection with the
Acquisition Agreement and actions taken pursuant thereto and to reimburse the
Investors for all fees, costs and expenses incurred in connection with the
Acquisition Agreement or the transactions contemplated thereby. In connection
with the Recapitalization, Forum Group entered into an Equity Registration
Rights Agreement, dated as of June 14, 1993, with the purchasers of Common
Shares and Warrants and a Debt Registration Rights Agreement, dated as of June
14, 1993, with the purchasers of New Senior Subordinated Notes, which agreements
provide the securityholders party thereto with certain demand and piggyback
registration rights. By reason of various relationships between Messrs. Copses,
Ressler and Siegel and the Apollo Reporting Persons, between Messrs. Decker and
Whitman and the Forum Holding Reporting Persons and between Mr. Petty and the
Resources Reporting Persons, such individuals may be deemed to be affiliates of,
and to have direct or indirect economic interests in, such entities.
In 1992, Ms. D. Ellen Shuman sought and obtained a discharge under Chapter 7
of the Bankruptcy Code of a mortgage loan secured by her former residence in a
deteriorating inner-city neighborhood. The only creditor adversely affected by
these proceedings was the mortgage lender, which had refused Ms. Shuman's offer
of title to the property and cash in an amount equal to the difference between
the remaining loan balance and the then-current appraised value of the property.
-81-
<PAGE>
- - - - -
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------
Section 16(a) of the Exchange Act, requires directors and executive officers
of Forum Group, and persons who own more than 10% of the issued and outstanding
Common Shares, to file reports of ownership and changes in ownership with the
SEC. Directors, executive officers and greater than 10% shareholders are
required by SEC regulation to furnish Forum Group copies of all Section 16(a)
forms they file.
Based solely on review of those copies or written representations that no
Forms 5 were required, Forum Group believes that, during its fiscal year ended
March 31, 1993, all Section 16(a) filing requirements applicable to its
directors, executive officers and greater than 10% shareholders were complied
with except that two reports on Form 3 for Messrs. Sharpe and Woodard were filed
late.
-82-
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. AND REPORTS ON FORM 8-K.
- ------- ----------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. Financial statements:
---------------------
The following consolidated financial statements are filed under Item 8
of this report:
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Independent Auditors' Report (Successor Company)......................... 38
Consolidated Balance Sheets (Successor Company)
- March 31, 1993 and 1992............................................ 39
Consolidated Statement of Operations (Successor Company)
- Year ended March 31, 1993.......................................... 40
Consolidated Statement of Shareholders' Equity (Successor
Company) - Year ended March 31, 1993................................. 41
Consolidated Statement of Cash Flows (Successor Company) -
Years ended March 31, 1993........................................... 42
Notes to Consolidated Financial Statements (Successor
Company)............................................................. 43 - 53
Independent Auditors' Report (Predecessor Company)....................... 54
Consolidated Statements of Operations (Predecessor Company)
- Years ended March 31, 1992 and 1991................................ 55
Consolidated Statements of Shareholders' Equity (Predecessor
Company) - Years ended March 31, 1992 and 1991....................... 56
Consolidated Statements of Cash Flows (Predecessor Company)
- Years ended March 31, 1992 and 1991................................ 57
Notes to Consolidated Financial Statements (Predecessor
Company)............................................................. 58 - 69
2. Financial statement schedules:
-----------------------------
The following other financial statements and financial statement
schedules are filed pursuant to this Item:
Page
----
Independent Auditors' Report............................................. F-l
Schedule II - Amounts Receivable from Related
Parties and Underwriters, Promoters and
Employees Other than Related Parties - Years ended
March 31, 1993, 1992 and 1991 ...................................... F-2
Schedule V - Property, Plant and Equipment -
Years ended March 31, 1993, 1992 and 1991....................... F-3 - F-4
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant and Equipment
- Years ended March 31, 1993, 1992 and 1991.......................... F-5
Schedule VIII - Valuation and Qualifying Accounts
- Years ended March 31, 1993, 1992 and 1991.......................... F-6
Schedule IX - Short-Term Borrowings - Years ended March 31,
1993, 1992 and 1991 .................................................... F-7
Schedule X - Supplementary Income Statement Information
- Years ended March 31, 1993, 1992 and 1991............................ F-8
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the related
instructions or are inapplicable, and have therefore been omitted.
-83-
<PAGE>
3. Exhibits:
---------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Exhibit 2 (l) Debtors' Third Amended and Restated Joint
Plan of Reorganization, as modified
(incorporated by reference to Exhibit 2(l)
to Forum Group's Current Report on Form
8-K dated January 23, 1992, and Exhibits
2(2), 2(3), 2(4) and 2(5) to Forum Group's
Current Report on Form 8-K dated
April 2, 1992) ............................................ N/A
(2) Debtors' Second Amended and Restated
Disclosure Statement Pursuant to Section
1125 of the Bankruptcy Code (incorporated
by reference to Exhibit 2(2) to Forum
Group's Current Report on Form 8-K dated
January 23, 1992) ......................................... N/A
(3) First Modification of Debtors' Third Amended
and Restated Joint Plan of Reorganization,
dated as of February 28, 1992; Second Modification
of Debtors' Third Amended and Restated Joint
Plan of Reorganization, dated as of
February 28, 1992; Third Modification of Debtors'
Third Amended and Restated Joint Plan of
Reorganization, dated as of February 28, 1992;
Fourth Modification of Debtors' Third Amended and
Restated Joint Plan of Reorganization, dated as of
March 24, 1992 (incorporated by reference to
Exhibits 2 (1-5) to Forum Group's Current
Report on Form 8-K dated April 2, 1992) ................... N/A
(4) Fifth Modification of Debtors' Third Amended and
Restated Joint Plan of Reorganization, dated
as of May 20, 1992 (incorporated by reference to
Exhibit 2 to Forum Group's Current Report on
Form 8-K dated September 10, 1992) ........................ N/A
Exhibit 3 (l) Restated Articles of Incorporation of Forum
Group (incorporated by reference to Exhibit 3(1)
to Forum Group's Current Report on Form 8-K
dated April 2, 1992) ...................................... N/A
(2) Amended and Restated Code of By-Laws of Forum
Group (incorporated by reference to Exhibit 3(2)
to Forum Group's Current Report on Form 8-K
dated April 2, 1992) ...................................... N/A
(3) Articles of Amendment of the Articles
of Incorporation of Forum Group, Inc.
dated February 1, 1993 (incorporated
by reference to Exhibit 4(2) to Forum
Group's Current Report on Form 8-K
dated February l, 1993) ................................... N/A
(4) Articles of Amendment of the Articles
of Incorporation of Forum Group, Inc.,
dated April 18, 1993 (incorporated by
reference to Exhibit 4 to Forum Group's
Current Report on Form 8-K dated
April 13, 1993) ........................................... N/A
(5) Portions of Forum Group's Restated Articles
of Incorporation and Amended and Restated
</TABLE>
-84-
<PAGE>
<TABLE>
<S> <C>
Code of By-Laws defining rights of holders
of New Common Shares (incorporated by reference
to Exhibits 3(1) and 3(2) to Forum Group's
Current Report on Form 8-K dated
April 27, 1992) ........................................... N/A
Exhibit 4 (l) Indenture dated as of June l, 1993,
between Forum Group, Inc., as Issuer,
and First Trust Nation Association,
as Trustee, including form of Senior
Subordinated Note ............................... E-129 - E-258
(2) Note Purchase Agreement dated as of
June 14, 1993, among Forum Group,
Inc., and the parties purchasers
parties thereto ................................. E-259 - E-342
(3) Warrant Agreement dated as of June 10,
1993, by and between Forum Group, Inc.
and Citicorp USA, Inc. .......................... E-343 - E-369
No other instruments defining the rights
of the holders of the long-term debt of
Forum Group have been included as exhibits
because the total amount of indebtedness
authorized under such agreement does not exceed
10% of the total assets of Forum Group and
its subsidiaries on a consolidated basis.
Forum Group hereby agrees to furnish
supplementally a copy of any omitted long-term
debt instrument to the Commission upon request.
Exhibit 10(l) Credit Agreement dated as of June 10, 1993,
among Forum Group, Inc., the Lenders named
therein, Citibank, N.A. as Issuing Bank and
Citicorp USA, Inc., as Agent ...................... E-l - E-128
(2) Forum Group, Inc., 1986 Stock Option Plan
(incorporated by reference to Forum Group's
proxy statement dated June 16, 1986) ...................... N/A
(3) Option Agreement (MLP) among Forum Group,
the Partnership and Operations (incorporated
by reference to Exhibit 2(5) to the
Partnership's Current Report on Form 8-K
dated December 29, 1986) .................................. N/A
(4) Management Agreement (MLP) among the Partner
ship, Operations, Forum Health Partners I-A,
L.P., Foulk Manor Associates, L.P., and Forum
Group (incorporated by reference to Exhibit
10(2) to the Partnership's Current Report
on Form 8-K dated December 29, 1986) ...................... N/A
(4) Note Purchase Agreement among Japan Leasing
(U.S.A.), Inc., Inter-Lease (U.S.A.)
Corporation, FRCIILP, and Japan Leasing
(U.S.A.), Inc., as agent (incorporated by
reference to Exhibit 10(l) to Forum Group's
Current Report on Form 8-K dated May 15, 1989) ............ N/A
(5) Guaranty Issuance Agreement among GATX Realty
Corporation, GATX Leasing Corporation and
FRCIILP (incorporated by reference to
Exhibit 10(2) to Forum Group's Current
</TABLE>
-85-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Report on Form 8-K dated May 15, 1989) .................... N/A
(6) Note Purchase Agreement among Mitsui
Leasing (U.S.A.) Inc., BOT Leasing America
Inc., Redwood Properties, Inc., Forum
Group, FRCILP, and Mitsui Leasing (U.S.A.)
Inc., as agent (incorporated by reference
to Exhibit 10(l) to Forum Group's Current
Report on Form 8-K dated April 24, 1990) .................. N/A
(7) Guaranty Issuance Agreement among GATX
Realty Corporation, GATX Capital Corporation
and FRCILP (incorporated by reference to
Exhibit 10(2) to Forum Group's Current
Report on Form 8-K dated April 24, 1990) .................. N/A
(8) Stock Purchase Agreement between Forum Holdings,
L.P. and Forum Group, Inc., dated February 1,
1993 (incorporated by reference to Exhibit 4(1)
to Forum Group's Current Report on Form 8-K
dated February 1, 1993) ................................... N/A
(9) Agreement in Principle among Apollo Investment
Fund, L.P., Investors Genpar, Inc., Evergreen
Healthcare, Ltd., and Forum Group, Inc., dated
February 1, 1993 (incorporated by reference to
Exhibit 28 to Forum Group's Current Report on
Form 8-K dated February 1, 1993) .......................... N/A
(10) Agreement in Principle among Apollo Investment
Fund, L.P., Investors Genpar, Inc., Evergeen
Healthcare, Ltd., and Forum Group, Inc., dated
April 13, 1993 (incorporated by reference to
Exhibit 2(l) to Forum Group's Current Report on
Form 8-K dated April 13, 1993) ............................ N/A
(11) Acquisition Agreement among Apollo Investment
Fund, L.P., FL Advisors, L.P., on behalf of
one or more managed accounts, Lion Advisors,
L.P., on behalf of one or more managed accounts,
Investors Genpar, Inc., Evergreen Healthcare,
Ltd., and Forum Group, Inc., dated as of April 18,
1993 (incorporated by reference to Exhibit 2(2) to
Forum Group's Current Report on Form 8-K dated
April 13, 1993) ........................................... N/A
(12) Letter Agreement between Forum Holdings, L.P.,
and Forum Group, Inc., dated as of April 18, 1993
(incorporated by reference to Exhibit 2(3) to
Forum Group's Current Report on Form 8-K dated
April 13, 1993) ........................................... N/A
(13) Agreement dated as of June 6, 1993, among Forum
Group, Inc., Apollo Investment Fund, L.P., FL
Advisors, L.P., on behalf of one or more managed
accounts, Lion Advisors, L.P., Investors Genpar,
Inc., and Evergreen Healthcare, Ltd. (incorporated
by reference to Exhibit 2.2 to Forum
Group's Current Report on Form 8-K dated
June 14, 1993) ............................................ N/A
(14) Agreement dated as of June 14, 1993, among Forum
Group, Inc., Apollo Investment Fund, L.P., FL
Advisors, L.P., on behalf of one or more managed
accounts, Lion Advisors, L.P., Investors Genpar,
Inc., and Evergreen Healthcare, Ltd.
</TABLE>
-86-
<PAGE>
<TABLE>
<S> <C> <C>
(incorporated by reference to Exhibit 2.3 to
Forum Group's Current Report on Form 8-K dated
June 14, 1993) .......................................... N/A
Exhibit 22 Subsidiaries of the Registrant .......................... E-370
</TABLE>
(b) Reports on Form 8-K. The following report on Form 8-K was filed during
--------------------
the last quarter of the period covered by this report: Report on Form 8-K
reporting "Other Events" occurring on February 1, 1993, and filed on February 4,
1993.
(c) The response to this portion of this Item is submitted as a separate
section at p. E-369 of this report.
(d) The response to this portion of this Item is submitted as a separate
section at pp. F-2 - F-8 of this report.
-87-
<PAGE>
(LOGO OF KPMG PEAT MARWICK APPEARS HERE)
Independent Auditors' Report
- ----------------------------
The Board of Directors and Shareholders
Forum Group, Inc.:
Under date of May 14, 1993, except as to the fifth through seventh paragraphs of
note l, which are as of June 14, 1993, we reported on the consolidated balance
sheets of Forum Group, Inc. and subsidiaries (Successor Company) as of March 31,
1993 and 1992 and the related consolidated statements of operations,
shareholders' equity and cash flows for the year ended March 31, 1993, and the
consolidated statements of operations, shareholders' equity, and cash flows of
Forum Group, Inc. and subsidiaries (Predecessor Company) for each of the years
ended March 31, 1992 and 1991, as contained in the annual report on Form 10-K
for the year ended March 31, 1993. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related financial statement schedules as listed in the accompanying index.
These financial statement schedules are the responsibility of the Forum Group's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in note l to the consolidated financial statements, Forum Group's
plan of reorganization was confirmed by the U.S. Bankruptcy Court effective
April 2, 1992 (March 31, 1992 for financial reporting purposes). In accordance
with Statement of Position No. 90-7 of the American Institute of Certified
Public Accountants, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," Forum Group was required to account for the reorganization
using fresh-start reporting. Accordingly, all consolidated financial statements
as of March 31, 1992 and for any period subsequent to that date are referred to
as "Successor Company" as they reflect the period subsequent to the
implementation of fresh-start reporting and are not comparable to the
consolidated financial statements for period prior to the implementation of
fresh-start reporting.
/s/ KPMG Peat Marwick
Indianapolis, Indiana
May 14, 1993, except as to the fifth through
seventh paragraphs of note l, which are
as of June 14, 1993.
F-1
<PAGE>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FORUM GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------
Deductions Balance at End
of Period
-----------------------------------------
Balance Amounts
at Beginning Amounts Written Not
Name of debtor of Period Additions Collected Off Current Current
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUCCESSOR COMPANY
Year ended March 31, 1993:
Forum Retirement Partners, L.P. $1,190,000 $0 $ 292,000 $0 $155,000 $743,000
PREDECESSOR COMPANY
Year ended March 31, 1992:
Forum Retirement Partners, L.P. $1,349,000 $0 $ 159,000 $0 $212,000 $978,000
Year ended March 31, 1991:
Forum Retirement Partners, L.P. $4,667,000 $0 $3,318,000 $0 $279,000 $1,070,000
</TABLE>
F-2
<PAGE>
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FORUM GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Other Changes - Balance
at Beginning Additions Add (Deduct) - at End
Classification of Period at cost Retirements Describe of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUCCESSOR COMPANY
Year ended March 31, 1993:
Land and improvements $43,084,000 $62,000 $0 ($104,000)(6) $43,042,000
Buildings and leasehold
improvements 249,548,000 3,985,000 0 8,509,000 (2) 262,042,000
Furniture and equipment 11,641,000 2,627,000 22,000 0 14,246,000
Properties under sales commitment 36,723,000 0 0 (36,723,000)(7) 0
Projects under development and
construction 8,537,000 0 28,000 (8,509,000)(2) 0
------------ ----------- ------- ------------ ------------
TOTALS $349,533,000 $6,674,000 $50,000 ($36,827,000) $319,330,000
============ =========== ======= ============ ============
PREDECESSOR COMPANY
Year ended March 31, 1992:
Land and improvements $41,727,000 $37,000 $0 $1,320,000 (2)(4) $43,084,000
(5)
Buildings and leasehold
improvements 287,691,000 609,000 808,000 (37,944,000)(2)(4) 249,548,000
(5)
Furniture and equipment 21,829,000 583,000 2,121,000 (8,650,000)(4)(5) 11,641,000
Properties under sales commitment 0 0 0 36,723,000 (5) 36,723,000
Projects under development and
construction 59,922,000 34,246,000 0 (85,631,000)(2)(4) 8,537,000
------------ ----------- ---------- ------------ ------------
TOTALS $411,169,000 $35,475,000 $2,929,000 ($94,182,000) $349,533,000
============ =========== ========== ============ ============
Year ended March 31, 1991:
Land and improvements $35,817,000 $65,000 $763,000 $6,608,000 (2)(4) $41,727,000
Buildings and leasehold
improvements 278,333,000 1,864,000 13,393,000 20,887,000 (2)(4) 287,691,000
Furniture and equipment 22,383,000 2,190,000 5,039,000 2,295,000 (2) 21,829,000
</TABLE>
F-3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Projects under development and
construction 99,148,000 47,275,000 25,345,000 (61,156,000)(2)(3) 59,922,000
------------ ----------- ----------- ------------- -----------
TOTALS $435,681,000 $51,394,000 $44,540,000 ($31,366,000) $411,169,000
============ =========== =========== ============= ============
</TABLE>
Note 1 - Depreciation has been computed principally in accordance with the
following range of rates:
Buildings and leasehold improvements 5% to 20%
Furniture and equipment 10% to 33 1/3%
Note 2 - Transfer (from) construction in progress.
Note 3 - Represents reclassification of other deferred costs and costs written
off on deferred and discontinued projects.
Note 4 - Includes reductions in carrying values and adjustments for fresh-start
reporting.
Note 5 - Transfer to properties under sales commitment.
Note 6 - Amortization of prepaid land lease.
Note 7 - Sale of property.
F-4
<PAGE>
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
FORUM GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
Balance Additions Other Changes - Balance
at Beginning Charged to Add (Deduct) - at end
Description of Period Costs & Expenses Retirements Describe of period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUCCESSOR COMPANY
Year ended March 31, 1993:
Land and improvements $ 0 $ 34,000 $ 0 $ 0 $34,000
Buildings and leasehold
improvements 0 7,280,000 0 0 7,280,000
Furniture and equipment 0 1,479,000 0 0 1,479,000
----------- ----------- ---------- ------------ -----------
TOTALS $ 0 $ 8,793,000 $ 0 $ 0 $ 8,793,000
=========== =========== ========== ============ ===========
PREDECESSOR COMPANY
Year ended March 31, 1992:
Land and improvements $ 182,000 $ 60,000 $ 0 ($242,000)(1) $0
Buildings and leasehold
improvements 15,374,000 8,406,000 700,000 (23,080,000)(1) 0
Furniture and equipment 5,492,000 2,196,000 1,760,000 (5,928,000)(1) 0
----------- ----------- ---------- ------------ -----------
TOTALS $21,048,000 $10,662,000 $2,460,000 $0 $0
=========== =========== ========== ============ ===========
Year ended March 31, 1991:
Land and improvements $ 178,000 $ 58,000 $ 54,000 $0 $182,000
Buildings and leasehold
improvements 9,852,000 8,333,000 2,811,000 0 15,374,000
Furniture and equipment 4,447,000 2,592,000 1,547,000 0 5,492,000
----------- ----------- ---------- ------------ -----------
TOTALS $14,477,000 $10,983,000 $4,412,000 $ 0 $21,048,000
=========== =========== ========== ============ ===========
</TABLE>
Note 1. Fresh-start adjustments
F-5
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FORUM GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
-------------------------------
Additions
- ------------------------------------------------------------------------------------------------------------------
(2)
Balance (1) Charged to
at Beginning Charged to Other Accounts - Balance
Description of Period Costs & Describe Deductions - at End
Expenses Describe of Period
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUCCESSOR COMPANY
Year ended March 31, 1993:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable and
contractual adjustments $109,000 $264,000 $ 0 $ 154,000(1) $219,000
Allowance for loss on disposal
of land 0 0 0 0 0
-------- -------- --- --------- --------
TOTALS $109,000 $264,000 $ 0 $ 154,000 $219,000
======== ======== === ========= ========
PREDECESSOR COMPANY
Year ended March 31, 1992:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable and
contractual adjustments $707,000 $ 55,000 $ 0 $ 653,000(1) $109,000
Allowance for loss on disposal
of land 100,000 0 0 100,000(3) 0
-------- -------- --- --------- --------
TOTALS $807,000 $ 55,000 $ 0 $ 753,000 $109,000
======== ======== === ========= ========
Year ended March 31, 1991:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable and
contractual adjustments $411,000 $276,000 $ 0 ($20,000)(1) $707,000
Allowance for loss on disposal
of land 134,000 0 0 34,000(2) 100,000
-------- -------- --- --------- --------
TOTALS $545,000 $276,000 $ 0 $ 14,000 $807,000
======== ======== === ========= ========
</TABLE>
Note 1. Uncollectible accounts receivable charged off, less recoveries and
contractual adjustments of revenues.
Note 2. One parcel of land sold during fiscal year.
Note 3. Fresh-start adjustment.
F-6
<PAGE>
SCHEDULE IX - SHORT TERM BORROWINGS
FORUM GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- --------------------------------------------------------------------------------------------------
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest Rate
Category of Aggregate at End Interest During the During the During the
Short-Term Borrowings of Period Rate Period Period Period
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUCCESSOR COMPANY
Year ended March 31, 1993:
None $ 0 N/A N/A N/A N/A
PREDECESSOR COMPANY
Year ended March 31, 1992:
Secured bridge loans (2) $ 0 N/A $22,240,000 $22,240,000 7.35
%
Year ended March 31, 1991:
Secured bridge loans (1) 22,240,000 11.65 35,000,000 19,036,000 12.22
% %
</TABLE>
Note 1 - Secured bridge loans represent borrowings under two agreements
with banks which are due upon the sale or refinancing of certain
assets. One bridge loan was paid off in full in fiscal 1991.
Note 2 - The secured bridge loan was replaced with a term loan as provided in
the reorganization plan.
Note 3 - The average amount outstanding during the period was computed by
dividing the total of monthly outstanding principal balances by 12.
Note 4 - The weighted average interest rate during the period was computed by
dividing the actual interest expense by average short-term debt
outstanding.
F-7
<PAGE>
SCHEDULE X - SUPPLEMENTAL INCOME STATEMENT INFORMATION
FORUM GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
COL. A COL. B
- ------------------------------------------------------------------------------
Item Charged to costs and expenses
- ------------------------------------------------------------------------------
Year Ended March 31
-----------------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
-----------------------------------------
1993 1992 1991
-----------------------------------------
<S> <C> <C> <C>
Depreciation - property & equipment $8,793,000 $10,662,000 $10,983,000
Taxes other than income:
Payroll 3,096,000 3,187,000 3,697,000
Property and general 3,576,000 3,874,000 4,939,000
Rent 1,012,000 2,530,000 9,592,000
Advertising 964,000 1,400,000 1,618,000
</TABLE>
Note 1 - Amounts for maintenance and repairs, amortization of intangible assets,
pre-operating costs and similar deferrals, and income taxes were not
presented as such amounts are less than 1% of revenues. There were no
royalties in 1993, 1992 or 1991.
F-8
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended December 31, 1993 Commission File Number 0-6350
FORUM GROUP, INC.
(Exact name of registrant as specified in its charter)
Indiana 61-0703072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8900 Keystone Crossing, Suite 200
P.O. Box 40498
Indianapolis, Indiana 46240-0498
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317-846-0700
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 has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court:
Yes X No
The number of shares outstanding of the registrant's common stock
as of February 10, 1994 was 21,261,625.
<PAGE>
INDEX
FORUM GROUP, INC., AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
Item 1. Financial Statements (Without Audit)
Condensed consolidated balance sheets --
December 31 and March 31, 1993 3
Condensed consolidated statements of operations --
Three and nine months ended December 31, 1993 and 1992 4
Condensed consolidated statements of cash flows --
Nine months ended December 31, 1993 and 1992 5
Notes to condensed consolidated financial statements --
December 31, 1993 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 22
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Without Audit)
December 31, March 31,
1993 1993
ASSETS ------------- -----------
------ (in thousands)
Property and Equipment:
Land and improvements $ 34,486 $ 34,443
Buildings and leasehold improvements 175,717 175,064
Furniture and equipment 12,627 12,225
----------- -----------
222,830 221,732
Less accumulated depreciation and amortization 10,120 5,768
----------- -----------
212,710 215,964
Rancho San Antonio, property and equipment - net -0- 94,573
----------- -----------
212,710 310,537
Investments:
Forum Retirement Partners, L.P. 16,281 3,795
Greenville Retirement Community, L.P. 3,736 3,763
Rancho San Antonio Retirement Housing
Corporation 11,281 -0-
----------- -----------
31,298 7,558
----------- -----------
Cash and cash equivalents 14,334 5,817
Accounts receivable, less allowance for doubtful
accounts (December 31, $230; March 31, $219) 4,587 2,883
Notes, investments and other receivables 4,830 3,149
Land held for resale 1,638 1,638
Restricted cash 8,478 8,804
Deferred costs and other assets 9,116 4,165
Rancho San Antonio, current and other assets -0- 4,090
----------- -----------
$ 286,991 $ 348,641
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Long-term debt, including $8,387 due
within one year $ 191,917 $ 200,098
Trade accounts payable 1,681 1,855
Accrued interest 1,614 708
Other accrued expenses 15,383 17,955
Resident deposits 19,089 16,558
Deferred income 4,650 4,585
Rancho San Antonio, liabilities -0- 30,820
----------- -----------
Total Liabilities 234,334 272,579
Rancho San Antonio, cooperative memberships -0- 55,910
Other partners' equity 1,686 1,707
Shareholders' equity:
Preferred stock - Series B, no par value -
authorized 2,000 shares, issued 25 shares
at March 31, 1993 -0- 4,870
Common stock, no par value - authorized 48,000
shares, issued 21,262 and 7,493 shares at
December 31 and March 31, 1993, respectively 58,813 20,934
Accumulated deficit (7,842) (7,359)
----------- -----------
Total Shareholders' Equity 50,971 18,445
----------- -----------
$ 286,991 $ 348,641
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Without Audit)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- ------------------
1993 1992 1993 1992
-------- -------- ------- --------
(in thousands except per share amounts)
Revenues:
Net operating revenues $ 27,855 $ 23,445 $ 79,620 $ 66,033
Facility sales, net and other 204 197 371 500
-------- -------- -------- --------
TOTAL REVENUES 28,059 23,642 79,991 66,533
-------- -------- -------- --------
Costs and expenses:
Operating expenses 19,587 18,086 57,450 51,900
General and administrative
expenses 732 1,474 2,470 3,791
Litigation expense 55 -0- 1,317 -0-
Depreciation 1,801 2,411 5,841 6,598
-------- -------- -------- --------
TOTAL COSTS AND EXPENSES 22,175 21,971 67,078 62,289
-------- -------- -------- --------
5,884 1,671 12,913 4,244
Other:
Investment income 248 201 645 1,033
Interest expense (4,357) (4,692) (13,241) (13,708)
-------- -------- -------- --------
(4,109) (4,491) (12,596) (12,675)
-------- -------- -------- --------
Income (loss) before minority interests
and extraordinary charge 1,775 (2,820) 317 (8,431)
Minority interests (143) 1,005 972 1,350
-------- -------- -------- --------
Income (loss) before extraordinary
charge 1,632 (1,815) 1,289 (7,081)
Extraordinary charge - early
extinguishment of debt (1,360) -0- (1,772) -0-
-------- -------- -------- --------
NET INCOME (LOSS) 272 (1,815) (483) (7,081)
ACCUMULATED DEFICIT AT BEGINNING
OF PERIOD (8,114) (5,266) (7,359) -0-
-------- -------- -------- --------
ACCUMULATED DEFICIT AT END OF
PERIOD $ (7,842) $ (7,081) $ (7,842) $ (7,081)
======== ========= ======== =========
Average number of common shares
outstanding 20,823 7,493 15,858 7,493
======== ========= ======== =========
Net income (loss) per common share:
Income (loss) before
extraordinary charge $ 0.08 $ (0.24) $ 0.08 $ (0.95)
Extraordinary charge (0.07) 0.00 (0.11) 0.00
-------- -------- -------- --------
Net income (loss) $ 0.01 $ (0.24) $ (0.03) $ (0.95)
======== ========= ======== =========
SEE Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Without Audit)
Nine Months Ended
December 31,
-------------------------
1993 1992
---------- ----------
(in thousands)
Cash flows from operating activities:
Net loss $ (483) $ (7,081)
Items which do not use (provide) cash:
Depreciation and amortization 6,617 6,824
Facility sales, net (84) (483)
Accrued revenues and expenses, net (5,843) (3,239)
Accrued interest 886 (134)
Other partners' interest in losses (earnings)
of consolidated partnerships 213 (1,351)
Equity in losses (earnings) of
unconsolidated entities (86) 512
Non-cash portion of extraordinary charge 1,630 -0-
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,850 (4,952)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (1,280) (4,959)
Disposals of property and equipment -0- 36,723
Rancho San Antonio - net (71) -0-
Construction costs payable -0- (5,395)
Disposals of land held for resale -0- 1,895
Advances on notes receivable (5) (750)
Investment in Forum Retirement Partners, L.P. (13,131) -0-
Other -0- (288)
---------- ----------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (14,487) 27,226
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 90,711 12,802
Payments on long-term debt (101,533) (35,822)
Restructuring interest payment -0- (13,050)
Restructuring legal fees (52) (2,680)
Proceeds from issuance of common stock 32,999 -0-
Proceeds from Forum Retirement, Inc.'s
tender of Forum Group common stock 1,861 -0-
Recapitalization and tender offer costs (8,541) -0-
Proceeds from cooperative memberships 2,426 12,883
Net increase in restricted cash 2,371 3,612
Net distribution to other partners (72) (235)
Deferred financing and other costs (16) (1,124)
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 20,154 (23,614)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 8,517 (1,340)
Cash and cash equivalents at beginning of period 5,817 7,542
---------- ----------
Cash and cash equivalents at end of period $ 14,334 $ 6,202
========== ==========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1993
Note A - Basis of Presentation
- ------------------------------
The balance sheet at March 31, 1993 has been derived from the audited
financial statements at that date included in the Annual Report on Form
10-K of Forum Group, Inc. ("Forum Group") filed with the Securities and
Exchange Commission for the fiscal year ended March 31, 1993 (the "1993
10-K").
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended December 31, 1993 are
not necessarily indicative of the results that may be expected for the
fiscal year ending March 31, 1994. For further information, refer to
Forum Group's consolidated financial statements as of and for the year
ended March 31, 1993, and the footnotes thereto, included in the 1993
10-K.
Note B - Refinancing Agreements
- -------------------------------
Forum Group Recapitalization. As previously disclosed, in June, 1993
Forum Group consummated a recapitalization (the "FGI Recapitalization")
pursuant to a series of agreements and modifications thereto
(collectively, the "Acquisition Agreement") with a group of investors
comprised of Forum Holdings, L.P. ("Forum Holdings"), Apollo Investment
Fund, L.P. ("AIF") and Lion Advisors, L.P., on behalf of one or more
managed accounts ("Lion") (AIF and Lion, together with their affiliates
and assigns, are hereinafter collectively referred to as "Apollo") and
Healthcare Resources I, L.P. ("Healthcare Resources") (Forum Holdings,
Apollo and Healthcare Resources, together with their affiliates and
assigns, are hereinafter collectively referred to as the "Investors").
As a result of the FGI Recapitalization, including the Investors' Tender
Offer described below, the Investors acquired approximately 71.7% of the
outstanding shares of common stock of Forum Group ("Common Shares"). The
principal components of the FGI Recapitalization included (i) the
issuance and sale by Forum Group on February 1, 1993 of 25,000 shares of
preferred stock (which were exchanged on June 14, 1993 for 2,500,000
newly-issued Common Shares) for an aggregate purchase price of
$5,000,000, (ii) the issuance and sale by Forum Group on June 14, 1993 of
7,098,200 Common Shares, together with warrants exercisable to purchase
at a nominal price an aggregate of 1.1555 Common Shares for each Common
Share reserved in accordance with Forum Group's April 2, 1992, Plan of
Reorganization for the payment of disputed general unsecured claims (each
a "Reserved Share") issued on or after June 14, 1993 for an aggregate
purchase price of $20,000,000, (iii) the borrowing by Forum Group on June
14, 1993, of $50,000,000 pursuant to a new bank credit facility through a
consortium of lenders for which Citicorp USA, Inc. serves as agent (the
"Citibank Term Loan"), (iv) the issuance and sale by Forum Group on
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1993 (continued)
June 14, 1993 of $40,000,000 aggregate principal amount of senior
subordinated notes (the "Senior Subordinated Notes"), and (v) the
prepayment by Forum Group on June 14, 1993 of all amounts outstanding
under the senior secured term loan agreement which had been entered into
on April 2, 1992 with a consortium of banks for which Chemical Bank
served as agent. Of the 441,071 Reserved Shares as of March 31, 1993,
170,806 were issued prior to June 14, 1993, 4,984 were issued on August
24, 1993 and 265,281 continued to be reserved as of February 1, 1994.
Pursuant to the Acquisition Agreement, the Investors commenced a tender
offer on July 27, 1993 whereby the Investors offered to purchase Common
Shares from shareholders of Forum Group (other than Forum Group) for
$3.62 per share (the "Investors' Tender Offer"). The Investors' Tender
Offer expired on August 31, 1993 with 1,345,543 Common Shares having been
tendered by shareholders. Included in the Common Shares tendered as a
result of the Investors' Tender Offer were 513,993 Common Shares held by
Forum Retirement, Inc., a wholly owned subsidiary of Forum Group.
On February 1, 1994 the Citibank Term Loan and $30,000,000 aggregate
principal amount of the Senior Subordinated Notes were retired with the
proceeds of a refinancing loan (the "Refinancing Loan") (see Note D).
Forum Retirement Partners, L.P. Recapitalization. On October 7, 1993,
Forum Group announced that it had entered into an agreement with Forum
Retirement Partners, L.P. ("FRP") relating to Forum Group's
participation in a proposed recapitalization of FRP (the "FRP
Recapitalization Agreement"). Forum Group had a 22.1% equity investment
in FRP (prior to the FRP Recapitalization), is the parent company of
FRP's general partner and has a long-term management contract with FRP.
Pursuant to the FRP Recapitalization Agreement, $13 million of additional
equity was provided to FRP by a subsidiary of Forum Group through the
purchase of 6.5 million units of FRP's limited partnership interests
("Units") at a price of $2.00 per Unit. Subsequent to this purchase,
Forum Group owned 55.2% of the Units, subject to reduction as discussed
below.
As required by the FRP Recapitalization Agreement, FRP has made a public
offering whereby unitholders of record as of October 18, 1993 (other than
Forum Group and its affiliates) have the right to acquire additional
Units at $2.00 per unit, the same price paid by the Forum Group
subsidiary. The rights to acquire additional Units expire on February
25, 1994, subject to extension. Those rights are not directly or
indirectly transferable. The proceeds of that offering will be used to
repurchase Units from the Forum Group subsidiary at the same price paid
by that subsidiary. Should all of the eligible unitholders purchase the
Units being offered to them, Forum Group's percentage ownership will
return to 22.1%. Forum Group expects its percentage ownership to be less
than 50% upon completion of the offering; therefore, Forum Group's
investment in FRP is accounted for on the equity method.
Forum Group's subsidiary's acquisition of the 6.5 million Units described
above was financed by proceeds from the sale of 3,466,666 additional
Common Shares to the Investors for an aggregate purchase price of
$13,000,000. Immediately following their purchase of the 3,466,666
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1993 (continued)
Common Shares described above, the Investors owned a total of 16,217,922
Common Shares, increasing the Investor's percentage ownership of Forum
Group from approximately 71.7% to approximately 76.3%.
The agreement under which the 3,466,666 Common Shares were purchased by
the Investors provided that Forum Group will file and thereafter use its
best efforts to make effective a registration statement in connection
with an offering (the "FGI Offering") pursuant to which Forum Group
shareholders of record on October 18, 1993 (other than the Investors)
will have the right to acquire additional shares at $3.75 per Common
Share, the same price paid by the Investors. The right to purchase
Common Shares in the FGI Offering will not be directly or indirectly
assignable or transferable. It is presently expected that the FGI
Offering will be commenced in February 1994.
Note C - Change In Consolidation. The assets, liabilities and financial
results of Rancho San Antonio Retirement Housing Corporation ("RSARHC"),
a cooperative which owns The Forum at Rancho San Antonio ("Rancho San
Antonio"), a cooperative continuing care community in Cupertino,
California, were included in the consolidated financial statements of
Forum Group through July 31, 1993 since Forum Group owned a majority of
RSARHC's cooperative memberships. Effective August 1, 1993, due to
continued sales of cooperative memberships, Forum Group no longer owned
in excess of 50% of the memberships, and accordingly, the financial
statements of RSARHC are no longer included in Forum Group's consolidated
financial statements. Sales of cooperative memberships have totalled
$76,000,000 through December 31, 1993 and profits on these sales will be
recognized using the cost recovery method. Forum Group's continuing
ownership interest in RSARHC as the owner of 38% of the cooperative
memberships at December 31, 1993 is accounted for on the equity method.
Note D - Long-Term Debt. On February 1, 1994 proceeds of the Refinancing
Loan of $93,301,000 were used to retire the $49 million principal balance
of the Citibank Term Loan and $30 million of aggregate principal amount
of the Senior Subordinated Notes, and pay expenses totalling
approximately $10,366,000, $7,427,000 of which related to the purchase of
an interest rate cap agreement from a financial institution (which
effectively caps the interest rate on the Refinancing Loan at 8.925% per
annum), and prepayment premiums totalling approximately $3,000,000. The
Refinancing Loan requires monthly payments of principal based on a 25
year amortization to maturity on February 1, 2001, and bears interest at
a floating rate equal to the 30 day LIBOR rate plus 4.3%. As of the
closing date of the Refinancing Loan, the interest rate thereunder was
7.425%.
The write-off of deferred financing costs and other expenses associated
with the refinancing will result in extraordinary charges estimated at $8
million in Forum Group's fourth fiscal quarter.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1993 (continued)
Note E - Investments. Summary financial information for FRP as of and
for the nine months ended December 31, 1993 is as follows (in thousands):
Net property $ 98,265
Other assets 12,215
---------
110,480
Less liabilities 71,868
---------
Net assets $ 38,612
=========
Revenues $ 33,740
Costs and expenses 34,836
Extraordinary charge - early
extinguishment of debt 2,917
---------
Net loss $ 4,013
=========
In December, 1993 FRP completed the refinancing of its long-term debt
and, as a result, recognized an extraordinary charge of $2,917,000 for
early extinguishment of debt. Forum Group's share of this charge is
presented as an extraordinary charge in the accompanying condensed
consolidated statement of operations.
Forum Group has a 50% beneficial interest in Greenville Retirement
Community, L.P. ("GRP"), a limited partnership which owns the Stonegates
retirement community in Wilmington, Delaware. Summary financial
information for GRP as of and for the nine months ended December 31, 1993
is as follows (in thousands):
Net property $ 20,684
Other assets 1,090
---------
21,774
Less liabilities 22,932
---------
Net deficit $ 1,158
=========
Revenues $ 4,516
Costs and expenses 4,182
---------
Net income $ 334
=========
Summary financial information for RSARHC as of and for the nine months
ended December 31, 1993 is as follows (in thousands):
Net property $ 97,677
Other assets 7,254
---------
104,931
Less liabilities 44,873
---------
Net assets $ 60,058
=========
Revenues $ 4,296
Costs and expenses 9,674
---------
Net loss $ 5,378
=========
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1993 (continued)
Note F - Operating Revenues. A change in the estimate of amounts
reimbursable by third party payors from prior years resulted in the
recognition of $1,115,000 of operating revenue in the nine month period
ended December 31, 1993. Forum Group participates in the Medicare
program and in certain Medicaid programs. These programs provide
reimbursement on the basis of allowable cost. Allowable cost is subject
to retroactive examination and adjustment by the agencies administering
the programs, and provisions are made in the financial statements for
potential adjustments that may result. To the extent that those
estimated provisions differ from the administering agencies'
determinations, operations are routinely charged or credited in the
period of such determinations. As a result, Forum Group changed its
estimate of amounts reimbursable by third party payors in 1993 from prior
years.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE THREE AND NINE MONTHS ENDING
December 31, 1993
Results Of Operations
- ---------------------
Forum Group operates (i) 10 retirement communities and one nursing home
owned directly by Forum Group, or wholly owned subsidiaries of Forum
Group, including one community owned by a nonprofit corporation
controlled by Forum Group (the "Owned Communities") , (ii) four
retirement communities owned by partnerships which are not wholly owned
by Forum Group but which are consolidated for financial reporting
purposes (the "Consolidated Partnership Communities"), (iii) 11
retirement communities owned by entities which are not consolidated for
financial reporting purposes (the "Unconsolidated Communities"),
including nine communities owned by FRP, one owned by GRP, and one owned
by RSARHC (which was consolidated for financial reporting purposes prior
to July 31, 1993) (see Note C to accompanying Condensed Consolidated
Financial Statements). The periods in which the financial results of the
consolidated components of Rancho San Antonio are included in the
financial statements of Forum Group are not comparable. Consequently,
Rancho San Antonio is presented separately below in order to present a
comparable disclosure of the other entities' financial results.
Certain summary financial information for the Owned Communities, Rancho
San Antonio, the Consolidated Partnership Communities, and other
corporate operations ("Corporate Operations") is presented below:
Nine Months Ended December 31, 1993
-----------------------------------
Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
----------- ----------- ----------- ---------- --------
Net
Operating
Revenues $55,291 $ 4,106 $19,343 $ 880 $79,620
Operating
Expenses 38,542 4,009 12,027 2,872 57,450
General and
Administra-
tive Expense 0 0 (3) 2,473 2,470
Litigation
Expense 0 0 0 1,317 1,317
Depreciation 2,920 878 1,504 539 5,841
Interest
Expense 2,103 707 3,145 7,286 13,241
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Nine Months Ended December 31, 1992
Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
----------- ----------- ----------- ---------- --------
Net
Operating
Revenues $45,586 $ 2,565 $17,067 $ 815 $66,033
Operating
Expenses 35,129 2,348 11,507 2,916 51,900
General and
Administra-
tive Expense 0 0 120 3,671 3,791
Litigation
Expense 0 0 0 0 0
Depreciation 2,844 2,186 1,481 87 6,598
Interest
Expense 1,865 1,637 3,339 6,867 13,708
Owned Communities. Net operating revenues for the three and nine months
ended December 31, 1993 increased by $3,318,000 (20%), from $16,240,000
to $19,558,000, and by $9,705,000 (21%), from $45,586,000 to $55,291,000,
respectively, as compared to the same periods of the previous year. A
change in the estimate of amounts reimbursable to third party payors from
prior years resulted in the recognition of $945,000 of operating revenue
in the nine month period ended December 31, 1993. The remaining portions
of the increases were primarily attributable to favorable changes in
occupancy, increased utilization of ancillary healthcare services and
increases in residency fees and charges. Combined occupancy increased
from 88% at December 31, 1992 to 93% at December 31, 1993. Operating
expenses, including general and administrative expenses and depreciation,
for the three and nine months ended December 31, 1993 at the Owned
Communities increased by $1,054,000 (8%), from $13,081,000 to
$14,135,000, and by $3,489,000 (9%), from $37,973,000 to $41,462,000,
respectively, as compared to the same periods of the previous year. The
remaining portions of the increases were primarily attributable to the
increase in occupancy, increased utilization of ancillary healthcare
services and normal inflationary increases. Net operating income,
comprised of operating revenue less operating expenses (including general
and administrative expenses and depreciation), for the three and nine
months ended December 31, 1993 at the Owned Communities increased by
$2,264,000, from $3,159,000 to $5,423,000, and by $6,216,000, from
$7,613,000 to $13,829,000, respectively, as compared to the same periods
of the previous year. Exclusive of the impact of the change in estimate
of reimbursable amounts discussed above, these increases constitute 68%
and 60%, respectively, of the increases in net operating revenues for the
three and nine month periods, which are indicative of the degree of
incremental operating income that results from increased occupancy.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Rancho San Antonio. Due to the change in financial statement
presentation discussed above in Note C to the Condensed Consolidated
Financial Statements, the financial results of Rancho San Antonio are not
comparable between fiscal periods. Therefore, no discussion of
comparative variances regarding the consolidated portions of Rancho San
Antonio is presented. Net operating revenues for the consolidated
components of Rancho San Antonio for the three and nine months ended
December 31, 1993 increased by $404,000, from $954,000 to $1,358,000, and
by $1,541,000, from $2,565,000 to $4,106,000, respectively, as compared
to the same periods of the previous year. Occupancy of the consolidated
components of Rancho San Antonio increased from 49% at December 31, 1992
to 91% at December 31, 1993. Operating expenses, including general and
administrative expenses and depreciation, for the consolidated components
of Rancho San Antonio for the three and nine month periods decreased by
$1,119,000, from $2,112,000 to $993,000, and increased by $353,000, from
$4,534,000 to $4,887,000, respectively, as compared to the same periods
of the previous year. Net operating income, comprised of operating
revenue less operating expenses (including general and administrative
expenses and depreciation), for the consolidated components of Rancho San
Antonio for the three month period ended December 31, 1993 increased by
$1,523,000, from a loss of $1,158,000 to income of $365,000, as compared
to the same period of the previous year. Net operating losses, comprised
of operating revenue and operating expenses (including general and
administrative expenses and depreciation), for the consolidated
components of Rancho San Antonio for the nine month period ended December
31, 1993 decreased by $1,188,000, from $1,969,000 to $781,000, as
compared to the same period of the previous year.
Consolidated Partnership Communities. Net operating revenues for the
three and nine months ended December 31, 1993 increased by $760,000
(13%), from $5,960,000 to $6,720,000, and by $2,276,000 (13%), from
$17,067,000 to $19,343,000, respectively, as compared to the same periods
of the previous year. A change in the estimate of amounts reimbursable
to third party payors from prior years resulted in the recognition of
$142,000 of operating revenue in September, 1993. The remaining portions
of the increases were primarily attributable to favorable changes in
occupancy, increased utilization of ancillary healthcare services, and
increases in residency fees and charges. Combined occupancy increased
from 86% at December 31, 1992 to 90% at December 31, 1993. Operating
expenses, including general and administrative expenses and depreciation,
for the Consolidated Partnership Communities for the three and nine
months ended December 31, 1993 increased by $74,000 (2%), from $4,433,000
to $4,507,000, and by $420,000 (3%), from $13,108,000 to $13,528,000,
respectively, as compared to the same periods of the previous year. The
remaining portions of the increases were primarily attributable to the
increase in occupancy, increased utilization of ancillary healthcare
services and to normal inflationary increases. Net Operating Income,
comprised of operating revenue less operating expenses (including general
and administrative expenses and depreciation), for the Consolidated
Partnership Communities for the three and nine months ended December 31,
1993 increased by $686,000, from $1,527,000 to $2,213,000, and by
$1,856,000, from $3,959,000 to $5,815,000, respectively, as compared to
the same periods of the previous year. Exclusive of the impact of the
change in estimate of reimbursable amounts discussed above, these
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
increases constitute 90% and 80% of the increases in net operating
revenues for the three and nine months ended December 31, 1993, which are
indicative of the degree of incremental profits that result from
increased occupancy.
Corporate Operations. Revenues for the three and nine months ended
December 31, 1993 decreased $72,000, from $291,000 to $219,000, and
increased $65,000, from $815,000 to $880,000, respectively, compared to
the same periods of the previous year. Revenues are comprised of
management fees from GRP and RSARHC, a change in the estimate of amounts
reimbursable to third party payors from prior years for sold operations,
and rental income from certain residential units of Rancho San Antonio.
Operating expenses, including general and administrative expenses and
depreciation, for the three and nine months ended December 31, 1993
increased by $140,000 and decreased by $790,000, respectively, as
compared to the same periods of the previous year. These changes reflect
reductions in the headquarters staff and certain allocations of revenues
and expenses related to Rancho San Antonio. Corporate Operations
includes the unallocated interest expense of corporate debt.
Unconsolidated Communities. Forum Group's equity in the earnings of FRP,
which is reflected as other revenues, improved from losses of $51,000 and
$515,000 for the three and nine months ended December 31, 1992,
respectively, to revenue of $582,000 and $638,000 for the three and nine
months ended December 31, 1993, respectively. These increases primarily
reflect improved occupancy at the nine retirement communities owned by
FRP and managed by Forum Group. In December, 1993 FRP completed the
refinancing of its long-term debt and, as a result, recognized an
extraordinary charge of $2,917,000 for early extinguishment of debt.
Forum Group's share of this charge is presented as an extraordinary
charge in the accompanying condensed consolidated statement of
operations. Forum Group's equity in the earnings of GRP, which
is also reported as other revenues, increased from $98,000 and $215,000
for the three and nine months ended December 31, 1992, respectively, to
$88,000 and $232,000 for the three and nine months ended December 31,
1993, respectively. Forum Group's equity in the losses of the
unconsolidated component of Rancho San Antonio for the three and nine
months ended December 31, 1993 was $511,000 and $785,000, respectively.
Consolidated General and Administrative Expenses. For the three and nine
months ended December 31, 1993, consolidated general and administrative
expenses decreased by $742,000, from $1,474,000 to $732,000, and by
$1,321,000, from $3,791,000 to $2,470,000, respectively, compared to the
comparable periods in fiscal 1993. These decreases are primarily
attributable to decreases in salaries and wages of $384,000 and $935,000,
respectively, due to reductions in the headquarters staff. Those
decreases were partially offset by increases, in the amounts of $328,000
and $513,000, respectively, in Forum Group's directors' fees relating to
periods prior to, and expenses related to, the FGI Recapitalization.
Litigation Expenses. During the three and nine months ended December 31,
1993, expenses of $55,000 and $1,317,000, respectively, were incurred in
conjunction with certain litigation related to the FGI Recapitalization.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Depreciation. For the three and nine months ended December 31, 1993,
consolidated depreciation expense decreased by $610,000 and by $757,000,
respectively, compared to the comparable periods in fiscal 1993. The
changes reflect the opening of the healthcare facility at Rancho San
Antonio, additional fixed asset additions over the past twelve months and
increases in other intangible assets.
Interest Expense. Interest expense attributable to the Owned Communities
and Corporate Operations increased by $196,000, from $3,021,000 to
$3,217,000, and by $657,000, from $8,732,000 to $9,389,000, during the
three and nine months ended December 31, 1993, respectively. These
changes are primarily attributable to changes in average borrowing costs.
Extraordinary Charge. During the three and nine months ended December
31, 1993 an extraordinary charge of $1,360,000 was recorded to reflect
Forum Group's share of FRP's extraordinary charge on the early
extinguishment of its debt. Additionally, during the nine months ended
December 31, 1993, expenses of $412,000 related to the early
extinguishment of debt in conjunction with the FGI Recapitalizaiton
were recorded.
Net Income/Loss Per Share. The three and nine months ended December 31,
1993 produced net income of $272,000 ($0.01 per Common Share) and net
loss of $483,000 ($0.03 per Common Share), respectively, compared to net
losses of $1,815,000 ($0.24 per Common Share) and $7,081,000 ($0.95 per
Common Share) for the three and nine months ended December 31, 1992. The
current nine month period was adversely affected by $1,317,000 ($0.08 per
Common Share) of expenses related to certain litigation related to the
FGI Recapitalization and extraordinary charges totalling $1,772,000
($0.11 per Common Share) related to the early extinguishment of Forum
Group's and FRP's debt.
All per share data are based upon the weighted average number of shares
outstanding for the relevant periods.
Financial Condition
Recapitalization. In June, 1993 Forum Group consummated the FGI
Recapitalization. As a result of the FGI Recapitalization, including the
Investors' Tender Offer, the Investors acquired approximately 71.7% of
the outstanding Common Shares. On February 1, 1994 the New Term Loan and
$30,000,000 aggregate principal amount of the New Senior Subordinated
Notes were retired with the proceeds of the Refinancing Loan. For a
discussion of the FGI Recapitalization and the Refinancing Loan, see Note
B of the Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
As a result of the FGI Recapitalization, Forum Group's long term debt as
of December 31, 1993 was as set forth below (in thousands):
Forum Group, Inc. (Owned Communities and Corporate Operations):
Citibank Term Loan $ 49,000
Senior Subordinated Notes 40,000
Mortgages and Capitalized Leases 23,378
Other 3,158
--------
Total Owned Communities and Corporate Operations (1) 115,536
Consolidated Partnership Communities (2) 76,381
--------
Total $191,917
========
(1) Excludes (i) indebtedness aggregating $4,535,000 of GRP, $569,000
of which is recourse to Forum Group and (ii) indebtedness aggregating
$9,645,000 of RSARHC which is non-recourse to Forum Group.
(2) These obligations are non-recourse to Forum Group.
Liquidity And Capital Resources. Following the FGI Recapitalization,
Forum Group's principal sources of funds are cash generated from
operating activities and asset sales. Forum Group's liquidity
requirements relate primarily to the funding of working capital needs,
and principal and interest payments on indebtedness (and, for the current
fiscal year, included approximately $5.9 million of expenses associated
with the FGI Recapitalization and $1.3 million of litigation expenses
relating to the FGI Recapitalization and will include additional expenses
relating to the Refinancing Loan presently estimated at approximately
$10.7 million). At December 31, 1993, Forum Group had cash and cash
equivalents of $14,334,000, accounts receivable of $4,587,000 and notes,
investments and other receivables of $4,830,000.
Forum Group believes that (i) cash from operations, (ii) cash and cash
equivalents, (iii) accounts receivable, and (iv) notes, investments and
other receivables, will provide adequate liquidity to meet its
foreseeable working capital requirements.
The term of Forum Group's prior bank debt required that a substantial
portion of excess cash flow be applied by Forum Group to reduce
indebtedness thereunder whereas the terms of the Refinancing Loan do not
require such prepayments and have an amortization period of 25 years (but
with a stated maturity of February 1, 2001). As a result, Forum Group
may use any excess cash flow to pursue its growth strategy. In addition,
the Refinancing Loan is generally on terms more favorable than the terms
applicable under Forum Group's prior long-term debt. The Refinancing
Loan also includes an option that, subject to certain conditions, enables
Forum Group to increase the amount of borrowings if the operating cash
flows from the assets pledged to secure the Refinancing Loan continue to
improve during the 24-month period ending February 1, 1996, in which
event the increased borrowing proceeds could be used to fund Forum
Group's growth through acquisitions of additional properties, to expand
or upgrade Forum Group's existing RCs or for other corporate purposes.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
In addition, the Refinancing Loan permits Forum Group to convert the
initial floating interest rate structure (generally 4.1% over the LIBOR,
which at the closing of the Refinancing Loan was 3.125%, plus servicing
costs, presently estimated to be 0.2% per year) under the Refinancing
Loan to a fixed interest rate structure.
Forum Group intends to seek to grow through the acquisition of additional
properties and other assets. In connection with the FGI
Recapitalization, the Investors stated their intention to make up to $30
million of additional equity capital available to Forum Group for this
purpose. Although the Investors already invested an additional $13
million in Forum Group since the completion of the FGI Recapitalization,
such amount was contributed to the capital of FRP and used by FRP to pay
bank debt. Any additional equity investment by the Investors would be
subject to the negotiation of mutually acceptable terms. Accordingly,
there can be no assurance that any such additional investment will be
made or as to the timing and terms thereof. Forum Group has also entered
into a commitment letter agreement (the "Acquisition Commitment") with
Nomura Asset Capital Corporation ("Nomura") providing for up to $100
million in new debt financing (the "Acquisition Loan"), the proceeds of
which would be used, together with equity to be provided by Forum Group,
to fund the purchase price for acquisitions of skilled nursing home,
assisted living and other senior housing properties. Under the
acquisition facility, Nomura would advance $2.00 of debt financing for
each $1.00 of equity capital invested by Forum Group, which equity is
presently expected to be obtained from future offering of additional
Common Shares to shareholders (including the Investors), cash from
operations (including cash from sales of units in existing RCs, primarily
Rancho San Antonio), or a combination of the foregoing. During the 24-
month period in which amounts could be drawn to finance acquisitions
under the Acquisition Loan, Forum Group would have the right, subject to
the satisfaction of certain conditions, to convert the indebtedness
thereunder to seven-year debt under either a fixed or floating interest
rate structure. During such period, Forum Group could also repay such
indebtedness using proceeds from other financing sources, if any such
financing becomes available on more favorable terms. Forum Group would
have an option that would permit it to increase the borrowings against
the properties acquired if, at the end of 24 months after the initial
closing of the Acquisition Loan, the debt service coverage computed on a
trailing 12-month basis exceeded certain thresholds, in which event the
increased borrowings, like any increased borrowings under the Refinancing
Loan, could be used to fund Forum Group's growth or for other corporate
purposes.
There can be no assurance that any acquisitions will be completed or, if
so, as to the timing or terms thereof. The Acquisition Commitment is
subject to the negotiation of definitive documentation and certain
conditions. Moreover, Nomura's obligation to provide financing under the
acquisition facility, if completed, will be subject to a number of
conditions, and there can be no assurance that such conditions will be
satisfied.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Participation in Recapitalization of FRP. In October 1993 Forum Group
entered into the FRP Recapitalization Agreement. Forum Group has a
substantial equity investment in FRP, is the parent company of FRP's
general partner and has a long-term management contract with FRP. For a
discussion of FRP's recapitalization, see Note B of the Notes to
Condensed Consolidate Financial Statements.
Cash Flow. Operating activities for the nine months ended December 31,
1993 provided $2,850,000 of cash compared to $4,952,000 of cash used by
operating activities during the nine months ended December 31, 1992, due
principally to significantly improved operating results in 1993.
Investing activities used $14,487,000 of cash during the nine months
ended December 31, 1993, compared $27,226,000 of cash provided by
investing activities during the nine months ended December 31, 1992, due
principally to Forum Group's participation in the FRP Refinancing and the
April, 1992 sale of two retirement communities.
Financing activities provided $20,154,000 of cash during the nine months
ended December 31, 1993, compared to $23,614,000 of cash used by
financing activities during the comparable period of 1992, due
principally to the impact of the FGI Recapitalization and the April, 1992
sale of two retirement communities.
<PAGE>
PART II. OTHER INFORMATION
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
Forum/Classic Claims. As previously reported, on April 29, 1993,
Forum/Classic, L.P., Dalfort Corporation, Diamond Investments, Ltd. and
Morris Weiser (collectively, the "Forum/Classic Plaintiffs") filed suit
in the Superior Court of Marion County, Indiana, against Forum Group, the
persons who then comprised the Board (the "Director Defendants"), and
AIF, Apollo Advisors, L.P., Evergreen Healthcare, Ltd., ("Evergreen"),
Investors Genpar, Inc., ("Genpar"), FL Advisors, L.P., Lion Forum
Holdings (collectively, the "Investor Defendants") alleging, among other
things, that the Director Defendants breached their fiduciary duties by
entering into the Acquisition Agreement (as originally in effect) that
the Investor Defendants knowingly participated in such alleged breaches
of fiduciary duties, that Forum Group breached an alleged contract to
enter into certain transactions proposed by Forum/Classic and Dalfort and
that the Investor Defendants induced such breach and interfered with an
alleged business relationship between Forum/Classic and Dalfort and Forum
Group. The Forum/Classic Plaintiffs sought, on behalf of themselves and
alleged other similarly situated shareholders, among other things, (i)
the rescission of the Acquisition Agreement (as originally in effect) and
certain related agreements and the issuance of the certain preferred
stock, (ii) an injunction prohibiting the consummation of the
transactions contemplated by the Acquisition Agreement (as originally in
effect) and certain related agreements, (iii) an order requiring Forum
Group to consummate the transactions proposed by Forum Classic and
Dalfort, (iv) attorney's fees, (v) expenses, and (vi) punitive damages
against the Director Defendants and the Investor Defendants. Following a
hearing (of a preliminary nature as to the Director Defendants and final
as to all other defendants), the presiding court entered an order (the
"Order") enjoining the defendants from taking any action to consummate a
transaction which did not provide shareholders the opportunity to receive
$3.62 per share, in cash, for their Common Shares but otherwise
permitting the defendants to proceed with the transactions contemplated
by the Acquisition Agreement. The court also concluded that (i) the
decision by the Director Defendants to enter into a February 1, 1993
agreement in principle with the predecessors in interest of the
Investor's was made in good faith after reasonable investigation, the
agreement in principle was conclusively presumed to be valid, and Forum
Group was bound thereby and (ii) no contract existed between Forum Group
and Forum/Classic or Dalfort. On June 11, 1993, the Forum/Classic
Plaintiffs filed a motion (the "Contempt Motion") to find Forum Group and
the Investor Defendants in contempt of the Order. The court denied the
Contempt Motion, but amended the Order to make it clear that in order to
be consistent with the Order, the transaction between Forum Group and the
Investors must provide for the payment of $3.62 per Common Share without
adjustment. The Forum/Classic Plaintiffs thereafter commenced an appeal
of the Order to the Indiana Court of Appeals (the "Appeals Court"). The
defendants then moved to dismiss the appeal on procedural grounds. On
October 4, 1993, the Appeals Court granted the defendants' motion. The
Forum/Classic Plaintiffs thereafter appealed the Appeals Court's ruling
to the Indiana Supreme Court which, on January 27, 1994, upheld the
Appeal Court's dismissal of the appeal. A hearing date for final
adjudication of the claims against the Director Defendants has not been
set.
<PAGE>
PART II. OTHER INFORMATION
FORUM GROUP, INC., AND SUBSIDIARIES
(continued)
Knapp Claims. On January 24, 1994, the Russell F. Knapp Revokable Trust,
(the "Knapp Trust"), a substantial holder of the publicly traded units of
FRP, filed a complaint (the "Knapp Trust Complaint") in the United States
District Court for the Northern District of Iowa against Forum
Retirement, Inc., the wholly-owned subsidiary of Forum Group which serves
as general partner of FRP ("FRI"), alleging breach of FRP's partnership
agreement, breach of fiduciary duty, fraud, and civil conspiracy. The
Knapp Trust Complaint alleges, among other things, that the Board of
Directors of FRI is not comprised of a majority of Independent Directors,
as required by the FRP's partnership agreement and as allegedly
represented in the 1986 Prospectus of FRP, and that FRI's Board of
Directors has approved and/or acquiesced in 8% management fees being
charged by Forum Group under the management agreement under which Forum
Group manages all of FRP's RC's. The Knapp Trust Complaint further
alleges that the "industry standard" for such fees is 4% thereby
resulting in an "overcharge" to FRP estimated by the Knapp Trust at $1.8
million per annum, beginning in 1994. The Knapp Trust is seeking the
restoration of certain former directors to the Board of Directors of FRI
and the removal of certain other directors from such Board, an injunction
prohibiting the payment of 8% management fees, and unspecified
compensatory and punitive damages. FRI believes that the allegations in
the Knapp Trust Complaint are without merit and intends vigorously to
defend against this litigation.
ITEM 2. CHANGES IN SECURITIES
- -----------------------------
When the Citibank Term Loan was paid with some of the proceeds of the
Refinancing Loan, certain negative covenants under the Citibank Term Loan
were removed. However, dividends and other distributions to shareholders
are still prohibited by the terms of the Senior Subordinated Notes as
long as such Notes remain outstanding. For more information on the
Senior Subordinated Notes, see Note B to Item 1.
The provisions of the Refinancing Loan place certain restrictions on the
ability of the borrower thereunder to pay dividends and incur additional
debt in certain circumstances. However, such restrictions will not apply
to FGI or any of its other affiliates other than the borrower under the
Refinancing Loan. For further information on the Refinancing Loan, see
Note D to Item 1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits:
--------
Recapitalization Agreement made as of October 6, 1993 between Forum
Group, Inc. and Forum Retirement Partners, L.P. [incorporated by
reference to Exhibit 10(1) to Forum Group's Current Report on Form 8-K
dated October 6, 1993 (the "October, 1993 8-K")].
Stock Purchase Agreement dated as of October 6, 1993 among Forum Group,
Inc., Forum Holdings, L.P. and Apollo FG Partners, L.P. [incorporated by
reference to Exhibit 10(2) to the October, 1993 8-K].
<PAGE>
PART II. OTHER INFORMATION
FORUM GROUP, INC., AND SUBSIDIARIES
(continued)
Stock Purchase Agreement dated as of November 16, 1993, between Forum
Group, Inc. and Healthcare Resources, L.P. [incorporated by reference to
Exhibit 10(3) to Forum Group's Forum S-2 dated December 2, 1993 (the "FGI
Form S-2"].
Commitment Letter from Nomura Asset Capital Corporation to Forum Group,
Inc. dated October 21, 1993 refinancing the refinancing loan
[incorporated by reference to Exhibit 10(4) to the FGI Form S-2].
Commitment Letter from Nomura Asset Capital Corporation to Forum Group,
inc. dated October 21, 1993 referencing the acquisition loan
[incorporated by reference to Exhibit 10(5) to the FGI Form S-2].
Amended and Restated Loan Agreement dated February 1, 1994 between FGI
Financing I Corporation and Nomura Asset Capital Corporation.
Amendment, dated as of January 31, 1994, to Indenture, dated as of June
1, 1993, between Forum Group, as Issuer, and First National Trust
Association, as Trustee.
Waiver and Supplement, dated as of January 31, 1994, to Credit Agreement
dated as of June 10, 1993, among Forum Group, the Lenders named therein,
Citibank, N.A. as Issuing Bank and Citicorp, U.S.A., as Agent.
(b) Reports on Form 8-K:
-------------------
The following report on Form 8-K was filed during the last quarter of the
period covered by this report: Report on Form 8-K reporting "Other
Events" occurring on October 6, 1993, and filed on October 12, 1993.
<PAGE>
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.
FORUM GROUP, INC.
Date: February 14, 1994 By: \s\ Paul A. Shively
--------------------------------
Paul A. Shively
Senior Vice President and Treasurer
<PAGE>
KPMG Peat Marwick
Certified Public Accountants
2400 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204-2452
The Board of Directors and Shareholders
FORUM GROUP, INC.:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick
Indianapolis, Indiana
February 14, 1994
