SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-K/A-1
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
March 31, 1994 0-6350
Forum Group, Inc.
8900 Keystone Crossing, Suite 200
Post Office Box 40498
Indianapolis, Indiana 46240-0498
Telephone: (317) 846-0700
Incorporated in Indiana I.R.S. No. 61-0703072
---------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
Registrant has filed all reports required to be filed by Section
12, 13, or 15(d) of the Act, including subsequent to the distribution
of securities under its plan of reorganization, during the preceding 12
months and has been subject to such filing requirements for the past 90
days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation
8-K is not contained herein, and will not be contained in definitive
proxy or information statements incorporated by reference in Part III
or this Form 10-K or any amendment to this Form 10-K.
There were 22,500,109 shares of the Registrant's Common Stock
outstanding as of May 31, 1994. The aggregate market value of the
shares of such Common Stock held by nonaffiliates of the Registrant,
based upon the last sale price as reported on the NASDAQ on May 31,
1994, was approximately $46,331,000. Including shares held by the
Registrant's principal stockholders, such aggregate value was
approximately $165,938,000.
There are 82 pages in this Report. The financial statement and
exhibit indexes are located at pp. 68 - 72.
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PART I
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Item 1. Business.
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General
Forum Group, Inc., an Indiana corporation ("Forum Group"),
provides senior housing, healthcare and associated convenience
services in 11 states through the operation of 22 rental
retirement communities ("RCs") and three RCs predominantly
offering continuing care (i.e., independent living arrangements
with on-site healthcare services provided at charges lower than
those paid by nonresidents). Forum Group operates (i) ten RCs
owned or leased indirectly by Forum Group, including one
community owned by a nonprofit Arizona corporation (the "Owned
Communities"), and one nursing facility owned by Forum Group (the
"Nursing Facility"), (ii) four RCs 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 RCs owned by entities which are not
consolidated for financial reporting purposes (the
"Unconsolidated Communities"), including nine communities owned
by Forum Retirement Partners, L.P., ("Forum Partners"), a
publicly traded limited partnership of which Forum Group owns,
as of May 31, 1994, 42.2% of the outstanding limited partnership
interests and for which Forum Retirement, Inc. ("Forum
Retirement"), a wholly owned subsidiary of Forum Group, acts as
general partner, one owned by Greenville Retirement Community,
L.P. ("GRP"), a limited partnership which is 50% owned by Forum
Group, and one owned by a nonprofit California corporation.
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.
Recent History
Reorganization Proceedings. On February 19, 1991, Forum
Group and 12 of its affiliates (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"). On April 2, 1992 (the "Effective Date") the Bankruptcy
Court entered an order confirming the Forum Debtors' amended plan
of reorganization (the "Reorganization Plan"). The
Reorganization 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 new 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 prereorganization shareholders to receive approximately
7% of the Common Shares and contemplated the sale and refinancing
of assets to provide working capital and pay down debt. The
Bankruptcy Court also authorized and approved a modification to
the Reorganization Plan pursuant to which Forum Group cancelled
all but 441,071 Common Shares which had been reserved for the
payment of disputed general unsecured claims ("Reserved Common
Shares") but remained unissued. As of May 31, 1994, 265,281
Reserved Common Shares continue to be reserved.
The 1993 Recapitalization and Related Events. In June
1993, Forum Group consummated a recapitalization (the "1993
Recapitalization") pursuant to a series of agreements
(collectively, the "Acquisition Agreement") with a group of
investors comprised of Apollo FG Partners, L.P. ("AFG"), Forum
Holdings, L.P. ("Forum Holdings"), Healthcare Resources I, L.P.
("Healthcare Resources"), and certain of their affiliates (AFG,
Forum Holdings, and Healthcare Resources, collectively with their
affiliates, are hereinafter referred to as the "FGI Investors").
As a result of the 1993 Recapitalization, including the tender
offer described below, the FGI Investors acquired approximately
71.7% of the outstanding Common Shares. The principal components
of the FGI Recapitalization included (i) the issuance and sale by
Forum Group to Forum Holdings on February 1, 1993 of 25,000
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shares of preferred stock for an aggregate purchase price of $5.0
million and the subsequent exchange of such shares of preferred
stock on June 14, 1993 for 2,500,000 newly issued Common Shares,
(ii) the issuance and sale by Forum Group to the FGI Investors on
June 14, 1993 of 7,098,200 Common Shares, together with warrants
(the "Investor Warrants") exercisable to purchase at a nominal
price an aggregate of 1.1555 Common Shares for each Reserved
Common Share issued on or after June 14, 1993, for an aggregate
purchase price of $20.0 million, (iii) the borrowing by Forum
Group on June 14, 1993 of $50.0 million pursuant to a new bank
credit facility through a consortium of lenders for which
Citicorp USA, Inc. served as agent (the "Citibank Term Loan")
and, in connection therewith, the issuance by Forum Group to
Citicorp USA, Inc. (the "Warrant Holder") of warrants,
exercisable on or before June 11, 1999, to purchase 550,205
Common Shares at an initial purchase price equal to $2.86 per
Common Share, subject to specified annual increases and other
adjustments, the purchase price being $3.37 per Common Share as
of June 11, 1994, (iv) the issuance and sale by Forum Group to
certain affiliates of AFG and the limited partners of Forum
Holdings on June 14, 1993 of $40.0 million 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.
Pursuant to the Acquisition Agreement, the FGI Investors
commenced a tender offer on July 27, 1993 whereby the FGI
Investors offered to purchase any and all outstanding Common
Shares for $3.62 per share (the "Liquidity Transaction").
Pursuant to the Liquidity Transaction, which expired on August
31, 1993, the FGI Investors purchased an additional 1,345,543
Common Shares, including 513,993 Common Shares which were
tendered by Forum Retirement.
On February 1, 1994, the Citibank Term Loan and $30,000,000
aggregate principal amount of the Senior Subordinated Notes were
retired using the proceeds of a $93.3 million term loan (the
"Nomura Term Loan") from Nomura Asset Capital Corporation
("Nomura") (see Note 5 to Consolidated Financial Statements).
See Item 13, "Certain Relationships and Related Transactions" for
additional discussion of the prepayment of the $30,000,000
aggregate principal amount of Senior Subordinated Notes.
Forum Partners' Recapitalization. On October 6, 1993, Forum
Partners and Forum Group entered into an agreement (the "FRP
Recapitalization Agreement") providing for the recapitalization
of Forum Partners (the "FRP Recapitalization"). In addition to
being the parent company of Forum Partner's general partner,
Forum Group has a long-term management contract with Forum
Partners, and prior to the FRP Recapitalization, had a
substantial equity interest in Forum Partners. Pursuant to the
Recapitalization Agreement, a subsidiary of Forum Group provided
additional equity capital to Forum Partners through the purchase
of 6,500,000 newly issued units of limited partners' interests
("Units") from Forum Partners for an aggregate purchase price of
$13.0 million, or $2.00 per Unit. As a result of the purchase of
the 6,500,000 Units, Forum Group increased, on an interim basis,
its aggregate beneficial ownership of Units to 8,440,268 Units,
or approximately 55.2% of the total number of Units outstanding.
In accordance with the terms of the FRP Recapitalization
Agreement, on January 10, 1994 Forum Partners commenced a
subscription offering (the "FRP Subscription Offering") giving
holders of Units of record as of October 18, 1993 (other than
Forum Group and its affiliates) the opportunity to purchase
additional Units at $2.00 per unit, the same price paid by Forum
Group's subsidiary, and thereby avoid dilution as the result of
the issuance of the 6,500,000 Units to that subsidiary. The
proceeds of the FRP Subscription Offering, which expired on
February 25, 1994, were used by Forum Partners to repurchase
1,994,189 Units from Forum Group at $2.00 per unit, the same
price paid by Forum Group's subsidiary under the FRP
Recapitalization Agreement. The acquisition by Forum Group's
subsidiary of the 6,500,000 Units of Forum Partners was financed
by proceeds from the sale of 3,466,666 additional Common Shares
to the FGI Investors for an aggregate purchase price of
approximately $13.0 million or $3.75 per share. As a result of
the purchase of 3,466,666 additional Common Shares by the FGI
Investors, the FGI Investors increased their aggregate beneficial
ownership from 12,757,016 Common Shares (including 5,760 shares
purchasable upon exercise of the Investor Warrants), or 71.7% of
the shares outstanding prior thereto, to 16,223,682 Common Shares
(including 5,760 shares purchasable upon exercise of the Investor
Warrants), or approximately 76.3% of the total number of shares
outstanding. Pursuant to the agreements under which the FGI
Investors purchased the 3,466,666 Common Shares, on March 10,
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1994 Forum Group commenced a subscription offering (the "Forum
Subscription Offering") giving shareholders of record as of
October 18, 1993 (other than the FGI Investors) ("Eligible
Shareholders") the opportunity to purchase additional Common
Shares at a purchase price of $3.75 per share, the same price
paid by the FGI Investors, and thereby avoid the potential
dilution which might occur as a result of the issuance of the
3,466,666 Common Shares to the FGI Investors. Pursuant to the
Forum Subscription Offering, which expired on April 11, 1994,
Eligible Shareholders purchased 1,238,484 newly issued Common
Shares. In addition, in connection with the Forum Subscription
Offering, the Warrant Holder purchased 149,607 warrants at a
purchase price of $3.75 per warrant, each such warrant
representing a right to purchase one Common Share, upon payment
of an exercise price of $0.01, on or before June 11, 1999. As of
July 25, 1994, the FGI Investors owned 73.0% of the outstanding
Common Shares. See Item 12, "Security Ownership of Certain
Beneficial Owners and Management".
Business and Properties
Forum Group presently owns (directly or indirectly) or
leases or manages the following RCs:
Number of Units
Number of RCs and/or Beds
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Owned Leased Managed Total Owned Leased Managed Total
----- ------ ------- ----- ----- ------ ------- -----
Rental Retirement
Communities 7 1 14 22 1,850 211 2,616 4,677
Continuing Care
Retirement
Communities 1 -0- 2 3 274 -0- 667 941
---- ------ ------- ----- ----- ------ ------- -----
8 1 16 25 2,124 211 3,283 5,618
==== ==== ==== ==== ===== ===== ===== =====
For each of Forum Group's last three fiscal years, the
percentage of total revenues contributed by both of the foregoing
classes of RCs was as follows:
Year ended March 31,
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1994 1993 1992
---- ---- ----
Rental Retirement
Communities 77% 80% 85%
Continuing Care Retirement
Communities 20% 17% 12%
The balance of the total revenues received by Forum Group
originated from the Nursing Facility, which is located in
Delaware and which contributed three percent of such revenues in
each of the above-referenced years.
The overall average occupancy rate for the Owned Communities
for the fiscal year ended March 31, 1994, was approximately
91.6%. 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 operates 22
RCs which feature leases as the predominant mode of residency.
These rental RCs consist of (i) seven RCs owned indirectly by
Forum Group, located in Arizona (two), Florida, Kansas, Kentucky,
Ohio and Texas (two), (ii) one rental RC leased by Forum Group
and located in Kentucky, and (iii) 14 rental RCs managed by Forum
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Group and located in California (two), Delaware (six), Florida,
Indiana, New Mexico, South Carolina and Texas (two).
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 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 available
apartments and villas will be reoccupied, as apartment and villa
residency agreements expire or are terminated, since 1988 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 Group
rental RCs are given priority 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 $75
to $125 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 $53 to $128 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.
Continuing Care Retirement Communities. Forum Group owns one
continuing care RC, namely The Forum at Brookside ("Forum/
Brookside"), in Louisville, Kentucky; and manages two continuing
care RCs, namely The Forum - Pueblo Norte ("Forum/Pueblo Norte"),
in Scottsdale, Arizona, and The Forum at Rancho San Antonio
("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. ("Forum Lifecare"), a wholly-
owned subsidiary corporation of Forum Group.
The Forum at Overland Park ("Forum/Overland Park) in
Overland Park, Kansas, an RC owned by Forum Group, is approved
under applicable state law to provide continuing care. In
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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 Forum Group, 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 Forum Group continuing care 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 continuing care RCs are
substantially the same as those provided in the various
components of Forum Group rental RCs.
Forum Group continuing care 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
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 Forum Group rental RCs. In addition,
independent living residents of Forum Group 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 Forum Group rental
RCs who so transfer.
Forum/Pueblo Norte is owned by Pueblo Norte Cooperative
Housing Corporation ("PNCHC") and Forum/Rancho San Antonio is
owned by Rancho San Antonio Retirement Housing Corporation
("RSARHC"). PNCHC and RSARHC are nonprofit cooperative housing
corporations. Although each was initially sponsored by Forum
Lifecare, neither of these cooperative housing corporations is
owned, directly or indirectly, by Forum Group. 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 Forum
Lifecare 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 $43,775 to $210,895, and $262,100 to
$630,000, respectively; first person monthly residency fees at
those RCs for independent living residents purchasing memberships
presently range from $942 to $1,437, and $1,057 to $2,382,
respectively; and first person monthly healthcare fees at those
RCs for members presently range from $-0- to $230, 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 loans at Forum/Brookside presently range from
$24,000 to $144,800; and first person monthly residency fees at
that RC for independent living residents making interest-free
loans presently range from $814 to $1,430.
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
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unit. Refundable entrance fees at Forum/Brookside and
Forum/Pueblo Norte ranged from $56,610 to $136,350; 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 $1,025 to $1,820, 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, and $1,038 to $2,490,
respectively.
Mortgages
Each facility owned directly or indirectly by Forum Group,
other than The Lafayette at Country Place/Lexington Country
Place, Forum/Knightsbridge, and the Nursing Facility, is subject
to a first mortgage lien securing borrowings under the Nomura
Term Loan. As of May 31, 1994, the outstanding principal amount
under the Nomura Term Loan is $92,998,000 million, which
currently bears interest at a variable rate equal to 4.1% over
one-month LIBOR (subject, however, to cap of 8.725%), which was
7.619% as of May 31, 1994 (plus servicing costs presently
estimated to be 0.2% per year). The Nomura Term Loan matures on
February 1, 2001. The mortgages are recorded and are cross-
defaulted and cross-collateralized. Certain of Forum Group's
other assets have also been pledged or otherwise encumbered as
security under the Nomura Term Loan.
Forum/Knightsbridge is subject to a first mortgage securing
a loan made by Teachers Insurance and Annuity Association of
America (the "Teachers' Loan"). As of May 31, 1994, the current
outstanding principal amount of the Teachers' Loan was
$14,538,000, and the Teachers' Loan bears interest at the rate of
10-1/2% per annum. Principal and interest on the Teachers' Loan
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 Teachers' Loan may not be
prepaid prior to January 1, 1996; thereafter, prepayment may be
made without premium or penalty.
Depreciation
The aggregate net federal tax basis of the Owned Communities
and the Nursing Facility as of the fiscal year ended March 31,
1994, was $134,931,000 for real property and $6,469,000 for
personal property.
Real Estate Taxes
The average real estate tax rate for calendar year 1993 for
the Owned Communities and the Nursing Facility was approximately
two percent, and the aggregate assessed real estate tax value for
such facilities for the same period was $85,698,000.
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:
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Year ended March 31,
--------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Private 83.6% 86.5% 94.7% 90.0% 66.1%
Medicare and Medicaid 16.3 13.4 5.0 10.0 28.2
Other 0.1 0.1 0.3 -0- 5.7
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
Forum Group makes substantial efforts to attract patients
whose care is paid for by private funds and believes that its
average private pay occupancy is higher than other providers of
long-term care. The increase in the last two fiscal years in the
amount of revenue from "Medicare and Medicaid" sources is
believed to result principally from an increase in the number of
patients who are beneficiaries of the Medicare program, and
increases in revenues generated from rehabilitation services
required by such patients.
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 Forum Group. 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 Forum Group 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. 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. Although Forum Group does not expect this
change to have a material adverse effect on its financial
condition or results of operations, there can be no assurance in
this regard.
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 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. Most states
have licensure requirements for the assisted living components of
RCs; however, those requirements are generally less comprehensive
and stringent than requirements for licensure of nursing
facilities. None of the states in which Forum Group RCs are
located presently have licensure requirements for the independent
living components of rental RCs. RCs offering continuing care
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are subject to additional requirements administered by state
regulatory agencies. Forum Group believes that all of its
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.
In January 1993, the Clinton Administration 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 proposed legislation to Congress.
Forum Group 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 Forum Group. 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 Forum Group.
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 the Nursing Facility, 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
the Nursing Facility, 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 and nursing components of Forum Group RCs, and
the Nursing Facility, are designed to supplement, not to compete
with, services provided by general hospitals.
Forum Group experiences competition in the search for
nurses, technicians, aides and other high quality professional
and nonprofessional employees. However, Forum Group has not
historically experienced shortages of key personnel.
9
<PAGE>
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 3,800 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 and
Properties", of this Report. See Note 7 to Consolidated Financial
Statements (Predecessor Company) and Note 5 to Consolidated
Financial Statements (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,
L.P. ("Forum Classic"), Dalfort Corporation ("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 certain of
the FGI Investors (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, various forms of relief,
including injunctive relief, compensatory damages, recovery of
attorneys' fees and expenses. On June 4, 1993, the presiding
court entered an order (the "Order") enjoining the defendants
from taking 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 agreement in
principle relating to the 1993 Recapitalization 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 it amended the Order to
clarify that the Liquidity Transaction had to provide for the
payment of $3.62 per Common Share without adjustment. The
Forum/Classic Plaintiffs appealed the Order, which appeal was
dismissed on procedural grounds. On May 24, 1994, the
Forum/Classic Plaintiffs requested permission from the trial
court to file a supplemental complaint alleging, among other
things, that certain aspects of the Agreement in Principle and
the Acquisition Agreement were unlawful and that the Director
Defendants breached their fiduciary duties in entering into and
consummating the transaction with the Investor Defendants and
seeking compensatory and punitive damages Pursuant to a letter
agreement, dated June 8, 1994, the Forum/Classic Plaintiffs have
agreed, subject to obtaining all necessary court approvals and
the execution of all necessary documentation, to a dismissal with
prejudice of all claims against all defendants in the above-
described litigation in return for the payment and reimbursement
of a portion, not to exceed $500,000, of the Forum/Classic
Plaintiffs' attorneys' fees. On July 9, 1994, the parties to
this litigation filed a stipulation of settlement with the court.
Pursuant to the stipulation, Forum Group's shareholders have been
10
<PAGE>
notified in writing of the terms of the settlement and that a
hearing to determine whether such settlement should be approved
is scheduled to be held on August 29, 1994.
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. ("GRP"), 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, GRP. Forum Group is also the operator and manager
of Stonegates pursuant to an operation and management agreement
with GRP under which, inter alia, GRP delegated to Forum Group
all of GRP's duties and responsibilities as managing agent of
Stonegates. Mr. Maddock alleges that (i) GRP violated the
condominium declaration and plan by using two condominium
apartment units for a sales office, a dining room and a
healthcare unit, by moving the door to the nursing facility, and
by purportedly reserving other condominium apartment units for
persons requiring assisted living care; (ii) GRP failed to pay
its share of condominium common expenses; (iii) GRP 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 GRP's
right to appoint three of the five members of the condominium
council; and (v) GRP's option to repurchase condominium units, as
well as the requirement that a condominium unit owner be a party
to a residence agreement with GRP, are unreasonable restraints on
alienation of property. By way of prayer for relief, Mr. Maddock
seeks that (i) GRP 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) GRP be enjoined
from reserving condominium apartment units for persons requiring
assisted living care; (iii) GRP be required to account for and
pay its share of condominium common expenses; (iv) the management
agreement between the condominium council and GRP, and the
operation and management agreement between GRP and Forum Group,
be terminated; (v) GRP's right to appoint three of the five
members of the condominium council be declared invalid; and (vi)
GRP's option to repurchase condominium units, as well as the
requirement that a condominium unit owner be a party to a
residence agreement with GRP, be declared invalid. On August 21,
1992, Forum Group instituted an action in the Bankruptcy Court
(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 Reorganization Plan, and requesting injunctive
relief preventing the further prosecution of the State Court
Action. On September 17, 1993, the Bankruptcy Court issued an
order permanently enjoining Mr. Maddock from pursuing the State
Court Action. Mr. Maddock has appealed the Bankruptcy Court's
decision.
Knapp Litigation. On January 24, 1994, the Russell F.
Knapp Revokable Trust (the "Knapp Trust") instituted an action in
the United States District Court for the Northern District of
Iowa against Forum Retirement, adding Forum Group as a defendant
on March 17, 1994, alleging, among other things, that (i) the
Knapp Trust holds a substantial number of Forum Partners'
publicly traded limited partnership units, (ii) the Board of
Directors of Forum Retirement is not comprised of a majority of
independent directors as required by Forum Partners' partnership
agreement and as allegedly represented in Forum Partners' 1986
Prospectus for its initial public offering, (iii) the allegedly
improper composition of the Board of Directors of Forum
Retirement is a consequence of actions by Forum Group, (iv) Forum
Retirement's Board of Directors has approved and/or acquiesced in
8% management fees being charged by Forum Group under its
management agreement with Forum Partners, whereas the complaint
alleges that the "industry standard" for management fees of the
type at issue is 4%, thereby resulting in an alleged "overcharge"
to Forum Partners estimated by the Knapp Trust at $1.8 million
per annum, beginning in 1994, and (v) as a consequence of the
allegedly improper composition of the Board of Directors of Forum
Retirement, Forum Group and Forum Retirement have breached Forum
Partners' partnership agreement and securities laws, and failed
to discharge fiduciary duties. The Knapp Trust is seeking the
restoration of certain former directors to the Board of Directors
of Forum Retirement and the removal of certain other directors
from that Board of Directors of Forum Retirement, an injunction
prohibiting the payment of 8% management fees and unspecified
compensatory and punitive damages. Forum Group believes that
there are substantial defenses to the claims asserted by the
11
<PAGE>
Knapp Trust and intends vigorously to defend against such claims;
however, there necessarily can be no assurance as to the ultimate
outcome of these proceedings.
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 May 31, 1994,
approximately 265,281 Reserved Common 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 Reorganization 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
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
NASDAQ Small-Cap market (symbol: FOUR).
The high and low bid prices for Common Shares 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 (the "NASDAQ") were as follows:
High Low
---- ---
Quarter ended June 30, 1992 $3-1/2 $1-1/2
Quarter ended September 30, 1992 $1-3/4 $1-1/8
Quarter ended December 31, 1992 $1-3/4 $1-1/2
Quarter ended March 31, 1993 $2-7/8 $1
Quarter ended June 30, 1993 $3-3/8 $2-3/4
Quarter ended September 30, 1993 $4 $3-3/8
Quarter ended December 31, 1993 $5 $3-7/8
Quarter ended March 31, 1994$5-7/8 $4
(b) Holders. The approximate number of record holders of
Common Shares as of May 31, 1994, was 2,881.
(c) Dividends. No cash dividends were declared on Common
Shares during Forum Group's two most recent fiscal years.
12
<PAGE>
Item 6. Selected Financial Data.
------ -----------------------
Selected financial data for Forum Group and its consolidated
subsidiaries is set forth below. The balance sheet data and
statement of operations for the two fiscal years ended March 31,
1994 and the balance sheet data as of March 31, 1992 reflect the
implementation of fresh-start accounting in 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 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.
13
<PAGE>
Year ended March 31,
--------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands except per share amounts)
---------------------------------------------
Successor(a)| Predecessor(a)
Company | Company
Statement of operations: |
|
Total revenues $107,566 $ 92,110 |$ 79,768 $ 93,399 $108,835
Income (loss) from |
operations 2,690 (7,359)|(115,747) (109,198) ( 10,322)
Extraordinary credit |
(charge) (9,820)(b) -0- | 116,195(c) -0- -0-
Net income (loss) (7,130) (7,359)| 448 (109,198) ( 10,322)
|
Per Common Share(d) |
Income (loss) before |
extraordinary credit |
(charge) 0.16 (0.98)| (3.56) (3.35) (0.32)
Extraordinary credit |
(charge) (0.57) -0- | 3.57 -0- -0-
Net income (loss) (0.41) (0.98)| 0.01 (3.35) (0.32)
Dividends declared per |
Common Share -0- -0- | -0- -0- 0.045
|
Balance sheet: -----------
|
Total assets 290,200 348,641 393,046 | 468,848(e)517,350
Long-term obligations 205,094 226,540 260,791 | 409,633 333,388
Shareholders' equity 44,284 18,445 19,394 | 521 109,231
Book value per Common |
Share 2.08 2.46 1.94 | 0.02 3.36
_______________________________
(a) The Reorganization 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 was required to account
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 periods prior to implementation of fresh-start reporting
and are not comparable to consolidated financial statements for
periods subsequent to implementation of fresh-start reporting,
and 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 implementation of
fresh-start reporting and are not comparable to consolidated
financial statements for periods prior to implementation of fresh-
start reporting.
(b) Reflects charge from early extinguishment of debt.
(c) Reflects credit from the extinguishment of debt pursuant to
the reorganization proceedings.
(d) Per share data for the fiscal year ended March 31, 1994 and
1993 is based on 17,190,000 and 7,493,000 Common Shares issued
and outstanding, respectively. 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 and 1990 is based on 32,548,108
Preconfirmation Common Shares.
(e) Includes liabilities subject to settlement in the
reorganization proceedings as of March 31, 1991.
14
<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.
Results of Operations
Fiscal Year 1994 Compared With Fiscal Year 1993
Certain summary financial information for the Owned
Communities, Forum/Rancho San Antonio, the Consolidated
Partnership Communities, and other corporate operations
("Corporate Operations") is presented below. RSARHC was
consolidated for financial reporting purposes prior to July 31,
1993 but is no longer consolidated (see Note 1 of Notes to
Consolidated Financial Statements). The periods in which the
financial results of the consolidated components of Forum/Rancho
San Antonio are included in the financial statements of Forum
Group are not comparable. Consequently, Forum/Rancho San Antonio
is presented separately below in order to present a comparable
disclosure of the other entities' financial results.
Fiscal Year Ended March 31, 1994
--------------------------------
Forum/ Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
----------- ----------- ------------ ---------- ------
Net Operating
Revenues $74,131 $ 5,201 $25,822 $ 486 $105,640
Operating
Expenses 51,511 4,971 16,238 3,901 76,621
General and
Administra-
tive Expenses 0 0 2 3,382 3,384
Litigation
Expense 0 0 0 1,841 1,841
Depreciation 3,915 878 2,013 549 7,355
Interest
Expense 4,352 722 4,108 8,299 17,481
15
<PAGE>
Fiscal Year Ended March 31, 1993
--------------------------------
Forum/ Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
----------- ----------- ------------ ---------- ------
Net
Operating
Revenues $63,102 $ 3,799 $22,993 $ 672 $ 90,566
Operating
Expenses 47,288 4,050 15,558 3,521 70,417
General and
Administra-
tive Expenses 0 0 128 5,283 5,411
Litigation
Expense 0 0 0 0 0
Depreciation 3,803 2,825 2,069 117 8,814
Interest
Expense 2,497 2,202 4,379 9,093 18,171
Owned Communities. Net operating revenues for the fiscal
year ended March 31, 1994 increased by $11,029,000 (17%), from
$63,102,000 to $74,131,000, as compared to the previous year. A
change in the estimate of amounts reimbursable by third party
payors from prior years resulted in the recognition of $978,000
of operating revenue in the 12-month period ended March 31, 1994.
The remaining portion of the increase was primarily attributable
to favorable changes in occupancy, increased utilization of
ancillary healthcare services and increases in residency fees and
charges. Combined occupancy increased from 89% at March 31, 1993
to 95% at March 31, 1994. Operating expenses, including general
and administrative expenses and depreciation, for the fiscal year
ended March 31, 1994 at the Owned Communities increased by
$4,335,000 (8%), from $51,091,000 to $55,426,000, as compared to
the previous year. This increase was 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 fiscal year ended March 31, 1994 at the
Owned Communities increased by $6,694,000 (56%), from $12,011,000
to $18,705,000, as compared to the previous year. Exclusive of
the impact of the change in estimate of reimbursable amounts
discussed above, this increase constitutes 57% of the increase in
net operating revenues for fiscal year 1994, which is indicative
of the degree of incremental operating income that results from
increased occupancy.
Forum/Rancho San Antonio. Due to the change in financial
statement presentation discussed in Note 1 of Notes to
Consolidated Financial Statements, the financial results of
Forum/Rancho San Antonio are not comparable among fiscal periods.
Consolidated Partnership Communities. Net operating
revenues for the fiscal year ended March 31, 1994 increased by
$2,829,000 (12%), from $22,993,000 to $25,822,000, as compared to
the previous year. A change in the estimate of amounts
reimbursable by third party payors from prior years resulted in
the recognition of $176,000 of operating revenue in the fiscal
year ended March 31, 1994. The remaining portion of the increase
was 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 March 31, 1993 to 90% at March 31, 1994.
16
<PAGE>
Operating expenses, including general and administrative expenses
and depreciation, for the Consolidated Partnership Communities
for the fiscal year ended March 31, 1994 increased by $498,000
(3%), from $17,755,000 to $18,253,000, as compared to the
previous year. The increase was 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 fiscal year ended March 31, 1994 increased by $2,331,000,
from $5,238,000 to $7,569,000, as compared to the previous year.
Exclusive of the impact of the change in estimate of reimbursable
amounts discussed above, this increase constitutes 81% of the
increase in net operating revenues for the fiscal year ended
March 31, 1994, which is indicative of the degree of incremental
profits that result from increased occupancy.
Corporate Operations. Revenues for the fiscal year ended
March 31, 1994 decreased $186,000, from $672,000 to $486,000,
compared to the previous year. Revenues are comprised of rental
income from certain residential units of Forum/Rancho San Antonio
($672,000 and $296,000, respectively) and a change in the
estimate of amounts reimbursable to third party payors from prior
years for sold operations ($190,000). Operating expenses
($3,901,000), general and administrative expenses ($3,382,000)
and depreciation ($549,000), for the fiscal year ended March 31,
1994 decreased by $ 1,089,000 as compared to the previous year.
This change reflects reductions in staff and other general and
administrative expenses ($1,903,000), net of increases in
allocated expenses related to Forum/Rancho San Antonio ($382,000)
and depreciation ($432,000). Marketing and unoccupied
residential expenses related to Forum/Rancho San Antonio and
allocated to Forum Group were $2,718,000 and $2,336,000 for
fiscal years ended March 31, 1994 and 1993, respectively.
Corporate Operations includes the unallocated interest expense of
corporate debt ($8,299,000).
Unconsolidated Communities. Forum Group's equity in the
earnings of Forum Partners, which is reflected as other revenues,
improved from a loss of $536,000 for the fiscal year ended March
31, 1993, to revenue of $741,000 for the fiscal year ended March
31, 1994. These increases primarily reflect improved occupancy
at the nine retirement communities owned by Forum Partners and
managed by Forum Group. In December 1993, Forum Partners
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
consolidated statements of operations. Forum Group's equity in
the earnings of GRP, which is also reported as other revenues,
decreased from $308,000 for the fiscal year ended March 31, 1993,
to $251,000 for the fiscal year ended March 31, 1994. Forum
Group's equity in the losses of the unconsolidated component of
Forum/Rancho San Antonio for the fiscal year ended March 31, 1994
was $1,117,000.
Consolidated General and Administrative Expenses. For the
fiscal year ended March 31, 1994, consolidated general and
administrative expenses decreased by $2,027,000, from $5,411,000
to $3,384,000, compared to the prior year. This decrease is
primarily attributable to decreases in salaries and wages due to
reductions in the headquarters staff.
Litigation Expenses. During the fiscal year ended March 31,
1994, expenses of $1,841,000 were incurred in conjunction with
certain litigation related to the 1993 Recapitalization. Forum
Group has entered into an agreement, which is subject to the
obtainment of court approval and the execution of necessary
documentation, providing for the dismissal of that litigation in
return for the payment and reimbursement of a portion, not to
exceed $500,000, of the opposing parties' attorneys' fees. See
Item 3, "Legal Proceedings", of this Report.
Depreciation. For the fiscal year ended March 31, 1994,
consolidated depreciation expense decreased by $1,459,000
compared to the prior year. The change is primarily attributable
to RSARHC no longer being a consolidated entity, as partially
offset by additional fixed asset additions over the past fiscal
year.
17
<PAGE>
Interest Expense. Interest expense attributable to the
Owned Communities and Corporate Operations increased by
$1,061,000, from $11,590,000 to $12,651,000, during the fiscal
year ended March 31, 1994, as compared to the prior fiscal year.
This change was primarily attributable to changes in average
borrowing costs.
Minority Interests. The decrease of $1,245,000 (58%) in the
minority interests' elimination for the fiscal year ended March
31, 1994 compared to the prior fiscal year, resulted from (i) a
decrease of $795,000 due to improved operating results, and (ii)
a decrease of $450,000 due to an increase in minority ownership
of RSARHC (see Note 1 of Notes to Consolidated Financial
Statements).
Extraordinary Charge. During the fiscal year ended March
31, 1994, charges of $8,460,000 related to the early
extinguishment of debt in conjunction with the 1993
Recapitalization were recorded. Additionally, during the fiscal
year ended March 31, 1994 an extraordinary charge of $1,360,000
was recorded to reflect Forum Group's share of Forum Partners'
extraordinary charge on the early extinguishment of its debt.
Net Income/Loss Per Share. The fiscal year ended March 31,
1994 produced net losses of $7,130,000 ($0.41 per Common Share)
compared to net losses of $7,359,000 ($0.98 per Common Share) for
the fiscal year ended March 31, 1993. The fiscal year ended
March 31, 1994 was adversely affected by $1,841,000 ($0.11 per
Common Share) of expenses related to certain litigation related
to the 1993 Recapitalization and extraordinary charges totalling
$9,820,000 ($0.57 per Common Share) related to the early
extinguishment of Forum Group's and Forum Partners' debt.
Taxes. As of March 31, 1994, income tax loss carryforwards
for tax purposes were estimated to be approximately $163,000,000
before the application of certain loss carryforward limitations
resulting from a second change in ownership within two years of
Forum Group's bankruptcy reorganization. As a result of these
limitations, Forum Group expects the utilization of loss
carryfowards will be limited to approximately $27,000,000. These
tax loss carryforwards will expire in varying amounts through
fiscal year 2009. For financial reporting purposes, any future
benefit of these tax loss carryforwards arising prior to the
reorganization will be reported as a direct addition to paid-in
capital. For more information, see Note 4 of Notes to
Consolidated Financial Statements.
All per share data are based upon the weighted average
number of shares outstanding for the relevant periods.
Fiscal Year 1993 Compared With Fiscal Year 1992
The fiscal year ended March 31, 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 the prior fiscal year.
During the fiscal year ended March 31, 1993, Forum Group
concentrated its efforts in implementation of a new operating
plan, the objectives of which were to focus Forum Group on RC
operations and to reduce overhead and operating expenses. The new
operating plan entailed, among other things, a significant
organizational restructuring, including a reduction in work
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 fiscal year
ended March 31, 1993 was $7,359,000 ($0.98 per Common Share).
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.
18
<PAGE>
Other Income. Other income for the fiscal year ended March
31, 1993 was $1,147,000, compared to other expense of $5,267,000
in the prior year. 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 the fiscal
year ended March 31, 1993 were $79,231,000 (of which $24,587,000
was attributable to consolidated joint ventures in which Forum
Group is a participant). This amount, which includes $8,814,000
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 $8,069,000 (9.2%) as
compared to the prior year, primarily as a result of ongoing cost
control efforts, as offset by normal inflationary increases and
increases attributable to increased occupancy.
General and administrative expenses for the fiscal year
ended March 31, 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 the prior year, 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 the fiscal year
ended March 31, 1993 was $18,171,000 compared to $20,209,000 in
the prior year.
Financial Condition
Recapitalization. In June 1993, Forum Group consummated the
1993 Recapitalization. As a result of the 1993 Recapitalization,
including the FGI Investors' tender offer, the FGI Investors
acquired approximately 71.7% of the outstanding Common Shares.
On February 1, 1994, substantially all of the Citicorp Term Loan
and $30,000,000 aggregate principal amount of the Senior
Subordinated Notes were retired with the proceeds of the Nomura
Term Loan (the "1994 Refinancing"). For a discussion of the 1993
Recapitalization and the 1994 Refinancing, see Notes 1 and 5 of
Notes to Consolidated Financial Statements.
-----------------------------------------------------
As a result of the 1993 Recapitalization and the 1994
Refinancing, Forum Group's long term debt as of March 31, 1994
was as set forth below (in thousands):
Forum Group, Inc. (Owned Communities and Corporate
Operations):
Nomura Term Loan $ 93,194
Senior Subordinated Notes 10,000
Mortgages and Capitalized Leases 23,050
Other 2,764
--------
Total Owned Communities
and Corporate Operations (1) 129,008
Consolidated Partnership Communities (2) 76,086
Total $205,094
______________ ========
(1) Excludes indebtedness aggregating $4,495,000 of GRP,
$562,000 of which is recourse to Forum Group.
(2) These obligations are non-recourse to Forum Group.
19
<PAGE>
Liquidity And Capital Resources. At March 31, 1994, Forum
Group had cash and cash equivalents of $18,331,000, accounts
receivable of $5,246,000 and notes, investments and other
receivables of $5,717,000. Following the 1993 Recapitalization
and the 1994 Refinancing, Forum Group's principal sources of
funds are cash generated from operating activities and possible
capital market and bank transactions.
Forum Group believes that its liquidity and the capital
resources available to it are adequate to meet its foreseeable
working capital and strategic growth requirements.
Forum Group intends to seek to grow through the acquisition
of additional properties and other assets. In connection with
the 1993 Recapitalization, the FGI Investors stated their
intention to make up to $30 million of additional equity capital
available to Forum Group for this purpose. Although the FGI
Investors already invested an additional $13 million in Forum
Group since the completion of the 1993 Recapitalization, such
amount was contributed by Forum Group to the capital of Forum
Partners and used by Forum Partners to pay bank debt. 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 and terms thereof.
Forum Group will continue to monitor conditions in the
capital and bank lending 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 enter into one or more capital arrangements.
Such arrangements could include the sale of Common Shares, one or
more issuances of indebtedness or other financings. There can be
no assurance that any such transactions will be completed or, if
so, as to the timing or terms thereof.
Participation in Recapitalization of Forum Partners. On
October 6, 1993 Forum Group entered into the FRP Recapitalization
Agreement. Forum Group has a substantial equity investment in
Forum Partners, is the parent company of Forum Partners' general
partner and has a long-term management contract with Forum
Partners. For a discussion of the FRP Recapitalization, see Note
1 of Notes to Consolidated Financial Statements.
Forum Group believes that there may be substantial growth
opportunities available to Forum Partners as a result of
potential expansions of Forum Partners' existing RCs. However,
in light of Forum Partners' current capital structure it is
presently contemplated that all or a substantial portion of the
funds for any such expansion, or any other capital project, will
require that Forum Partners receive additional capital from its
present equity owners (including Forum Group) or otherwise.
Cash Flow. Operating activities for the fiscal year ended
March 31, 1994 provided $1,275,000 of cash compared to $2,250,000
of cash used by operating activities during the fiscal year ended
March 31, 1993, due principally to significantly improved
operating results in the fiscal year ended March 31, 1994.
Investing activities used $6,930,000 of cash during the
fiscal year ended March 31, 1994, compared to $26,282,000 of cash
provided by investing activities during the fiscal year ended
March 31, 1993, due principally to Forum Group's participation in
the FRP Recapitalization, net proceeds from sales of investment
in RSARHC and the April, 1992 sale of two retirement communities.
Financing activities provided $18,169,000 of cash during the
fiscal year ended March 31, 1994, compared to $25,757,000 of cash
used by financing activities during the fiscal year ended March
31, 1993, due principally to the impact of the 1993
Recapitalization and the April 1992 sale of two retirement
communities.
20
<PAGE>
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.
The fiscal year ended March 31, 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 the fiscal year
ended March 31, 1992, which included the effect of a $116,195,000
extraordinary credit from the extinguishment of debt. Net income
per Preconfirmation Common Share for the fiscal year ended March
31, 1992 was $0.01, including $3.57 from the extraordinary
credit.
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 statement of
operations for the fiscal 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.
21
<PAGE>
Item 8. Financial Statements and Supplementary Data.
------ -------------------------------------------
The following consolidated financial statements and
supplementary financial information are filed under this Item:
Page(s)
-------
Independent Auditors' Report 23
Consolidated Balance Sheets (Successor Company)
-March 31, 1994 and 1993 24
Consolidated Statements of Operations (Successor Company)
-Years ended March 31, 1994 and 1993 25
Consolidated Statements of Shareholders' Equity (Successor
Company)
- Years ended March 31, 1994 and 1993 26
Consolidated Statements of Cash Flows (Successor Company)
- Years ended March 31, 1994 and 1993 27
Notes to Consolidated Financial Statements (Successor
Company) 28 - 40
Independent Auditors' Report (Predecessor Company) 41
Consolidated Statement of Operations (Predecessor Company)
- Year ended March 31, 1992 42
Consolidated Statement of Shareholders' Equity (Predecessor
Company) - Year ended March 31, 1992 43
Consolidated Statement of Cash Flows (Predecessor Company)
- Year ended March 31, 1992 44
Notes to Consolidated Financial Statements (Predecessor
Company) 45 - 52
Quarterly Financial Data 53
22
<PAGE>
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, 1994 and 1993 and the related consolidated statements
of operations, shareholders' equity and cash flows for each of
the years then ended. 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, 1994 and 1993 and the results of their
operations and their cash flows for each of the years then ended
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 March 31, 1992
for financial reporting purposes, and 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
Indianapolis, Indiana
May 13, 1994
23
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Consolidated Balance Sheets
March 31, 1994 and 1993
(in thousands)
Assets 1994 1993
Property and equipment:
Land and improvements $ 34,505 34,443
Buildings and leasehold improvements 176,209 175,064
Furniture and equipment 13,046 12,225
------- -------
223,760 221,732
Less accumulated depreciation 11,600 5,768
------- -------
212,160 215,964
Rancho San Antonio Retirement Housing Corporation
- property and equipment, net - 94,573
------- -------
Net property and equipment 212,160 310,537
------- -------
Investments:
Forum Retirement Partners, L.P. 12,420 3,795
Greenville Retirement Community, L.P. 3,614 3,763
Rancho San Antonio Retirement Housing Corporation 7,228 -
------- -------
23,262 7,558
------- -------
Cash and cash equivalents 18,331 5,817
Accounts receivable, less allowance for doubtful
accounts of $277 and $219 5,246 2,883
Notes, investments and other receivables 5,717 4,751
Management fee receivable 964 36
Restricted cash 9,992 8,804
Deferred costs and other assets, net 14,528 4,165
Rancho San Antonio Retirement Housing Corporation
- other assets - 4,090
------- -------
$ 290,200 348,641
======= =======
Liabilities and Shareholders' Equity
Liabilities:
Long-term debt, including $3,804 and $27,605
due within one year 205,094 200,098
Trade accounts payable 2,332 1,855
Accrued expenses 12,523 18,663
Resident deposits and refundable resident fees 17,253 15,677
Deferred income 7,041 5,466
Rancho San Antonio Retirement Housing Corporation - 30,820
------- -------
Total liabilities 244,243 272,579
Cooperative memberships in Rancho San Antonio
Retirement Housing Corporation - 55,910
Other partners' equity 1,673 1,707
Shareholders' equity:
Preferred stock, no par value - authorized 2,000 shares,
issued 25 shares in 1993 - 4,870
Common stock, no par value - authorized 48,000 shares,
issued 21,262 and 7,493 shares 58,773 20,934
Accumulated deficit (14,489) (7,359)
-------- -------
44,284 18,445
$ 290,200 348,641
======= =======
See notes to consolidated financial statements.
24
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Consolidated Statements of Operations
Years ended March 31, 1994 and 1993
(in thousands except per share amounts)
1994 1993
Revenues:
Net operating revenues $ 105,640 90,566
Management fees 1,505 397
Other income 421 1,147
------- -------
Total revenues 107,566 92,110
------- -------
Costs and expenses:
Operating expenses 76,621 70,417
General and administrative expenses 3,384 5,411
Litigation expenses 1,841 -
Depreciation 7,355 8,814
------- -------
Total costs and expenses 89,201 84,642
------- -------
18,365 7,468
Other:
Investment income 899 1,192
Interest expense (17,481) (18,171)
-------- --------
(16,582) (16,979)
Income (loss) before other partners' interests
and extraordinary charge 1,783 (9,511)
Other partners' and cooperative members' interest
in losses of consolidated companies 907 2,152
-------- --------
Income (loss) before extraordinary charge 2,690 (7,359)
Extraordinary charge - early extinguishment of debt (9,820) -
-------- --------
Net loss $ (7,130) (7,359)
======== ========
Weighted average number of common shares outstanding 17,190 7,493
Income (loss) per common share:
Income (loss) before extraordinary charge $ 0.16 (0.98)
Extraordinary charge (0.57) -
-------- --------
Net loss $ (0.41) (0.98)
======== ========
See notes to consolidated financial statements.
25
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Consolidated Statements of Shareholders' Equity
Years ended March 31, 1994 and 1993
(in thousands)
Preferred Stock Common Stock
--------------- ---------------
Number Number
of of Accumulated
shares Amount shares Amount deficit
------ ------ ------ ------ -----------
Balances at April 1, 1992 - $ - 10,000 $ 19,394 -
Net loss - - - - (7,359)
Adjustments to estimated
amounts recorded upon
reorganization - - - 1,540 -
Reduction on issuable
shares upon resolution
of disputed general
unsecured claims - - (2,507) - -
Issuance of preferred
stock, net 25 4,870 - - -
----- ----- ------- ------ -------
Balances at March 31, 1993 25 4,870 7,493 20,934 (7,359)
Net loss - - - - (7,130)
Conversion of preferred
stock to common
stock (25) (4,870) 2,500 4,870 -
Issuance of common
stock, net - - 11,079 32,969 -
Shares issued upon
resolution of
disputed general
unsecured claims - - 190 - -
----- ----- ------ ------ -------
Balances at March 31, 1994 - $ - 21,262 $ 58,773 (14,489)
===== ===== ====== ====== =======
See notes to consolidated financial statements.
26
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Consolidated Statements of Cash Flows
Years ended March 31, 1994 and 1993
(in thousands)
1994 1993
Cash flows from operating activities:
Net loss $ (7,130) (7,359)
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Depreciation and amortization 7,355 8,891
Amortization of deferred financing costs 1,151 295
Other partners' and cooperative members' interest
in losses of consolidated companies (907) (2,152)
Net losses of investments accounted for using
the equity method 124 256
Accrued management fees (928) -
Other accrued revenues and expenses, net (4,852) (2,181)
Non-cash portion of extraordinary charge 6,462 -
------- -------
Net cash provided (used) by operating activities 1,275 (2,250)
------- -------
Cash flows from investing activities:
Proceeds from facility sales, net - 36,723
Additions to property and equipment (2,211) (12,853)
Net proceeds from sales of investment in
Rancho San Antonio Retirement
Housing Corporation 3,686 94
Proceeds from disposals of property 90 442
Distributions from Greenville Retirement
Community, L.P. 271 463
Investment in Forum Retirement Partners, L.P., net (9,143) -
Notes, investments and other receivables 377 1,413
------- -------
Net cash provided (used) by investing activities (6,930) 26,282
------- -------
Cash flows from financing activities:
Proceeds from long-term debt 184,018 14,327
Payments on long-term debt (181,663) (36,394)
Payments of Predecessor Company liabilities (4,026) (28,395)
Proceeds from issuance of stock, net 32,969 4,870
Deferred financing and recapitalization costs (17,388) (265)
Net proceeds from sales of cooperative
memberships in Rancho San Antonio
Retirement Housing Corporation 3,613 16,845
Distributions to other partners (313) (313)
Resident deposits 3,729 771
Restricted cash (2,770) 2,797
------- -------
Net cash provided (used) by
financing activities 18,169 (25,757)
------- -------
Net increase (decrease) in cash and
cash equivalents 12,514 (1,725)
Cash and cash equivalents at beginning of year 5,817 7,542
------- -------
Cash and cash equivalents at end of year $ 18,331 5,817
======= =======
See notes to consolidated financial statements.
27
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
Notes to Consolidated Financial Statements
March 31, 1994 and 1993
(1)Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
---------------------
Forum Group, Inc. ("Forum Group") operates in the senior
housing industry, with particular emphasis on the operation
of full-service retirement communities ("RCs"). As of March
31, 1994, Forum Group and its subsidiaries owned or operated
15 RCs which were 94% occupied. 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.
Effective March 31, 1992, the reorganization plan of Forum
Group and eleven of its subsidiaries (the "Reorganization
Plan") was confirmed by the U.S. Bankruptcy Court. The
Reorganization Plan provided 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. 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
(see note 2).
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. 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 were not
achieved, and Forum Group reached an agreement with a group
of investors which provided an equity investment and a
restructuring of long-term debt which was completed in June
1993. The long-term debt was again restructured in February
1994.
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 a senior secured term loan) and
which contemplated additional transactions whereby the
Investors would acquire a substantial percentage of Forum
Group's common stock.
28
<PAGE>
On April 29, 1993, several persons including competing
investors commenced litigation against Forum Group, its
directors and the Investors alleging, among other things,
that Forum Group breached an alleged contract with the
competing investors 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 between the competing
investors 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 agreement between the Investors and Forum
Group was then modified to provide for the liquidity option.
The presiding court has not entered final judgment with
respect to the claims against the directors, which may be set
for final hearing at a future date. Subsequent to March 31,
1994, an agreement was reached between the competing
investors and Forum Group whereby, upon attainment of court
approvals and execution of necessary documentation, all
claims against Forum Group, its directors and the Investors
are to be settled by the payment and reimbursement of a
portion, not to exceed $500,000, of the competing investors'
attorneys' fees. The costs incurred in defending and
settling this litigation are presented as litigation expenses
in the accompanying consolidated statement of operations.
On June 14, 1993, Forum Group consummated a transaction with
the Investors, significant features of which included:
The 25,000 shares of preferred stock were converted
into 2,500,000 newly-issued 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 $20,000,000. 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 loan was retired with
the proceeds of a senior credit facility of $50,000,000,
senior subordinated notes of $40,000,000 (all of which
were held by the Investors or their affiliates) and other
funds (see note 5).
In July 1993, the Investors provided a liquidity option
whereby shareholders were given the option either to retain
their equity interest or to receive, in cash, $3.62 per
share. After acquiring an additional 1,346,000 shares of
common stock under the liquidity option (including 514,000
shares owned by a wholly-owned subsidiary of Forum Group),
the Investors owned 64% of Forum Group's outstanding common
stock.
On October 7, 1993, the Investors acquired an additional
3,466,666 shares of common stock at $3.75 per share for an
aggregate purchase price of $13,000,000, thereby increasing
their ownership percentage to 76.3%. Forum Group
subsequently made a public offering whereby shareholders of
record as of October 18, 1993 (other than the Investors) had
the right to acquire 0.2717 additional shares of common stock
for each share owned October 18, 1993, at $3.75 per share.
As a result of this offering, shareholders other than the
Investors acquired an additional 1,386,586 shares of common
stock, reducing the Investors ownership percentage to
approximately 71.7% of the currently outstanding shares.
29
<PAGE>
In connection with the recapitalization of Forum Retirement
Partners, L.P. (the "Partnership") and the refinancing of its
debt, the proceeds from the October 7, 1993 sale of common
stock to the Investors were used to acquire 6,500,000 limited
partner units, increasing Forum Group's equity interest in
the Partnership from approximately 22.9% to approximately
55.2% (see note 3). The Partnership subsequently made a
public offering whereby unitholders of record as of October
18, 1993 (other than Forum Group and its affiliates) had the
right to acquire additional units at $2.00 per unit, the same
price paid by Forum Group. Proceeds of this offering
totaling $3,990,000 were used to repurchase 1,994,000 units
from Forum Group at $2.00 per unit, reducing Forum Group's
equity interest in the Partnership to 43.2%. As a result of
the refinancing of its long-term debt, the Partnership
recognized an extraordinary charge totaling $2,917,000, and
Forum Group's share of this charge of $1,360,000 is included
in the extraordinary charge in the accompanying consolidated
statement of operations.
On February 1, 1994, Forum Group completed a further
refinancing of its senior secured debt. The proceeds of a
$93,000,000 refinancing mortgage loan were used to retire the
outstanding balance of $49,000,000 principal balance of the
senior secured credit facility and $30,000,000 aggregate
principal of the senior subordinated notes, and pay expenses
totaling approximately $13,400,000 (see note 5).
During fiscal 1994, Forum Group accrued fees payable to one
of the Investors for administrative, refinancing, and general
acquisition matters in the amount of $750,000.
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.
Advanced payments received for services are deferred until
the related services have been provided. 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 audit by agencies administering the programs, and
provisions are made for potential adjustments that may
result. To the extent those provisions vary from
settlements, revenues are charged or credited when the
adjustments become final. A change in the estimate of
amounts reimbursable by third party payors from prior years
resulted in the recognition of $1,447,000 of additional
operating revenues in the year ended March 31, 1994.
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.
30
<PAGE>
Investments
-----------
Investments in limited partnerships are carried at Forum
Group's percentage interest in the estimated net value of the
RCs owned by the partnerships as of March 31, 1992, plus its
share of income or loss, less distributions. Any difference
between the carrying value of limited partnership investments
and the percentage interest in the partnerships' underlying
book value is amortized over the remaining life of the
partnerships' properties.
The assets, liabilities and financial results of Rancho San
Antonio Retirement Housing Corporation ("Rancho San
Antonio"), a cooperative corporation which owns a continuing
care RC in Cupertino, California, were included in the
consolidated financial statements of Forum Group through July
31, 1993 since Forum Group owned a majority of the
cooperative memberships. Effective August 1, 1993, due to
continued sales of cooperative memberships, Forum Group no
longer owned in excess of 50%, and accordingly, the financial
statements of the cooperative are no longer consolidated into
Forum Group's financial statements. Sales of cooperative
memberships have totaled $90,000,000 through March 31, 1994
and profits on these sales are recognized using the cost
recovery method. Forum Group's ownership interest of 25.1%
of the cooperative memberships at March 31, 1994 is accounted
for on the equity method. The proceeds from the sale of
memberships in other cooperative housing corporations are
included in deferred income.
Cash Equivalents
----------------
Cash equivalents represent commercial paper and other income-
producing securities having an original maturity of less than
three months, are readily convertible to cash, and are stated
at cost, which approximates market.
Restricted Cash
---------------
At March 31, 1994 and 1993, restricted cash includes
$1,909,000 and $2,062,000, respectively, deposited by present
and prospective residents of lifecare RCs; $3,658,000 and
$2,920,000, respectively, of resident security deposits; and
$4,499,000 and $3,822,000, 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 to interest expense over the term of the
related debt on a straight-line basis. In connection with
the 1994 refinancings, deferred costs totaling $5,087,000
were included in the extraordinary charge on the accompanying
consolidated statements of operations.
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.
31
<PAGE>
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 2,000,000 authorized voting preferred shares,
all without par value, none of which were issued at March 31,
1994.
In connection with the refinancing of its long-term debt (see
note 5), Forum Group issued warrants to a former lender to
acquire 550,000 common shares at $2.86 per share, subject to
adjustment and an annual increase of 18% each June 11
commencing in 1994, through June 11, 1999. Subsequently,
Forum Group issued to such former lender 149,607 warrants at
a purchase price of $3.75 per warrant, each such warrant
representing the right to purchase one common share, upon
payment of an exercise price of $0.01, on or before June 11,
1999.
Retirement Agreements
---------------------
Forum Group has retirement agreements with certain current
and former officers under which each officer is to be paid
50% of average annual compensation, as defined, for a period
of fifteen years upon reaching age 65. 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. Two other former officers of Forum
Group received monthly payments of $8,600 through April 1994.
Income Taxes
------------
Income taxes are provided only to the extent 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.
Per Share Amounts
-----------------
Per share amounts are based on the weighted average number of
common shares issued and outstanding. Common share
equivalents (warrants) are not included in the per share
computation as they are anti-dilutive. 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 years ended March 31, 1994 and
1993 would have been $0.41 and $0.93 per share, respectively.
Reclassifications
-----------------
Certain amounts in the 1993 consolidated financial statements
have been restated to conform to the 1994 presentation.
32
<PAGE>
(2)Fresh-start Reporting
---------------------
Upon confirmation of the Reorganization Plan, 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.
Investments in 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.
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.
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 were 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 265,000
shares as of March 31, 1994 are reserved pending the final
settlement of disputed general unsecured claims (including
those items discussed in note 6) totaling approximately
$5,160,000. Upon final resolution of those claims, remaining
shares held in reserve will be canceled. Management is
currently unable to determine the ultimate disposition of
those shares.
33
<PAGE>
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.
(3)Investments
-----------
The investment in the Partnership, which owns and operates
nine RCs, represents a 43.2% and 22.9% equity interest at
March 31, 1994 and 1993, respectively. As of March 31, 1994,
the quoted market price exceeded the carrying value of Forum
Group's limited partners' interests in the publicly-traded
partnership by $4,903,000. Other income for 1994 and 1993
includes losses of $175,000 and $536,000, respectively,
representing Forum Group's share of the Partnership's losses
before extraordinary charge. Summary information for the
Partnership as of and for the year ended March 31, 1994 is as
follows (in thousands):
Net property $ 97,612
Other assets 14,235
-------
111,847
Less liabilities 73,176
-------
Net assets $ 38,671
=======
Revenues 45,062
Costs and expenses 46,041
Extraordinary charge - early
extinguishment of debt 2,917
-------
Net loss $ 3,896
=======
To support distributions to limited partners, all management
fees due to Forum Group through December 31, 1993, totaling
$15,780,000, have been deferred and were not recognized as
income by Forum Group. These fees are deferred until
specified distributions are made by the Partnership to its
limited partners. Subsequent to December 31, 1993,
management fees equal to 8% of revenue of the Partnership are
payable quarterly, and amounted to $904,000 for the three
months ended March 31, 1994.
34
<PAGE>
The investment in Greenville, which owns and operates one RC,
represents a 50% equity interest. Other income for 1994 and
1993 includes income of $251,000 and $308,000, respectively,
representing Forum Group's share of Greenville's income.
Summary information for Greenville as of and for the year
ended March 31, 1994 is as follows (in thousands):
Net property $ 20,519
Other assets 890
-------
21,409
Less liabilities 22,644
=======
Net deficit $ 1,235
=======
Revenues $ 6,302
Costs and expenses 5,833
-------
Net income $ 469
=======
Other income for 1994 includes losses of $1,117,000,
representing Forum Group's share of losses of Rancho San
Antonio. Summary information of Rancho San Antonio as of and
for the year ended March 31, 1994 is as follows (in
thousands):
Net property $ 97,952
Other assets 37,454
-------
135,406
Less liabilities 30,910
-------
Net assets $ 104,496
=======
Revenues $ 6,090
Costs and expenses 11,328
-------
Net loss $ 5,238
=======
35
<PAGE>
(4)Income Taxes
------------
Income tax expense for the years ended March 31 differs from
the amount computed by applying the U.S. federal income tax
rate of 34% to net loss as a result of the following (in
thousands):
1994 1993
---- ----
Computed "expected" tax benefit $ (2,424) (2,502)
Forgiveness of installment note - (1,235)
Settlement of disputed general
unsecured claims - (387)
Other - 287
Amounts added to net operating
loss carryforward 2,424 3,837
------- -------
$ - -
======= =======
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and
liabilities at March 31, 1994 are as follows (in thousands):
Deferred tax assets:
Property and equipment, principally
due to differences in the bases of
assets as a result of fresh-start
accounting and depreciation methods $ 23,006
Net operating loss carryforwards 9,180
Accrued expenses 2,366
Other 477
Losses in consolidated taxable entities 3,720
Deferred income 1,136
Deferred compensation 605
-------
Total gross deferred tax assets 40,490
Loss valuation allowance 37,924
-------
Net deferred tax assets 2,566
-------
Deferred tax liabilities:
Gains on property sales (1,595)
Deferred management fees (593)
Investments, principally due to
differences in the bases of assets
as a result of fresh-start accounting (378)
-------
Total gross deferred tax liabilities (2,566)
-------
Net deferred tax liabilities $ -
=======
The valuation allowance for deferred tax assets at April 1,
1993 was $35,552,000, and the net change in the total
valuation allowance for the year ended March 31, 1994 was an
increase of $2,372,000.
36
<PAGE>
As of March 31, 1994, income tax loss carryforwards for tax
purposes were estimated to be approximately $163,000,000
before the application of certain loss carryforward
limitations resulting from a second change in ownership
within two years of Forum Group's bankruptcy reorganization.
As a result of these limitations, Forum Group expects the
utilization of loss carryforwards will be limited to
approximately $27,000,000. These tax loss carryforwards will
expire in varying amounts through fiscal year 2009. For
financial reporting purposes, any future benefit of tax loss
carryforwards arising prior to the reorganization will be
reported as a direct addition to paid-in capital.
(5)Long-term Debt
--------------
Long-term debt comprised the following at March 31 (in
thousands):
1994 1993
---- ----
Mortgage loans $ 183,858 92,210
Senior secured term notes - 94,586
Senior subordinated notes 10,000 -
Capitalized leases 8,470 8,825
Other 2,766 4,477
------- -------
$ 205,094 200,098
======= =======
The senior secured notes associated with the term loan repaid
in June 1993 required 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 were required in semi-annual installments of
$13,443,000 to maturity on June 30, 1996. The loan agreement
also required 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 contained limitations on capital expenditures,
investments and additional indebtedness, and prohibited 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 which was retired in December 1993.
On June 14, 1993, the senior secured term notes were retired
with the proceeds of a senior credit facility of $50,000,000,
senior subordinated notes of $40,000,000 (of which
$25,000,000 were held by the Investors or their affiliates)
and other funds. The senior credit facility required that
interest be paid quarterly at either the prime rate plus 2%
or the Eurodollar rate plus 3.5%, and required 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 1996; and $2,750,000 to maturity on March 31,
1999. The senior subordinated notes require interest semi-
annually at 12.5% to maturity in 2003.
37
<PAGE>
On February 1, 1994, Forum Group obtained a mortgage loan and
used the proceeds to retire the senior secured credit
facility of $49,000,000 and senior subordinated notes of
$30,000,000, and to pay the related prepayment premiums to
the Investors or their affiliates totaling $3,000,000
(included as an extraordinary charge in the accompanying
consolidated statement of operations), to pay fees and
expenses of approximately $3,000,000, and to purchase an
interest rate cap agreement for approximately $7,427,000.
The mortgage loan with a balance of $93,194,000 at March 31,
1994 requires monthly payments of principal (based on a 25-
year amortization) and interest at LIBOR plus 4.3%, assuming
servicing costs of 0.2% (7.894% at March 31, 1994), with a
maximum rate of 8.925%, to maturity on January 1, 2001. The
loan agreement prohibits prepayment for three years and
requires payment of a yield maintenance premium, as defined,
if prepaid thereafter. Additional principal payments are
required if the debt service coverage ratio is below
specified levels. The loan is secured by seven of Forum
Group's RCs.
Forum Retirement Communities I, L.P., a consolidated
affiliate of Forum Group, has a mortgage loan on one RC with
a balance of $25,993,000 and $26,138,000 at March 31, 1994
and 1993, respectively, from 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% (5.1% and 4.8% at March 31, 1994 and 1993,
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 $46,685,000 and $47,470,000 at March 31,
1994 and 1993, respectively, from 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%
(4.9% and 4.6% at March 31, 1994 and 1993, 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
$14,580,000 and $14,978,000 at March 31, 1994 and 1993,
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 $3,407,000 and $3,624,000 at March 31, 1994 and
1993, respectively, require monthly payments including
interest at variable rates to maturity in 1996 and 1999.
Construction loans were secured by mortgages on Rancho San
Antonio and bore interest payable monthly ranging from the
prime rate plus 2% to the prime rate plus 4% (effective rate
of 8.3% at March 31, 1993). Proceeds from the sale of
cooperative memberships were used to retire the loans in
February 1994.
Future minimum payments under capitalized leases approximate
$1,100,000 for each of the five years ending March 31, 1999,
with approximately $9,300,000 due thereafter, including
imputed interest of approximately $6,500,000. Property and
equipment at March 31, 1994 and 1993 include $10,567,000 and
$10,319,000, respectively, of assets under capital leases,
consisting principally of buildings and leasehold
improvements, and related accumulated depreciation was
$621,000 and $300,000, respectively.
38
<PAGE>
Other mortgage loans and long-term debt are secured by
facilities and land owned by Forum Group. In addition, Forum
Group has outstanding letters of credit in the amount of
$6,884,000 at March 31, 1994.
At March 31, 1994, scheduled maturities of long-term debt
during the next five years (based on current interest rates)
are $3,804,000 in 1995, $4,241,000 in 1996, $50,024,000 in
1997, $17,145,000 in 1998, and $29,227,000 in 1999. Cash
paid for interest was $15,309,000 and $30,539,000 in fiscal
year 1994 and 1993, respectively.
(6)Commitments and Contingencies
-----------------------------
In January 1994, the Russell F. Knapp Revocable Trust (the
"Knapp Trust"), a substantial holder of the publicly traded
units of the Partnership, 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 the partnership ("FRI"), alleging breach
of the partnership agreement, breach of fiduciary duty, and
violation of securities laws. In March 1994, the Knapp Trust
Complaint was amended, adding Forum Group as a defendant.
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 partnership
agreement and as allegedly represented in the 1986 Prospectus
of the Partnership, that the allegedly improper composition
of the Board of Directors of FRI is a consequence of actions
by Forum Group, 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 the Partnership's RC's
(whereas, the Knapp Trust Complaint alleges, the "industry
standard" for such fees is 4% thereby allegedly resulting in
an "overcharge" to the Partnership estimated by the Knapp
Trust at $1.8 million per annum, beginning January 1, 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. Forum Group
and FRI believe that the allegations in the Knapp Trust
Complaint are without merit and intend vigorously to defend
against this litigation.
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 1993, the Bankruptcy Court
permanently enjoined further prosecution of this action,
finding that the claims asserted violated Forum Group's
reorganization plan. The matter is currently under appeal
before the Bankruptcy Court. Management believes that Forum
Group and Greenville have substantial defenses to these
claims.
39
<PAGE>
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.
40
<PAGE>
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 year ended
March 31, 1992. 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 audit 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 audit provides 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 year ended March 31, 1992 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 March 31, 1992
for financial reporting purposes, and 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 13, 1994
41
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Consolidated Statement of Operations
Year ended March 31, 1992
(in thousands except per share amounts)
Revenues:
Net operating revenues $ 84,656
Facility sales, net 379
Other income (expense) (5,267)
-------
Total revenues 79,768
-------
Costs and expenses:
Operating expenses 75,348
General and administrative expenses 6,976
Depreciation and amortization 11,620
Reduction in carrying value of property 12,771
-------
Total costs and expenses 106,715
-------
(26,947)
Other:
Investment income 1,327
Interest expense (contractual interest of $31,810) (20,541)
Reorganization expenses (9,013)
Effect of fresh-start reporting (62,261)
-------
Loss before other partners' interest
and extraordinary credit (117,435)
Other partners' interest in losses of
consolidated partnerships 1,688
-------
Loss before extraordinary credit (115,747)
Extraordinary credit - extinguishment of debt 116,195
-------
Net income $ 448
=======
Weighted average number of common shares outstanding 32,548
=======
Income (loss) per common share:
Loss before extraordinary credit $ (3.56)
Extraordinary credit 3.57
-------
Net income $ 0.01
=======
See notes to consolidated financial statements.
42
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Consolidated Statement of Shareholders' Equity
Year ended March 31, 1992
(in thousands)
Common Stock Retained
--------------------------
Number of shares earnings
------------------------
Successor Predecessor (accumulated
Company Company Amount deficit)
--------- ----------- ------ -----------
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 -
======= ======== ========= ========
See notes to consolidated financial statements.
43
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Consolidated Statement of Cash Flows
Year ended March 31, 1992
(in thousands)
Cash flows from operating activities:
Net income $ 448
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 11,620
Other amortization 1,139
Effect of fresh-start reporting 62,261
Extraordinary credit - extinguishment of debt (116,195)
Reduction in carrying value of property 12,771
Facility sales, net (379)
Notes, investments and other receivables 148
Accrued and refundable income taxes 182
Accrued interest 8,192
Other accrued revenues and expenses, net 17,885
Other partners' interest in losses of
consolidate partnerships (1,688)
Losses of Forum Retirement Partners, L.P. 5,714
Other 344
--------
Net cash provided by operating activities 2,442
--------
Cash flows from investing activities:
Additions to property and equipment (36,304)
Disposals of property and equipment 972
Disposals of land held for resale 6,580
Collections and advances on notes receivable 154
--------
Net cash used by investing activities (28,598)
--------
Cash flows from financing activities:
Proceeds from long-term debt, notes and debentures 36,430
Payments on long-term debt, notes and debentures (47,699)
Proceeds from cooperative memberships 40,702
Deferred financing and other costs (136)
Other 1,961
--------
Net cash provided by financing activities 31,258
--------
Net increase in cash and cash equivalents 5,102
Cash and cash equivalents at beginning of year 2,440
--------
Cash and cash equivalents at end of year $ 7,542
========
See notes to consolidated financial statements.
44
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
(PREDECESSOR COMPANY)
Notes to Consolidated Financial Statements
Year ended March 31, 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 (the
"Reorganization Plan") was confirmed by the U.S. Bankruptcy
Court. The Reorganization 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 Reorganization 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. As Forum Group anticipated that
the Reorganization 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 in
excess of reported interest expense for fiscal year 1992.
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.
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.
45
<PAGE>
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 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.
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.
Deferred Costs
--------------
Fees and other costs incurred to obtain long-term financing
are amortized to interest expense 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
canceled upon confirmation of the Reorganization Plan, and up
to 10,000,000 new shares were contemplated to be issued
pursuant to the Reorganization Plan (see note 2).
46
<PAGE>
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 is to be paid 50% of average annual
compensation, as defined, for a period of fifteen years upon
reaching age 65. 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. Two other former officers of Forum
Group received cash payments of $388,000 upon confirmation of
the Reorganization Plan and are to receive monthly payments
of $8,600 through April, 1994.
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 Per Share
----------------
Net income 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.
47
<PAGE>
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).
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 Reorganization Plan, approximately 441,000
shares have been reserved pending the final settlement of
disputed general unsecured claims (including certain legal
claims) totaling approximately $8,580,000. Upon final
resolution of those claims, the shares held in reserve will
be canceled. Management is currently unable to determine the
ultimate disposition of those shares.
48
<PAGE>
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):
Extin- Effect
guish- of fresh-
Predecessor ment start Successor
Company of debt reporting Company
----------- ------- --------- ---------
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
======== ======== ======== =========
(3)Investments
-----------
The investment in the Partnership represents a 22.85% equity
interest. Other income (expense) for fiscal year 1992
includes losses of $5,714,000, representing Forum Group's
share of the Partnership's losses for those years. Summary
information of the Partnership for the year ended March 31,
1992 is as follows (in thousands):
Revenues $ 44,578
Costs and expenses 53,335
Reductions in carrying value of properties 14,850
-------
Net loss $ 23,607
=======
To support distributions to limited partners, all management
fees since the inception of the Partnership, totaling
$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.
49
<PAGE>
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
applicable bankruptcy court, Forum Group has concluded that
full recovery of its investment in National is not probable
and, accordingly, $1,463,000 of the investment was charged to
operations in 1992 to reflect Forum Group's then-current
estimate of the amount not recoverable.
(4)Reduction in Carrying Value of Property
---------------------------------------
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.
(5)Facility Sales
--------------
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 totaling
$386,000 in fiscal year 1992.
(6)Income Taxes
------------
In 1992, ordinary tax losses were approximately $28,000,000
and alternative minimum tax losses are approximately
$26,000,000. No further refunds are available in the three-
year carryback period.
Income tax refunds (net of payments) of $104,000 was received
during fiscal year 1992. 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 presiding
bankruptcy court, the following is a description of the terms
of the various debt agreements without regard to the
reorganization plan (see note 2):
50
<PAGE>
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.
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.
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 1%. 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 year 1992, Forum Group incurred interest costs
of $23,740,000 of which $3,531,000 was capitalized. Interest
payments were $11,529,000 during that year.
(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):
51
<PAGE>
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.
(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 year ended March 31, 1992, and all options were
canceled as of the effective date of the Reorganization Plan.
52
<PAGE>
Quarterly Financial Data
- - ------------------------
The following quarterly financial data summarize the
unaudited quarterly results for the fiscal years ended March 31,
1994 and March 31, 1993, respectively:
<TABLE>
<CAPTION>
Income (Loss)
Per Common Share
--------------------------
Income (Loss) Income (Loss)
Before Before
Total Extraordinary Net Income Extraordinary Net Income
Revenues Charge (Loss) Charge (Loss)
Quarters Ended -------------------------------------------------------------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
June 30, 1992 $20,641 $(3,150) $(3,150) $(0.42) $(0.42)
September 30, 1992 22,250 (2,116) (2,116) (0.28) (0.28)
December 31, 1992 23,642 (1,815) (1,815) (0.24) (0.24)
March 31, 1993 25,577 (278) (278) (0.04) (0.04)
June 30, 1993 24,950 (1,201) (1,616) (0.13) (0.17)
September 30, 1993 26,981 859 861 0.05 0.05
December 31, 1993 28,059 1,632 272 0.08 0.01
March 31, 1994 27,576 1,400 (6,647) 0.07 (0.31)
</TABLE>
Item 9. Disagreements on Accounting and Financial
----------------------------------------------------------
Disclosure. Not applicable.
- - -----------
53
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the
--------- ---------------------------------------------
Registrant.
- - ----------
Directors
The following table indicates (i) the name, principal
occupation and business experience of each director of Forum
Group, (ii) the period during which each director has served in
such capacity, and (iii) the age of each director. The term of
office of each of the directors will expire at Forum Group's 1994
Annual Meeting of Shareholders.
Name of Nominee, Principal Served as a
Occupation and Business Experience Director Since Age
---------------------------------- -------------- ---
Robert A. Whitman 1993 41
President, Chief Executive Officer and
Chairman of the Board 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 of Trammell Crow Ventures, the
real estate investment, banking and
investment management unit of Trammell
Crow Company, and Chief Financial
Officer of Trammell Crow Company,
since prior to 1989.
Peter P. Copses 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 certain securities
investment funds (including AFG), 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 employed by
Drexel Burnham Lambert Incorporated,
an investment firm, since prior to
1989; director of Lamonts Apparel,
Inc., a company owning clothing and
department stores; Calton, Inc., a
homebuilder with operations in New
Jersey, California and Florida; and
Zales Corporation, a company owning
jewelry stores.
Daniel A. Decker 1993 41
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 1989.
54
<PAGE>
Name of Nominee, Principal Served as a
Occupation and Business Experience Director Since Age
---------------------------------- -------------- ---
James E. Eden 1993 56
Owner of James E. Eden & Associates, a
consulting firm specializing in the
senior living and long-term care
industry, President of Eden &
Associates, Inc.. a company engaged in
the senior living and long-term care
industry, Chairman and Chief Executive
Officer of Oakwood Living Centers,
Inc., a company which owns and
operates nursing homes and
rehabilitation centers, since 1992;
theretofore employed by Marriott
Corporation, a company which owns and
operates senior living facilities, in
various capacities including Executive
Vice President and Vice President and
General Manager, Senior Living
Services Division, since prior to
1989.
Asher O. Pacholder 1992 55
Chairman of the Board of Pacholder
Associates, Inc., an investment
banking and advisory firm, and
Chairman and President of USF&G
Pacholder Fund, Inc., a publicly held
closed-end investment company, since
prior to 1989; director of AM
International, Inc., a company engaged
in the manufacture and marketing of
business graphics equipment; ICO,
Inc., a company engaged in the oil
field services industry; United Gas
Holding Corp., a company engaged in
the gas line transmission industry;
The 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. 1993 48
President and Chief Executive Officer
of Evergreen Healthcare, Inc., a
company engaged in the healthcare
industry, since prior to 1989.
Antony P. Ressler 1993 33
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 certain
securities investment funds (including
AFG), 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 company, since prior to
1989; director of Hanna-Barbera
Entertainment Company, Inc., a company
engaged in the entertainment industry;
Cherokee, Inc., a company engaged in
the manufacture of apparel; Family
Restaurants, Inc., a company engaged
in the restaurant industry; Lamonts
Apparel, Inc., a company owning
clothing and department stores;
Gillette Holdings, Inc., a company
which owns the Vail and Beaver Creek
ski
55
<PAGE>
Name of Nominee, Principal Served as a
Occupation and Business Experience Director Since Age
---------------------------------- -------------- ---
resorts and meat packing concern; PRI
Holdings, Inc., a company engaged in
the manufacture of packaging
materials; and United International
Holdings, Inc., a company engaged in
the cable television industry.
D. Ellen Shuman 1993 39
Director of Investments - Real Estate
for Yale University Investments
Office, since prior to 1989.
Eric B. Siegel 1993 36
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 certain securities
investment funds (including AFG), 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 a principal in the law
firm of Cogut, Taylor, Siegel and
Engelman since 1989; theretofore an
associate and subsequently a partner
in the law firm of Irell and Manella,
since prior to 1989; director of
Interco, Incorporated, a company
engaged in shoe and furniture
manufacturing and distribution, and
Sun International Hotels, Limited, a
company which owns and operates
hotels.
Merlin C. Spencer 1992 55
President and Chief Executive Officer
of TSI, Inc., a company engaged in the
manufacture of fuel handling
equipment, and Garsite, Inc., a
company engaged in the manufacture of
aircraft refuelers, since 1993;
principal of Spencer & Associates,
Inc., a Shawnee Mission, Kansas,
management consulting firm
specializing in the retirement
community industry, since prior to
1989.
George D. Woodard 1992 47
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 1989.
Executive Officers
The following table indicates (i) the name, positions and
offices with Forum Group and business experience of each of the
executive officers of Forum Group, (ii) the period during which
each executive officer has served as an officer of Forum Group,
and (iii) the age of each executive officer. Each of the
executive officers of Forum Group serves at the pleasure of the
Board.
56
<PAGE>
Name of Nominee, Principal Served as an
Occupation and Business Experience Officer Since Age
---------------------------------- ------------- ---
Robert A. Whitman 1993 41
President, Chief Executive Officer and
Chairman of the Board 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 of Trammell Crow Ventures, the
real estate investment, banking and
investment management unit of Trammell
Crow Company, and Chief Financial
Officer of Trammell Crow Company,
since prior to 1989.
Paul A. Shively, CPA 1974 51
Senior Vice President of Forum Group
since 1993 and from prior to 1989 to
1993; Treasurer and Chief Financial
Officer of Forum Group, since prior to
1989; President and Chief Executive
Officer of Forum Group from 1992 to
1993; director of Forum Group from
1988 to 1992; director and Secretary
of Capital Industries, Inc., a company
engaged in the sale, installation and
service of heavy-duty truck parts
(formerly a wholly-owned subsidiary of
Forum Group).
Brian C. Swinton 1994 49
Senior Vice President-Product
Development, Research and Marketing of
Forum Group, since 1994; theretofore
Vice President, Senior Living Services
Division of Marriott Corporation, a
company which owns and operates senior
living facilities, since prior to
1989.
Robert A. DeVoss 1990 47
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 prior to 1989.
David A. Lewis 1989 42
Vice President-Sales of Forum Group,
since 1989; theretofore Senior
Director of Sales of Forum Group,
since prior to 1989.
John H. Sharpe 1992 44
Vice President, Secretary and General
Counsel of Forum Group, since 1992;
theretofore Assistant General Counsel
of Forum Group, since prior to 1989.
Richard A. Huber 1993 33
Vice President-Operations Finance of
Forum Group, since 1993; theretofore
Director-Operations Accounting and
Analysis, Senior Living Services
Division of Marriott Corporation, a
company which owns and operates senior
living facilities, since prior to
1989.
57
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as
amended, 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 Securities and Exchange Commission
(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, 1994, all
Section 16(a) filing requirements applicable to its directors,
executive officers and greater than 10% shareholders were
complied with.
Item 11. Executive Compensation.
------- ----------------------
Compensation of Executive Officers
Compensation Summary. The following table summarizes the
compensation of the Chief Executive Officer of Forum Group and
each of the other four most highly compensated executive officers
of Forum Group (collectively, the "Named Executives") for Forum
Group's last three fiscal years for services rendered in all
capacities to Forum Group and its subsidiaries.
SUMMARY COMPENSATION TABLE
Name and Fiscal Year Annual Compensation All Other
Principal Position Ended March 31, Salary($) Bonus($) Compensation($)(1)(2)
- - ------------------ --------------- ------------------- ---------------------
Robert A. Whitman, 1994(3) -0- -0- -0-
President and Chief 1993 -- -- --
Executive Officer 1992 -- --
Paul A. Shively, 1994 230,000 82,500 3,049
Senior Vice President, 1993 169,583 -0- 208,057(5)
Chief Financial Officer 1992 151,200 30,000
and Treasurer (4)
Robert A. DeVoss, 1994 24,891 37,080 1,169
Vice President - 1993 112,970 7,500 -0-
Operations 1992 97,660 -0-
David A. Lewis, 1994 127,248 37,080 309
Vice President - Sales 1993 130,294 7,500 -0-
1992 140,028 -0-
John H. Sharpe, 1994 118,765 50,250 1,965
Vice President, General 1993 96,155 15,000 -0-
Counsel and Secretary 1992 88,462 14,167
____________________
(1) Pursuant to transition provisions published by the SEC,
information regarding "All Other Compensation" is not presented
for the fiscal year ended March 31, 1992.
58
<PAGE>
(2) The amounts shown for the fiscal year ended March 31, 1994
represent employer contributions in the following amounts made on
behalf of the Named Executives to Forum Group's 401(K) Savings
Plan and Forum Group's Employee Stock Purchase Plan,
respectively: Mr. Whitman, $0 and $0; Mr. Shively, $1,925 and
$1,124; Mr. DeVoss, $598 and $571; Mr. Lewis, $0 and $309; and
Mr. Sharpe $1,716 and $249.
(3) Mr. Whitman became Chairman of the Board and President and
Chief Executive Officer of Forum Group on July 19, 1993. Prior
to that time, he was not an officer of Forum Group. Mr. Whitman
received no compensation from Forum Group for services rendered
by him as President and Chief Executive Officer of Forum Group
during the fiscal year ended March 31, 1994. Mr. Whitman was
paid $11,250 as a retainer for his services as a director of
Forum Group during the fiscal year ended March 31, 1994. See
also Item 13, "Certain Relationships and Related Transactions"
for a discussion of certain payments by Forum Group to Forum
Holdings in respect of various general and administrative
services provided to Forum Group by Forum Holdings and its
representatives, including, among others, Mr. Whitman's services
as President and Chief Executive Officer of Forum Group.
(4) Mr. Shively served as the President and Chief Executive
Officer of Forum Group during the fiscal year ended on March 31,
1994, but only until July 19, 1993.
(5) 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 Reorganization Plan in settlement
of Mr. Shively's claim under Forum Group's former deferred
compensation plan.
Severance Pay Policy. Forum Group's Severance Pay Policy is
its primary means of providing severance benefits to employees,
including the Named Executives (other than Mr. Whitman). Under
the Severance Pay Policy, severance pay will be granted to
eligible employees if the termination of their employment is
initiated by Forum Group as the result of any one of certain
qualifying events, including reductions-in-force, position
elimination and the inability to meet the requirements of a
position, but not as a result of voluntary resignation,
retirement, merger into or acquisition by another organization
(if the employee is offered employment with the successor
organization), discharge for misconduct and certain other
specified reasons. Under the Severance Pay Policy, eligible
employees are entitled to receive severance pay as follows: for
hourly employees, two weeks regular straight time pay, plus one
additional week's regular pay for each year of continuous
service, up to a maximum of six month's pay; for salaried
employees below the level of manager, one month's pay, plus one
additional week's pay for each year of continuous service, up to
a maximum of six month's pay; and for salaried employees at the
level of manager or above (including the Named Executives, other
than Mr. Whitman), one month's pay plus two additional week's pay
for each year of continuous service, up to a maximum of eight
month's pay.
Supplemental Retirement Agreements. Forum Group has
supplemental retirement agreements with each of Messrs. DeVoss
and Lewis. Pursuant to those agreements, upon retirement at age
65 or older, 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. DeVoss
and Lewis, assuming their present salaries remained unchanged,
would be $52,436 and $76,165, respectively.
59
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee (the "Compensation Committee") of
the Board of Directors of Forum Group (the "Board") was
established by the Board on June 14, 1993. Prior to that time
decisions relating to compensation were made by the Board. To
the extent that such decisions were made by the Board, rather
than by the Compensation Committee, the discussion thereof set
forth below is based upon information provided to the
Compensation Committee by persons who were members of the Board
at the respective times which such decisions were made.
The principal components of the compensation of Forum
Group's executive officers (including the Named Executives, other
than Mr. Whitman) for services performed during the fiscal year
ended March 31, 1994 were cash salary and cash bonus. The base
compensation of each executive officer of Forum Group for the
fiscal year ended March 31, 1994 was established using a number
of subjective criteria, including level of responsibility, level
of experience, individual performance, overall corporate
performance and competitive pay practices. Decisions with
respect to cash bonuses for the fiscal year ended March 31, 1994
were based on these same criteria. Individual salary and bonus
decisions with respect to compensation for the fiscal year ended
March 31, 1994 were not based on specific performance criteria
and no specific weights were ascribed to the factors considered
in making such decisions.
Mr. Whitman has been serving as President and Chief
Executive Officer since July 19, 1993, and has received no
compensation from Forum Group for services rendered by him in
that capacity. Mr. Whitman does receive certain payments from
Forum Group for his services as a director. See also Item 13,
"Certain Relationships and Transactions" for a discussion of
certain payments by Forum Group to Forum Holdings in respect of
various general and administrative services provided to Forum
Group by Forum Holdings and its representatives, including, among
others, Mr. Whitman's services as President and Chief Executive
Officer of Forum Group.
Prior to July 19, 1993, Mr. Shively served as President and
Chief Executive Officer. Mr. Shively was compensated for
services rendered by him in such capacity pursuant to an
agreement which provided for his employment in such capacity for
a period from January 1, 1993 until June 30, 1993 at a base
salary for such period of $115,000.
Section 162(m) of the Internal Revenue Code of 1986, as
amended (which was recently adopted under the Omnibus Budget and
Reconciliation Act of 1993), does not apply to executive officer
compensation reported and discussed above for the fiscal year
ended March 31, 1994 and, accordingly, Forum Group has not
adopted a policy on qualifying executive officer compensation for
deductibility under that Section.
The Compensation Committee believes that the nature and
level of the compensation of Forum Group's executive officers for
services performed during the fiscal year ended March 31, 1994
are reasonable and appropriate in light of Forum Group's
financial and operational performance and other factors during
the such period. A majority of the members of the Compensation
Committee is comprised of directors whose principal employment is
with the FGI Investors. The FGI Investors, in the aggregate,
beneficially own a majority of Forum Group's outstanding Common
Shares. See Item 12, "Security Ownership of Certain Beneficial
Owners and Management" and Item 13, "Certain Relationships and
Related Transactions."
The Compensation Committee is in the process of reviewing
Forum Group's compensation policies and practices and expects to
adopt and implement for the fiscal year ending March 31, 1995 and
subsequent fiscal years a comprehensive executive compensation
program, principally intended to (i) provide appropriate
incentives to aid in assuring the accomplishment of Forum Group's
performance and financial objectives, (ii) help ensure that Forum
Group is able to attract and retain top-quality
60
<PAGE>
management personnel, and (iii) ensure that an appropriate
portion of executive compensation is variable and dependent upon
the accomplishment of specific short- and long-term performance
and financial objectives, as well as increases in shareholder
value.
Respectfully submitted by the
Compensation Committee,
Daniel A. Decker
Asher O. Pacholder
William G. Petty, Jr.
Anthony P. Ressler
Compensation Committee Interlocks and Insider Participation
On January 11, 1993, Forum Group entered into an agreement
(the "January Winton Agreement") with Winton Associates, Inc.
("Winton"), a wholly owned subsidiary of Pacholder Associates,
Inc., to provide Forum Group with certain investment banking
services. The principal of Pacholder Associates, Inc. is Mr.
Pacholder, a director of Forum Group and a member of the
Compensation Committee. The January Winton Agreement, as
amended, provided for a flat fee of $1,000,000 and reasonable out
of pocket expenses. In accordance with the January Winton
Agreement, (i) on February 4, 1993, Winton was paid $100,000 and
(ii) on June 18, 1993, Winton was paid an additional $450,000, in
each case in respect of transactions occurring as part of the
1993 Recapitalization. On June 14, 1993, Real Vest Management
Services, Inc. commenced litigation against Mr. Pacholder,
Pacholder Associates, Inc., Winton and Forum Group, asserting,
among other things, its entitlement to one-half of the fee due
under the January Winton Agreement. Pursuant to an agreement
among the parties to this litigation, Forum Group deposited the
funds at issue ($450,000) with the presiding court and the claims
against Forum Group were thereafter dismissed with prejudice.
On October 6, 1993, Forum Group entered into an agreement
with Winton (the "October Winton Agreement") to provide certain
financial advisory services to the Board's Standing Committee of
Independent Directors with respect to the purchase by the FGI
Investors of additional Common Shares in conjunction with the FRP
Recapitalization as discussed above. See Item 1, "Business --
Recent History -- Forum Partners' Recapitalization." Winton was
paid $25,000 pursuant to the October Winton Agreement.
Comparison of Total Shareholder Return
The following graphs show (i) the annual cumulative
shareholder return on the common stock of Forum Group for the
periods from March 31, 1989 through April 2, 1992 and April 3,
1992 through March 31, 1994, assuming investments of $100 in
shares of common stock of Forum Group on each of March 31, 1989
and April 3, 1992, respectively, and (ii) the quarterly
cumulative total shareholder return on the common stock of Forum
Group since April 3, 1992, assuming an investment of $100 on that
date. In each case, the cumulative shareholder return on the
common stock of Forum Group is compared with the NASDAQ Stock
Market U.S. Index and the NASDAQ Health Services Index.
On February 19, 1991, Forum Group and certain of its
affiliates commenced proceedings under chapter 11 of the
Bankruptcy Code to reorganize and restructure their liabilities,
and on April 2, 1992 Forum Group emerged from bankruptcy pursuant
to the Reorganization Plan. See Item 1, "Business -- Recent
History -- Reorganization Proceedings." All Preconfirmation
Common Shares that were outstanding during the period from
March 31, 1989 through April 2, 1992 (i.e., the date on which
such shares ceased to be quoted on the NASDAQ) were cancelled
pursuant to the Reorganization Plan, and under the Reorganization
Plan new Common Shares were issued to the unsecured creditors of
Forum Group and holders of Preconfirmation Common Shares. Under
the Reorganization Plan, a holder of Preconfirmation Common
Shares who invested $100 in Preconfirmation Common Shares on
March 31, 1989 and made no other investment in Preconfirmation
Common Shares would have received no new Common Shares.
61
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
ON COMMON STOCK BEFORE AND AFTER EMERGENCE FROM BANKRUPTCY WITH THE
NASDAQ STOCK MARKET U.S. INDEX AND THE NASDAQ HEALTH SERVICES INDEX
Measurement Period Forum Group, NASDAQ STOCK NASDAQ HEALTH
Fiscal Year Covered Inc. MARKET U.S. SERVICES
- - ------------------- ------------ ------------ -------------
Preconfirmation
Common Shares
Measurement Point 100 100 100
3/31/89
FYE 3/31/90 54 109 147
FYE 3/31/91 5 124 273
FYE 3/31/92 3 159 371
4/2/92 0 159 371
New Common Shares
Measurement Point 100 100 100
4/3/92
FYE 3/31/93 79 115 98
FYE 3/31/94 171 123 129
COMPARISON OF CUMULATIVE TOTAL RETURN ON NEW COMMON STOCK
BY QUARTER SINCE APRIL 3, 1992, WITH THE NASDAQ STOCK MARKET U.S. INDEX
AND THE NASDAQ HEALTH SERVICES INDEX
Measurement Period Forum Group, NASDAQ STOCK NASDAQ HEALTH
Fiscal Year Covered Inc. MARKET U.S. SERVICES
- - ------------------- ------------ ------------ -------------
Measurement Point 100 100 100
3/31/92
6/30/92 43 93 90
9/30/92 46 97 95
12/31/92 50 113 110
3/31/93 79 115 98
6/30/93 96 117 103
9/30/93 114 127 111
12/31/93 121 129 127
3/31/94 171 123 129
62
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners
-------- ------------------------------------------------
and Management.
- - --------------
Security Ownership of Certain Beneficial Owners
The following table sets forth information as to the
beneficial ownership of each person known to Forum Group as of
July 25, 1994, to own more than 5% of the outstanding Common
Shares.
Name and Address of Amount and Nature Percent of
Beneficial Owner of Beneficial Ownership (1) Class (2)
- - ------------------- --------------------------- ----------
Apollo FG Partners, L.P. 7,068,171 (3) 31.4%
c/o Apollo Advisors, L.P.
1999 Avenue of the Stars,
Suite 1900
Los Angeles, California 90067
Kevin E. Foley 1,202,246 (4) 5.3%
Deputy Superintendent 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. 2,333,219 (5) 10.4%
200 West Madison Street
39th Floor
Chicago, Illinois 60606
Forum Holdings, L.P. 7,068,171 (6) 31.4%
4200 Texas Commerce Tower West
2200 Ross Avenue
Dallas, Texas 75201
Healthcare Resources I, L.P. 2,293,208 (7) 10.2%
184 Shuman Boulevard, Suite 200
Naperville, Illinois 60563
____________________
(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 shareholders' agreement described below,
each of AFG, Forum Holdings and Healthcare Resources may be
deemed to have shared voting power with respect to, and thus to
beneficially own, all of the 16,429,550 Common Shares owned by
such persons in the aggregate (constituting 73.0% of Common
Shares treated as outstanding as described in Note 2 below).
(2) The percentages shown are based on 22,505,869 Common Shares
outstanding. This number includes the 5,760 Common Shares
presently issuable upon exercise of the Investor Warrants, but
excludes 149,607 Common Shares presently issuable at a nominal
purchase price upon the exercise of certain warrants held by the
Warrant Holder and 550,537 Common Shares presently issuable at a
purchase price equal to $3.37 per share (subject to adjustment)
upon the exercise of certain other warrants held by the Warrant
Holder.
(3) According to Amendment No. 5 to a Schedule 13D dated July
12, 1994, and filed with the SEC by AFG. The number of shares
listed includes 2,304 Common Shares presently purchasable by AFG
upon exercise of Investor Warrants. By reason of various
relationships between Messrs. Copses, Ressler and Siegel and AFG
and its affiliates, Messrs. Copses, Ressler and Siegel may be
63
<PAGE>
deemed to beneficially own the Common Shares owned by AFG. Each
of Messrs. Copses, Ressler and Siegel disclaims beneficial
ownership of such shares.
(4) According to a Schedule 13G dated June 17, 1992, and filed
with the SEC by Mr. Foley.
(5) According to a Schedule 13D dated April 8, 1993, and filed
with the SEC, Forum/Classic, L.P. beneficially owned 1,834,246
Common Shares as of such date. Forum Group has been informed
that, since such date, Forum/Classic, L.P. has acquired an
additional 498,973 Common Shares.
(6) According to Amendment No. 10 to a Schedule 13D (the "Forum
Holdings 13D") jointly filed with the SEC by Forum Holdings, HRP
Management II, Ltd., HH Genpar Partners, Hampstead Associates,
Inc., RAW Genpar Inc. and InCap, Inc. (collectively, the "Forum
Holdings Reporting Persons"). The number of shares listed
includes 2,304 Common Shares presently purchasable by Forum
Holdings upon exercise of Investor Warrants. According to the
Forum Holdings 13D, each of the Forum Holdings Reporting Persons
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.
(7) According to Amendment No. 8 to a Schedule 13D dated
December 29, 1993 (the "Healthcare Resources 13D"), and jointly
filed with the SEC by Healthcare Resources, Evergreen Healthcare,
Inc., and EH Resources, Inc. (collectively, the "Healthcare
Resources Reporting Persons"). The number of shares listed
includes 1,152 Common Shares presently purchasable by Healthcare
Resources upon exercise of Investor Warrants. According to the
Healthcare Resources 13D, each of the Healthcare Resources
Reporting Persons may, by reason of certain control
relationships, be deemed to beneficially own all of the Common
Shares owned directly by Healthcare Resources. By reason of
various relationships between Mr. Petty and the Healthcare
Resources Reporting Persons, Mr. Petty may be deemed to
beneficially own the Common Shares owned by the Healthcare
Resources Reporting Persons. Mr. Petty disclaims beneficial
ownership of such shares.
Pursuant to a shareholders' agreement (the "Shareholders'
Agreement") entered into among the FGI Investors, the FGI
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 will consist of eleven persons: (i) three
persons nominated by AFG, (ii) three persons nominated by Forum
Holdings, (iii) one person nominated by Healthcare Resources, and
(iv) four persons acceptable to each of the FGI Investors. The
FGI 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 FGI 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 FGI Investors.
The Shareholders' Agreement provides for the establishment
and maintenance of an executive committee of the Board consisting
of at least three directors, and each of the FGI Investors has
agreed to use its respective best efforts to cause the executive
committee to consist of at least three FGI Investor designees
(consisting of one designee designated by each FGI Investor) and
such additional directors of Forum Group, if any, as shall be
acceptable to each of the FGI Investors.
Subject to certain exceptions, the Shareholders' Agreement
requires that any FGI Investor that desires to sell all or any
portion of its Common Shares must first give notice to the other
FGI 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 FGI Investor exercises its right to purchase
such shares, the FGI 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
FGI Investors to participate in such sale).
64
<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.
Security Ownership of Management
The following table sets forth information with respect to
Common Shares beneficially owned by (i) each director, (i) each
Named Executive, and (iii) all directors and executive officers
of Forum Group as a group. All Common Shares listed below are
beneficially owned directly by the person indicated in the table,
except as noted below.
Amount and
Nature of Beneficial Percent of
Name of Beneficial Owner Ownership Class (1)
- - ------------------------ -------------------- ----------
Robert A. Whitman (2) 0 *
Peter P. Copses (3) 0 *
Daniel A. Decker (2) 0 *
James E. Eden 0 *
Asher O. Pacholder 0 *
William G. Petty (4) 0 *
Antony P. Ressler (3) 0 *
D. Ellen Shuman 0 *
Eric B. Siegel (3) 0 *
Merlin C. Spencer 151 *
George C. Woodard 3,068 (5) *
Paul A. Shively 1,056 *
Robert A. DeVoss 680 *
Davis A. Lewis 330 *
John H. Sharpe 283 *
All directors and executive 7,568 *
officers as a group
____________________
(1) The percentages shown are based on 22,505,869 Common Shares
outstanding. This number includes the 5,760 Common Shares
presently issuable upon exercise of the Investor Warrants, but
excludes 149,607 Common Shares presently issuable at a nominal
purchase price upon the exercise of certain warrants held by the
Warrant Holder and 550,537 Common Shares presently issuable at a
purchase price equal to $3.37 per share (subject to adjustment)
upon the exercise of certain other warrants held by the Warrant
Holder.
(2) 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.
(3) By reason of various relationships between Messrs. Copses,
Ressler and Siegel and AFG and its affiliates, Messrs. Copses,
Ressler and Siegel may be deemed to beneficially own the Common
Shares owned by AFG. Each of Messrs. Copses, Ressler and Siegel
disclaims beneficial ownership of such shares.
(4) By reason of various relationships between Mr. Petty and the
Healthcare Resources Reporting Persons, Mr. Petty may be deemed
to beneficially own the Common Shares owned by the Healthcare
Resources Reporting Persons. Mr. Petty disclaims beneficial
ownership of such shares.
(5) Of the 3,068 Common Shares shown to be owned by Mr. Woodard,
1,272 shares are owned by his spouse. Mr. Woodard disclaims
beneficial ownership of such shares.
* Less than 1%.
65
<PAGE>
Item 13. Certain Relationships and Related Transactions.
------- ----------------------------------------------
1993 Recapitalization
See Item 1, "Business -- Recent History -- The 1993
Recapitalization and Related Events" for a discussion of the
transactions between Forum Group and the FGI Investors in
connection with the 1993 Recapitalization. Pursuant to the
Acquisition Agreement, Forum Group agreed, among other things, to
indemnify the FGI Investors against certain losses arising out of
or in connection with the Acquisition Agreement and actions taken
pursuant thereto and to reimburse the FGI Investors for all fees,
costs and expenses incurred in connection with the Acquisition
Agreement or the transactions contemplated thereby. In
connection with the 1993 Recapitalization, Forum Group also
entered into an Equity Registration Rights Agreement, dated as of
June 14, 1993 (the "Equity Registration Rights Agreement"), with
the purchasers of Common Shares and Investor Warrants and a Debt
Registration Rights Agreement, dated as of June 14, 1993, with
the purchasers of Senior Subordinated Notes, which agreements
provide the security holders party thereto with certain demand
and piggyback registration rights.
See Item 3, "Legal Proceedings -- Forum/Classic Claims" for
a discussion of certain litigation relating to the 1993
Recapitalization.
FRP Recapitalization
See Item 1, "Business -- Recent History -- Forum Partners'
Recapitalization" for a discussion of certain transactions
between Forum Group and the FGI Investors in connection with the
FRP Recapitalization. In connection with the FRP
Recapitalization, the FGI Investors purchased additional Common
Shares. Pursuant to the agreements pursuant to which the FGI
Investors purchased the additional Common Shares and the Equity
Registration Rights Agreement, the FGI Investors have certain
demand and piggyback registration rights with respect to such
shares.
Certain Other Relationships and Transactions
During Forum Group's fiscal year ended March 31, 1994, Forum
Group paid Spencer & Associates, Inc., a corporation of which Dr.
Spencer is the principal, $199,000 for services as a consultant
to Forum Group. Additionally, Dr. Spencer has submitted invoices
to Forum Group for consulting service in the approximate amount
of $37,500 for the period preceding July 1, 1994.
During its fiscal year ended March 31, 1994, Forum Group
paid Mr. Eden $150,000 for services as a consultant to Forum
Group.
See Item 11, "Executive Compensation -- Compensation
Committee Interlocks and Insider Participation" for a discussion
of certain agreements between Forum Group and an affiliate of
Mr. Pacholder.
On February 1, 1994, $30,000,000 aggregate principal amount
of the Senior Subordinated Notes held by certain affiliates of
AFG and the limited partners of Forum Holdings was prepaid by
Forum Group. While under the terms thereof the Senior
Subordinated Notes cannot be prepaid or redeemed by Forum Group
before April 15, 1996, Forum Group was able to obtain the ability
to prepay the $30,000,000 aggregate principal amount of Senior
Subordinated Notes at a price equal to 110% of the principal
amount. This transaction was approved by the Board's Standing
Committee of Independent Directors.
In July 1994, Forum Group paid $750,000 to Forum Holdings in
respect of various general and administrative services provided
to Forum Group by Forum Holdings and its representatives. Such
services include, among others, arranging for and negotiating
Forum Group's debt refinancing which was completed in February
1994 and negotiating the co-investment agreement which was
entered into by Forum Group and National Guest Homes, LLC in July
1994. Services covered by such payment also include
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<PAGE>
Mr. Whitman's services as President and Chief Executive Officer
of Forum Group. The $750,000 payment was approved by the Board's
Standing Committee of Independent Directors.
In 1992, Ms. 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.
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<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:
Page(s)
-------
Independent Auditors' Report (Successor Company) 23
Consolidated Balance Sheets (Successor Company)
- - - March 31, 1994 and 1993 24
Consolidated Statements of Operations (Successor Company)
- - - Years ended March 31, 1994 and 1993 25
Consolidated Statements of Shareholders' Equity (Successor
Company) - Years ended March 31, 1994 and 1993 26
Consolidated Statements of Cash Flows (Successor Company) -
Years ended March 31, 1994 and 1993 27
Notes to Consolidated Financial Statements
(Successor Company) 28 - 40
Independent Auditors' Report (Predecessor Company) 41
Consolidated Statement of Operations (Predecessor Company)
- - - Year ended March 31, 1992 42
Consolidated Statement of Shareholders' Equity (Predecessor
Company) - Year ended March 31, 1992 43
Consolidated Statement of Cash Flows (Predecessor Company)
- - - Year ended March 31, 1992 44
Notes to Consolidated Financial Statements
(Predecessor Company) 45 - 52
2. Financial statement schedules:
-----------------------------
The following other financial statements and financial
statement schedules are filed pursuant to this Item:
Page(s)
-------
Independent Auditors' Report F-1
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters and Employees Other
than Related Parties - Years ended March 31, 1994,
1993 and 1992 F-2
Schedule V - Property, Plant and Equipment -
Years ended March 31, 1994, 1993 and 1992 F-3 - F-4
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant and Equipment
- Years ended March 31, 1994, 1993 and 1992 F-5
Schedule VIII - Valuation and Qualifying Accounts
- Years ended March 31, 1994, 1993 and 1992 F-6
Schedule IX - Short-Term Borrowings - Years
ended March 31, 1994, 1993 and 1992 F-7
Schedule X - Supplementary Income Statement Information
- Years ended March 31, 1994, 1993 and 1992 F-8
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.
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<PAGE>
3. Exhibits. Page(s)
-------- -------
Exhibit 2(1) Debtors' Third Amended and
Restated Joint Plan of
Reorganization, as modified
(incorporated by reference to
Exhibit 2(1) to Forum Group'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 Forum
Group's Current Report on Form 8-K
dated April 2, 1992 (the "April
1992 Form 8-K")) N/A
Exhibit 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) N/A
Exhibit 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 Forum
Group's Current Report on Form 8-K
dated September 10, 1992) N/A
Exhibit 3(1) Restated Articles of
Incorporation of Forum Group, as
amended *
Exhibit 3(2) Amended and Restated Code
of By-Laws of Forum Group, as
amended *
Exhibit 10(1) Warrant Agreement, dated
as of June 10, 1993, by and between
Forum Group and Citicorp USA, Inc.
(incorporated by reference to
Exhibit 4(3) to Forum Group's
Report on Form 10-K for fiscal year
ended March 31, 1993 (the "1992
Form 10-K")) N/A
Exhibit 10(2) Recapitalization
Agreement, dated as of October 6,
1993, between Forum Group and Forum
Partners (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")) N/A
Exhibit 10(3) Stock Purchase Agreement,
dated October 6, 1993, by and among
Forum Group, Forum Holdings and
Apollo FG Partners, L.P.
(incorporated by reference to
Exhibit 10(2) to the October 1993
Form 8-K) N/A
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<PAGE>
Exhibit 10(4) Stock Purchase Agreement,
dated November 16, 1993, by and
between Forum Group and Healthcare
Resources I, L.P. (incorporated by
reference to Exhibit 10(3) to Forum
Group's Registration Statement on
Form S-2 (Registration No. 33-
51251), filed December 31, 1993
(the "FGI Form S-2")) N/A
Exhibit 10(5) Amended and Restated Loan
Agreement, dated as of February 1,
1994, by and among FGI Financing I
Corporation, Nomura and Bankers
Trust Company (incorporated by
reference to Forum Group's
Quarterly Report on Form 10-Q for
the quarter ended December 31, 1993
(the "1993 Third Quarter Form
10-Q") N/A
Exhibit 10(6) Commitment Letter, dated
October 21, 1993, from Nomura to
Forum Group relating to the
Acquisition Loan (incorporated by
reference to Exhibit 10(5) to the
FGI Form S-2) N/A
Exhibit 10(7) Management Agreement,
dated as of December 31, 1986,
among Forum Partners, Forum
Retirement Operations, L.P.
("Operations"), Forum Health
Partners l-A, L.P., Foulk Manor
Associates, L.P. and Forum Group
(incorporated by reference to
Exhibit 10(1) of Forum Partners'
Registration Statement on Form S-2
(Registration No. 33-71498) filed
with the Commission on November 10,
1993 (the "FRP Form S-2")) N/A
Exhibit 10(8) First Amendment to
Management Agreement, dated as of
June 29, 1989 (incorporated by
referenceto Exhibit 10(2) to the
FRP Form S-2) N/A
Exhibit 10(9) Second Amendment to
Management Agreement, dated as of
September 29, 1989 (incorporated by
reference to Exhibit 10(3) to the
FRP Form S-2) N/A
Exhibit 10(10) Third Amendment to
Management Agreement, dated as of
May 27, 1992 (incorporated by
reference to Exhibit 10(4) to the
FRP Form S-2) N/A
Exhibit 10(11) Fourth Amendment to
Management Agreement, dated as of
November 9, 1993 (incorporated by
reference to Exhibit 10(5) to the
FRP Form S-2) N/A
Exhibit 10(12) Forum Group, Inc., 1986
Stock Option Plan (incorporated by
reference to Exhibit 10(11) to the
FGI Form S-2) N/A
Exhibit 10(13) Option Agreement (MLP),
dated as of December 29, 1986,
among Forum Group, Forum Partners
and Operations (incorporated by
reference to Exhibit 2(1) to the
FRP Form S-2) N/A
Exhibit 10(14) Note Purchase Agreement
among Japan Leasing (U.S.A.), Inc.,
Inter-Lease (U.S.A.) Corporation,
Forum Retirement Communities II,
L.P. ("FRCIILP") and Japan Leasing
70
<PAGE>
(U.S.A.), lnc., as agent
(incorporated by reference to
Exhibit 10(1) to Forum Group's
Current Report on Form 8-K dated
May 15, 1989 (the "May 1989 Form
8-K")) N/A
Exhibit 10(15) 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) N/A
Exhibit 10(16) Note Purchase Agreement
among Mitsui Leasing (U.S.A.) Inc.,
BOT Leasing America Inc., Redwood
Properties, Inc., Forum Group,
Forum Retirement Communities I,
L.P. (FRCILP, and Mitsui Leasing
(U.S.A.) Inc., as agent
(incorporated by reference to
Exhibit 10(1) to Forum Group's
Current Report on Form 8-K dated
April 24, 1990 (the "April 1990
Form 8-K")) N/A
Exhibit 10(17) 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) N/A
Exhibit 10(18) Stock Purchase Agreement,
between Forum Holdings and Forum
Group, 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 (the "February
1993 Form 8-K")) N/A
Exhibit 10(19) Agreement in Principle
among Apollo Investment Fund, L.P.
("AIF"), Investors Genpar, Inc.
("(Genpar ), Evergreen Healthcare,
Ltd. ("Evergreen"), and Forum
Group, dated February 1, 1993
(incorporated by reference to
Exhibit 28 to the February 1993
Form 8-K) N/A
Exhibit 10(20) Agreement in Principle
among AIF, Genpar, Evergreen, and
Forum Group, dated April 13, 1993
(incorporateded by reference to
Exhibit 2(1) to Forum Group's
Current Report on Form 8-K dated
April 13, 1993 (the April 1993 Form
8-K")) N/A
Exhibit 10(21) Acquisition Agreement
among AIF, FL Advisors, L.P. 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 Forum Group
dated as of April 18, 1993
(incorporated by reference to
Exhibit 2(2) to the April 1993 Form
8-K) N/A
Exhibit 10(22) Letter Agreement between
Forum Holdings and Forum Group,
dated as of April 18, 1993
(incorporated by reference to
Exhibit 2(3) to the April 1993 Form
8-K) N/A
Exhibit 10(23) Indenture, dated as of
June 1, 1993, between Forum Group,
as Issuer, and First Trust National
Association Trustee, including form
71
<PAGE>
of Senior Subordinated Note (the
"Indenture") (incorporated by
reference to Exhibit 4(1) to the
1992 Form 10-K) N/A
Exhibit 10(24) Amendment to the
Indenture and Notes, dated as of
January 31, 1994 (incorporated by
reference to the 1993 Third Quarter
Form 10-Q) N/A
Exhibit 10(25) Note Purchase Agreement,
dated as of June 14, 1993, among
Forum Group, and the purchasers
parties thereto (incorporated by
reference to Exhibit 4(2) to the
1992 Form 10-K) N/A
Exhibit 10(26) Agreement, dated as of
June 6, 1993, among Forum Group,
AIF, FL Advisors, on behalf of one
or more managed accounts, Lion
Advisors, Genpar, and Evergreen
(incorporated by reference to
Exhibit 2.2 to Forum Group's
Current Report on Form 8-K dated
June 14, 1993 (the "June 1993 Form
8-K") N/A
Exhibit 10(27) Agreement, dated as of
June 14, 1993, among Forum Group,
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) N/A
Exhibit 21 Subsidiaries of Forum Group *
_______________
* Previously filed.
(b) Reports on Form 8-K. There were no
reports on Form 8-K during the last
quarter of the period covered by
this Report.
72
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FORUM GROUP, INC.
By:/s/ Paul A. Shively
-------------------
Paul A. Shively,
Senior Vice President
Date: July 29, 1994
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- - --------- ----- ----
(1) Principal Executive Officer:
/s/Robert A. Whitman Chief Executive Officer July 29, 1994
- - ---------------------
Robert A. Whitman
(2) Principal Financial and
Accounting Officer:
/s/Paul A. Shively Senior Vice President,
- - -------------------- Treasurer, and Chief July 29, 1994
Paul A. Shively Financial Officer
S-1
<PAGE>
Signature Title Date
- - --------- ----- ----
(3) A Majority of the Board of
Directors:
/s/Robert A. Whitman Director July 29, 1994
- - --------------------
Robert A. Whitman
/s/Daniel A. Decker Director July 29, 1994
- - --------------------
Daniel A. Decker
/s/Asher O. Pacholder Director July 29, 1994
- - ---------------------
Asher O. Pacholder
/s/Peter P. Copses Director July 29, 1994
- - ---------------------
Peter P. Copses
/s/Merlin C. Spencer Director July 29, 1994
- - ---------------------
Merlin C. Spencer
/s/George D. Woodard Director July 29, 1994
- - ---------------------
George D. Woodard
/s/Antony P. Ressler Director July 29, 1994
- - ---------------------
Antony P. Ressler
/s/William G. Petty Director July 29, 1994
- - ---------------------
William G. Petty
/s/Eric B. Siegel Director July 29, 1994
- - ---------------------
Eric B. Siegel
/s/James E. Eden Director July 29, 1994
- - ---------------------
James E. Eden
S-2
<PAGE>
Independent Auditors' Report
- - ----------------------------
The Board of Directors and Shareholders
Forum Group, Inc.:
Under date of May 13, 1994, we reported on the consolidated
balance sheets of Forum Group, Inc. and subsidiaries (Successor
Company) as of March 31, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity and
cash flows for each of the years then ended, and the consolidated
statements of operations, shareholders' equity, and cash flows of
Forum Group, Inc. and subsidiaries (Predecessor Company) for the
year ended March 31, 1992, as contained in the annual report on
Form 10-K for the year ended March 31, 1994. 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 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 1 to the consolidated financial statements,
Forum Group's plan of reorganization was confirmed by the U.S.
Bankruptcy Court effective March 31, 1992 for financial reporting
purposes, and 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 periods
prior to the implementation of fresh-start reporting.
/s/KPMG Peat Marwick
Indianapolis, Indiana
May 13, 1994
F-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTORS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FORUM GROUP, INC. AND SUBSIDIARIES
-----------------------------------|-----------------|------------|--------------------------|-----------------------------------|
COL. A | COL. B | COL. C | Col. D | COL. E |
-----------------------------------|-----------------|------------|--------------------------|-----------------------------------|
| | | Deductions | Balance at End of Period |
| | | | |
| | |--------------------------|-----------------|-----------------|
| | | | | | |
| Balance | Additions | Amounts | Amounts | Current | Not |
| at Beginning | | Collected | Written | | Current |
Name of debtor | of Period | | | Off | | |
-----------------------------------|-----------------|------------|--------------------------|-----------------|-----------------|
<S> <C> <C> <C> <C> <C> <C>
SUCCESSOR COMPANY
Year ended March 31, 1994:
Forum Retirement Partners, L.P. $898,000 $904,000 $194,000 $0 $1,071,000 $537,000
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
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FORUM GROUP, INC AND SUBSIDIARIES
-----------------------------------|-----------------|-----------------|-----------------|---------------------| -----------------
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> <C>
SUCCESSOR COMPANY
Year ended March 31, 1994
Land and improvements $43,042,000 $43,000 $0 ($8,580,000) (2) $34,505,000
Buildings and leasehold
improvements 262,042,000 1,319,000 0 (87,152,000) (2) 176,209,000
Furniture and equipment 14,246,000 849,000 0 (2,049,000) (2) 13,046,000
--------------- --------------- --------------- --------------- ---------------
TOTALS $319,330,000 $2,211,000 $0 ($97,781,000) $223,760,000
=============== =============== =============== =============== ===============
Year ended March 31, 1993:
Land and improvements $43,084,000 $62,000 $0 ($104,000) (3) $43,042,000
Buildings and leasehold
improvements 249,548,000 3,985,000 0 8,509,000 (4) 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) (5) 0
Projects under development and
construction 8,537,000 0 28,000 (8,509,000) (4) 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 (4)(6) $43,084,000
(7)
Buildings and leasehold
improvements 287,691,000 609,000 808,000 (37,944,000)(4)(6) 249,548,000
(7)
Furniture and equipment 21,829,000 583,000 2,121,000 (8,650,000)(6)(7) 11,641,000
Properties under sales commitment 0 0 0 36,723,000 (7) 36,723,000
Projects under development and
construction 59,922,000 34,246,000 0 (85,631,000)(4)(6) 8,537,000
--------------- --------------- --------------- --------------- ---------------
TOTALS $411,169,000 $35,475,000 $2,929,000 ($94,182,000) $349,533,000
=============== =============== =============== =============== ===============
<PAGE>
F-3
<FN>
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 - Represents deconsolidation of Rancho San Antonio Retirement Housing Corporation.
Note 3 - Amortization of prepaid land lease.
Note 4 - Transfer (from) construction in progress.
Note 5 - Sale of property.
Note 6 - Includes reductions in carrying values and adjustments for fresh-start reporting.
Note 7 - Transfer to properties under sales commitment.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
FORUM GROUP, INC AND SUBSIDIARIES
-----------------------------------|-----------------|-----------------|-----------------|---------------------|-----------------
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, 1994:
Land improvements $34,000 $34,000 $0 ($1,000) (1) $67,000
Buildings and leasehold
improvements 7,280,000 5,311,000 0 (3,571,000) (1) 9,020,000
Furniture and equipment 1,479,000 1,366,000 0 (332,000) (1) 2,513,000
--------------- --------------- --------------- --------------- ---------------
TOTALS $8,793,000 $6,711,000 $0 ($3,904,000) $11,600,000
=============== =============== =============== =============== ===============
Year ended March 31, 1993:
Land 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 improvements $182,000 $60,000 $0 ($242,000) (2) $0
Buildings and leasehold
improvements 15,374,000 8,406,000 700,000 (23,080,000) (2) 0
Furniture and equipment 5,492,000 2,196,000 1,760,000 (5,928,000) (2) 0
--------------- --------------- --------------- --------------- ---------------
TOTALS $21,048,000 $10,662,000 $2,460,000 $0 $0
=============== =============== =============== =============== ===============
<FN>
Note 1. Represents deconsolidation of Rancho San Antonio Retirement Housing Corporation.
Note 2. Fresh-start adjustments.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FORUM GROUP, INC. AND SUBSIDIARIES
-----------------------------------|-----------------|-----------------------------------|---------------------|-----------------
COL. A | COL. B | COL. C | COL. D | COL. E
-----------------------------------|-----------------|-----------------------------------|---------------------|-----------------
| | Additions | |
| |-----------------|-----------------| |
| | (1) | (2) | |
| Balance | Charged to | Charged to | | Balance
| at Beginning | Costs and |Other Accounts - | Deductions - | at End
Description | of Period | Expenses | Describe | Describe | of Period
-----------------------------------|-----------------|-----------------|-----------------|---------------------|-----------------
<S> <C> <C> <C> <C> <C> <C>
SUCCESSOR COMPANY
Year ended March 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts
receivable and contractual
adjustments ($488,000) $301,000 $0 $243,000 (1) ($430,000)
Deferred tax asset valuation
allowance 35,552,000 2,372,000 0 0 37,924,000
--------------- --------------- --------------- --------------- ---------------
TOTALS $35,064,000 $2,673,000 $0 $243,000 $37,494,000
=============== =============== =============== =============== ===============
Year ended March 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts
receivable and contractual
adjustments ($598,000) $264,000 $0 $154,000 (1) ($488,000)
Deferred tax asset valuation
allowance (100,000) 0 0 0 35,552,000
--------------- --------------- --------------- --------------- ---------------
TOTALS ($698,000) $264,000 $0 $154,000 $35,064,000
=============== =============== =============== =============== ===============
PREDECESSOR COMPANY
Year ended March 31, 1992:
Deducted from asset accounts:
Allowance for doubtful accounts
receivable and contractual
adjustments $0 $55,000 $0 $653,000 (1) ($598,000)
Allowance for loss on disposal
of land 0 0 0 100,000 (2) (100,000)
--------------- --------------- --------------- --------------- ---------------
TOTALS $0 $55,000 $0 $753,000 ($698,000)
=============== =============== =============== =============== ===============
<FN>
Note 1. Uncollectible accounts receivable charged off, less recoveries and contractual adjustments of revenues.
Note 2. Fresh-start adjustment.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IX - SHORT TERM BORROWINGS
FORUM GROUP, INC AND SUBSIDIARIES
-----------------------------------|-----------------|-----------------|-----------------|---------------------|-----------------
COL. A | COL. B | COL. C | COL. D | COL. E | COL. F
-----------------------------------|-----------------|-----------------|-----------------|---------------------|-----------------
| Balance | | Maximum Amount | Average Amount |Weighted Average
Category of Aggregate | at End |Weighted Average | Outstanding | Outstanding | Interest Rate
Short-Term Borrowings | of Period | Interest Rate |During the Period| During the Period |During the Period
-----------------------------------|-----------------|-----------------|-----------------|---------------------|-----------------
<S> <C> <C> <C> <C> <C>
SUCCESSOR COMPANY
Year ended March 31, 1994:
None $0 N/A N/A N/A N/A
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 (1) $0 N/A $22,240,000 $22,240,000 7.35%
<FN>
Note 1 - The secured bridge loan was replaced with a term loan as provided in the reorganization plan.
Note 2 - The average amount outstanding during the period was computed by dividing the total of monthly outstanding
principal balances by 12.
Note 3 - The weighted average interest rate during the period was computed by dividing the actual interest expense
by average short-term debt outstanding.
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FORUM GROUP, INC. AND SUBSIDIARIES
-----------------------------------|------------------------------------
COL. A | COL. B
-----------------------------------|------------------------------------
Item | Charged to costs and expenses
-----------------------------------|------------------------------------
Year Ended March 31
------------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
------------------------ ----------
1994 1993 1992
------------------------------------
<S> <C> <C> <C>
Depreciation - property & equipment $6,711,000 $8,793,000 $10,662,000
Taxes other than income:
Payroll 3,215,000 3,096,000 3,187,000
Property and general 3,190,000 3,576,000 3,874,000
Rent 1,051,000 1,012,000 2,530,000
Advertising 906,000 964,000 1,400,000
<FN>
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 total revenues.
There were no royalties in 1994, 1993 or 1992.
<PAGE>
</TABLE>
