<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
Commission File Number: 1-9302
FORUM RETIREMENT PARTNERS, L.P.
11320 Random Hills Road
Fairfax, Virginia 22030
Telephone: (703) 277-7000
Organized in Delaware I.R.S. No.35-1686799
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- ----------------------
Preferred Depository Units American Stock Exchange
Representing Preferred Limited
Partners' Interests
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment to this form 10-K. [X]
There were 15,285,248 Preferred Depository Units outstanding as of March 13,
1996.
The aggregate market value of the voting stock held by non-affiliates of the
registrant (EXCLUDING UNITS OWNED BY THE REGISTRANT'S GENERAL PARTNER OR ITS
AFFILIATES) WAS $14,056,000 AS OF MARCH 13, 1996.
There are 36 pages in this Report. The financial statement and exhibit indices
are located at pp. 34-36.
<PAGE>
PART I
FORWARD-LOOKING STATEMENTS
When used throughout this report, the words "believes," "anticipates," and
"expects" and similar expressions, are intended to identify forward-looking
statements. Such statements are subject to a number of risks and uncertainties
which could cause actual results to differ materially from those projected,
including: competition with other retirement communities, the balance between
supply of and demand for retirement communities, the Partnership's ability to
timely effect its planned expansion program on current and anticipated terms,
including sufficiency of cash flow from operations to finance the expansion (or
the availability of borrowings if necessary) and timely receipt of zoning and
other governmental approvals, potential changes in Medicaid and/or Medicare
reimbursement levels or criteria, potential changes in the regulatory
environment applicable to retirement communities and related healthcare
services, the effect of national and regional economic conditions and other
risks described from time to time in the Partnership's filings with the
Securities and Exchange Commission, including those set forth on Exhibit 99
attached hereto. Given these uncertainties, readers are cautioned not to place
undue reliance on such statements. The Partnership also undertakes no obligation
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
ITEM 1. BUSINESS.
Forum Retirement Partners, L.P. (the "Partnership") is a Delaware limited
partnership that was formed in 1986 to own retirement communities ("RC's")
originally developed or acquired by Forum Group, Inc., ("Forum Group"). Forum
Group beneficially owns 79.0% of the outstanding depository units representing
limited partners' interests in the Partnership ("Preferred Depository Units" or
"Units"). Forum Group is also the parent corporation of Forum Retirement, Inc.,
the general partner of the Partnership (the "General Partner").
The Partnership has initiated an expansion program relating to certain of
its properties in an effort to further improve the Partnership's results of
operations. One expansion project has been completed, three expansion projects
have commenced, an additional five expansion projects are expected to commence
by late 1996 and an additional five expansion projects are expected to commence
after 1996. The four projects as to which construction has been commenced or
completed are expected to increase the number of living units owned by the
Partnership by approximately 4% at a budgeted capital cost of $3.7 million and
the five additional projects expected to commence by late 1996 are expected to
increase the Partnership's number of units by an additional 7% at an expected
capital cost of $6.4 million. The expansions are designed to modify the uses of
or add capacity to existing facilities without incurring substantial land
acquisition and common area build-out costs. The expansions that have not yet
commenced will require additional regulatory approvals.
The Partnership presently intends to finance the planned expansion of its
existing retirement communities out of the Partnership's cash flow from
operations. If cash flow from operations is insufficient to complete such
expansion on a timely basis, the expansion may be delayed, reduced in scope or
discontinued. In that event, the partnership may seek to obtain financing from
Forum Group or the General Partner, although they have no obligation to provide
any such financing. The terms of the Partnership's long-term debt restrict the
ability of the Partnership to obtain third-party financing (other than from
Forum Group or the General Partner, on an unsecured, subordinated
2
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basis) above $1 million in the aggregate, and prohibit the imposition of liens
on the Partnership's assets. There can be no assurance that a waiver can be
obtained from the lender to permit any third-party financing, or whether, when
and on what terms any such financing may be available.
On February 15, 1996, Forum Group, Marriott International, Inc. and a
subsidiary thereof (collectively, "Marriott") entered into an Agreement and Plan
of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, Marriott
completed a tender offer for the shares of Forum Group on March 23, 1996. On
March 25, 1996, Marriott purchased over 99.1% of the outstanding common stock of
Forum Group, following which Marriott designated six persons to the nine member
Board of Directors of Forum Group. Marriott has informed Forum Group that it has
no present plans to cause the General Partner to materially change the
Partnership's current operations, although it necessarily reserved the right to
propose such changes as it deems appropriate in the future.
ITEM 2. PROPERTIES.
The Partnership (through an operating limited partnership in which the
Partnership is the 99% limited partner and the General Partner is the 1% general
partner) owns RC's in Delaware (4), Florida, New Mexico, South Carolina and
Texas (2) (collectively, the "Properties"). All of the Properties are managed by
Forum Group pursuant to a management agreement entered into in 1986 in
connection with the formation of the Partnership under which Forum Group acts as
manager (the "Management Agreement").
Seven of the nine RC's are comprised of an independent living component and
a nursing component, and each Property, except the Millcroft and Shipley Manor
RC's, also includes an assisted living component. The Foulk Manor and Myrtle
Beach Manor RC's each consist of an assisted living component and a nursing
component, but do not contain an independent living component.
Independent living components contain 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 upon
demand 24 hours a day from on-site staff, and each independent living unit is
equipped with an emergency call system. The independent living components of the
Properties consist of apartments and, in the case of Foulk Manor North, villas.
Independent living unit residency fees presently range from $1,000 to $3,790 per
month, depending on the unit size and location of the RC. Each apartment and
villa resident enters into a residency agreement that may be terminated by the
resident on short notice. Although there can be no assurance that available
independent living units will be reoccupied as residency agreements expire or
are terminated, since 1988 at least 80% of the residents of the apartments and
villas have renewed their residency agreements from year to year.
Assisted living components provide a supportive 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 $79 to $132 per day.
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Nursing components provide 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 Property is entitled to priority admission in the assisted living
(if any) or nursing component. The charge for a private nursing room presently
ranges from $65 to $170 per day.
The Properties also provide ancillary healthcare services, including the
operation of an adult day care center on the premises of one RC.
The following table indicates the name, location and current capacity for each
property:
<TABLE>
<CAPTION>
CAPACITY
--------
TOTAL
INDEPENDENT ASSISTED UNITS/
LIVING LIVING NURSING SUITES/
NAME AND LOCATION UNITS SUITES BEDS BEDS
- ----------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
The Forum at Lincoln Heights 151 30 60 241
San Antonio, Texas
Foulk Manor -0- 51 57 108
Wilmington, Delaware
Foulk Manor North 58 11 46 115
Wilmington, Delaware
Millcroft 62 -0- 100 162
Newark, Delaware
The Montebello on Academy 114 15 60 189
Albuquerque, New Mexico
The Montevista at Coronado 123 15 109 247
El Paso, Texas
Myrtle Beach Manor -0- 68 85 153
Myrtle Beach, South Carolina
The Park Summit of Coral Springs 204 20 35 259
Coral Springs, Florida
Shipley Manor 62 -0- 82 144
Wilmington, Delaware
</TABLE>
The overall average occupancy rate for the Properties for calendar year
1995 was 93.7%. 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 competing facilities.
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MORTGAGES
On December 28, 1993 the Partnership entered into a loan agreement with
Nomura Asset Capital Corporation ("Nomura") pursuant to which Nomura provided
approximately $50,707,000 in new financing (the "Nomura Loan"). The proceeds of
the Nomura Loan were used to prepay the remaining balances of certain of the
Partnership bank debt scheduled to mature on December 31, 1993 and to prepay the
Partnership's split coupon first mortgage notes due July 1, 1996, to pay fees
and expenses related to the financing and to fund reserves. The Nomura Loan is
secured by first priority mortgages on the Partnership's nine RC's and by
security interests in substantially all of the Partnership's other assets. For a
description of the principal terms of the Nomura Loan, see Note 3 of Notes to
Consolidated Financial Statements under Item 8.
The principal amount outstanding under the Nomura Loan at December 31,
1995 was $49.0 million, and borrowings bear interest at 9.93% per annum. See
"Item 1 - Business" and Note 3 of Notes to Consolidated Financial Statements at
Item 8 herein for additional information regarding the Nomura Loan.
DEPRECIATION
The aggregate net federal tax basis of the Properties as of December 31,
1995 was $58.1 million for real property and $3.6 million for personal property.
SOURCES OF PAYMENT
The independent and assisted living components of the Properties receive
direct payment for resident occupancy solely on a private pay basis. The nursing
components of the Properties 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
financially qualified residents. The following table indicates the approximate
percentages of operating revenues for each of the last five years derived by the
Partnership from private sources, and from Medicare and Medicaid:
INDEPENDENT AND ASSISTED LIVING COMPONENTS
------------------------------------------
<TABLE>
<CAPTION>
SOURCE 1995 1994 1993 1992 1991
- ------ ------------------------------------
<S> <C> <C> <C> <C> <C>
Private 100% 100% 100% 100% 100%
Medicare/Medicaid -0- -0- -0- -0- -0-
------------------------------------
Total 100% 100% 100% 100% 100%
------------------------------------
</TABLE>
NURSING COMPONENTS
------------------
<TABLE>
<CAPTION>
SOURCE 1995 1994 1993 1992 1991
- ------ ------------------------------------
<S> <C> <C> <C> <C> <C>
Private 65% 65% 69% 72% 77%
Medicare/Medicaid 35% 35% 31% 28% 23%
------------------------------------
Total 100% 100% 100% 100% 100%
------------------------------------
</TABLE>
5
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<TABLE>
<CAPTION>
TOTAL RC'S
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SOURCE 1995 1994 1993 1992 1991
- ------ ------------------------------------
<S> <C> <C> <C> <C> <C>
Private 82% 82% 85% 86% 89%
Medicare/Medicaid 18% 18% 15% 14% 11%
------------------------------------
Total 100% 100% 100% 100% 100%
------------------------------------
</TABLE>
Most private insurance carriers reimburse their policyholders, or make
direct payment to facilities, for covered services at rates established by the
facilities. Where applicable, the resident is responsible for any difference
between the insurance proceeds and the total charges. In certain states, Blue
Cross plans pay for covered services at rates negotiated with facilities. In
other states, Blue Cross plans are administered under contracts with facilities
providing for payment under formulae based on the cost of services. The Medicare
program also makes payment under a cost-based reimbursement formula. Under the
Medicaid program, each state is responsible for developing and administering its
own reimbursement formula.
Within the statutory framework of the Medicare and Medicaid programs, there
are substantial areas subject to administrative rulings, interpretations and
discretion which affect payments made under those programs. In addition, the
federal and state governments might reduce the funds available under those
programs in the future or require more stringent utilization of healthcare
facilities. Those measures could adversely affect the Partnership's future
revenues and, therefore, the value of the Properties.
Various legislative and industry groups are studying numerous healthcare
issues, including access, delivery, and financing of long-term healthcare, 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 effect on the Partnership.
REGULATION AND OTHER FACTORS
Healthcare facility 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 being 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. Requirements for licensure
of assisted living components are generally less comprehensive and stringent
than requirements for licensure of nursing facilities. Most states do not have
licensure requirements for the independent living components of RC's. The
Properties are presently in substantial compliance with all applicable federal,
state and local regulations with respect to licensure requirements. However,
because those requirements are subject to change, there can be no assurance that
the Properties will be able to maintain their licenses upon a change in
standards, and future changes in those standards could necessitate substantial
expenditures by the Partnership to comply therewith.
6
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COMPETITION
The Properties compete with facilities of varying similarity in the
respective geographical market areas in which the Properties are located.
Competing facilities are operated on a national, regional, and local basis by
religious groups and other nonprofit organizations, as well as by private
operators, some of which have substantially greater resources than the
Partnership. The independent living components of the Properties face
competition from all the various types of residential opportunities available to
the elderly. However, the number of RC's that offer on-premises healthcare
services is limited. The assisted living and nursing components of the
Properties compete with other assisted living and nursing facilities. Because
the target market segment of the Properties (i.e., full-service RC's) is
relatively narrow, the risk of competition may be higher than with some other
types of RC's, and assisted living and nursing facilities, developed in close
proximity to them.
Significant competitive factors for attracting residents to the independent
living components of the Properties include price, physical appearance, and
amenities and services offered. Additional competitive factors for attracting
residents to the assisted living and nursing components of the Properties
include quality of care, reputation, physician and nursing services available,
and family preferences. The Partnership believes that its RC's rate high in each
of these categories, except that its RC's are generally more expensive than
competing facilities.
INSURANCE
The Partnership maintains professional liability, comprehensive general
liability, and other typical insurance coverage on all its RC's. The Partnership
believes that its insurance is adequate in amount and coverage.
OPTION AGREEMENT
Pursuant to an option agreement (the "Option Agreement") entered into at
the time of the Partnership's formation, Forum Group has the option to purchase,
for a price equal to the appraised fair market value thereof, any RC which the
Partnership determines to sell. Accordingly, consummation of any transaction to
sell any of the Properties would be subject to, among other limitations, the
election of Forum Group not to exercise such option. Under the Option Agreement,
the Partnership has an option, subject to certain limitations and restrictions,
to purchase up to 15 additional RC's developed by Forum Group or any wholly
owned (or in certain circumstances partly owned) affiliate of Forum Group at the
lower of the appraised value of the RC or the sum of 115% of the costs incurred
in connection with development of the RC and an amount equal to net operating
losses incurred between completion and the purchase.
EMPLOYEES
---------
The Partnership had approximately 1,200 employees at March 22, 1996.
-----
The Partnership believes relations with employees are good.
ITEM 3. LEGAL PROCEEDINGS.
On January 24, 1994, The Russell F. Knapp Revocable Trust (the "Plaintiff")
filed a complaint (the "Iowa Complaint") in the United States District Court for
the Northern District of Iowa (the "Iowa Court") against the General Partner
alleging breach of the Partnership Agreement, breach of fiduciary duty, fraud,
and civil conspiracy. The Plaintiff subsequently amended the Iowa Complaint,
adding Forum Group as a defendant. The Iowa Complaint alleged, among other
things, that the Plaintiff holds a substantial number of Units, that the Board
of Directors of the General Partner is not comprised of a majority of
independent directors as
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required by the Partnership Agreement and as allegedly represented in the
Partnership's 1986 Prospectus for its initial public offering, and that the
General Partner's Board of Directors has approved and/or acquiesced to an 8%
management fee charged by Forum Group under the Management Agreement. The Iowa
Complaint further alleged that the "industry standard" for such fees is 4%,
thereby resulting in an "overcharge" to the Partnership estimated by the
Plaintiff at $1.8 million per annum beginning in 1994. The Plaintiff sought the
restoration of certain former directors to the Board of Directors of the General
Partner and the removal of certain other directors from the Board, an injunction
prohibiting the payment of an 8% management fee, and unspecified compensatory
and punitive damages. On April 4, 1995, the District Court entered an order
dismissing the Iowa Complaint on jurisdictional grounds. Although the Plaintiff
filed a notice of appeal of the Iowa Court's ruling, it subsequently dismissed
this appeal.
On June 15, 1995, the Plaintiff filed a complaint (the "Indiana Complaint")
in the United States District Court for the Southern Distrit of Indiana (the
"Indiana Court") against the General Partner and Forum Group containing
essentially the same allegations asserted in the Iowa Complaint, and seeking
essentially the same relief. The defendants moved to dismiss the Indiana
Complaint for failure to state a claim for which relief could be granted and, in
response, on December 11, 1995 the Plaintiff amended the Indiana Complaint. The
defendants have also moved to dismiss the amended complaint on similar grounds.
The parties are awaiting the Indiana Court's ruling.
The General Partner intends to vigorously defend against this litigation.
The Partnership, in accordance with the Management Agreement, reimbursed the
General Partner for $89,000 and $146,000 of litigation costs relating to this
claim in 1995 and 1994, respectively.
See "Item 7 - Management's Discussion and Analysis of Financial Condition
---
and Results of Operation" for further discussion of the Management Agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of 1995 to a vote of
security holders.
8
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PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED UNITHOLDER
MATTERS.
(a) MARKET INFORMATION. The principal United States market in which Units
------------------
are being traded is the American Stock Exchange (symbol: FRL).
The high and low sales prices for Units for each full quarterly period within
the two most recent fiscal years, as reported in the consolidated transaction
reporting system, were as follows:
<TABLE>
<CAPTION>
1994 High Low
---- ---- ---
<S> <C> <C>
Quarter ended March 31, 1994 $2-7/8 2
Quarter ended June 30, 1994 $2-3/4 1-5/8
Quarter ended September 30, 1994 $2-3/4 1-7/8
Quarter ended December 31, 1994 $2-7/8 2-1/4
</TABLE>
<TABLE>
<CAPTION>
1995 High Low
---- ---- ---
<S> <C> <C>
Quarter ended March 31, 1995 $2-1/2 2-1/16
Quarter ended June 30, 1995 $2-1/4 2-1/16
Quarter ended September 30, 1995 $2-3/8 1-7/8
Quarter ended December 31, 1995 $2-7/8 2-3/8
</TABLE>
(b) HOLDERS. The approximate number of record holders of Preferred
Depository Units as of March 13, 1996, was 436.
(c) DIVIDENDS. The Partnership has not made any distributions on Preferred
Depository Units for the last five years. The Partnership intends to invest its
excess cash flow in its expansion program and does not expect to make
distributions on Preferred Depository Units in the forseeable future. There
necessarily can be no assurance as to whether or when, or at what level, any
future cash distributions to holders of Units will be made. See "Item 1 -
Business" for a discussion of possible cash needs for expansions of the
Partnership's RC's.
9
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
(in thousands except per Unit amounts)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands except per Unit amounts)
<S> <C> <C> <C> <C> <C>
Total revenues $49,824 $47,333 $44,176 $41,950 $43,101
Income (loss) before
extraordinary charge 297 317 (1,762) (6,112) (23,431)
Extraordinary charge - early
extinguishment of debt -0- -0- (2,917) -0- -0-
Net income (loss) 297 317 (4,679) (6,112) (23,431)
General Partners' interest in
net income (loss) 3 3 (47) (61) (234)
Limited Partners' interest in
net income (loss) 294 314 (4,632) (6,051) (23,197)
Average number of Units
outstanding 15,285 15,285 10,317 8,785 8,785
Income (loss) per limited
partner Unit:
Income (loss) before
extraordinary charge 0.02 0.02 (0.17) (0.69) (2.64)
Extraordinary charge -0- -0- (0.28) -0- -0-
Net income (loss) 0.02 0.02 (0.45) (0.69) (2.64)
Total assets 110,610 111,163 110,480 109,767 127,945
Long-term obligations 47,984 49,007 49,934 34,070 49,423
Partner's Equity 38,909 38,612 38,386 30,187 36,299
Cash distributions declared:
Per Unit - - - - -
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
INTRODUCTION. At December 31, 1995 and 1994, the Partnership owned nine RC's,
- ------------
all of which were managed by Forum Group. The Partnership reported net income of
$297,000 for the year ended December 31, 1995 compared to $317,000 for 1994.
Total revenues for the year ended December 31, 1995 increased $2,491,000, or
5.3%, to $49,824,000 compared to 1994. Total revenues consist primarily of
routine service and ancillary service revenues. Routine service revenues are
generated from monthly charges for independent living units and daily charges
for assisted living suites and nursing beds, and are recognized monthly based on
the terms of the residents' agreements. Ancillary service revenues are generated
on a "fee for service" basis for supplementary items requested by residents, and
are recognized as the services are provided.
The combined average monthly rental rate per occupied unit increased
approximately 5% from 1994 to 1995, with substantially all of the nine
communities experiencing increases. Combined average occupancy at the nine RC's
was 93.7% for the twelve-month period ended December 31,
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1995, a decrease of approximately 0.1% compared to the same period in 1994. The
decrease was primarily the result of two communities which experienced occupancy
declines of 3.4% and 3.2%, respectively, with the remaining seven communities
experiencing occupancy increases ranging from 0.3% to 6.9% from 1994 to 1995.
In light of the large and growing segment of the U.S. population which is
75 years of age and older and the relatively low levels of construction of new
RCs and other competitive properties during the 1990's compared to the high
levels of RC and other real estate construction and development in the 1980's,
management of the Partnership presently expects to maintain occupancy levels and
to increase billing rates and, therefore, expects net operating income to
increase, although there necessarily can be no assurance with respect thereto.
The Partnership has not made any distributions on its Units in the past
five years. Although the increased level of expansion activity was the primary
cause of a decrease in cash and cash equivalents of the Partnership in 1995, the
Partnership believes that operating results can be expected to improve as a
result of the expansion program. Furthermore, the Partnership believes that it
can continue to sustain high levels of occupancy at the communities while
enhancing operating margins and performance at its communities. There
necessarily can be no assurance that operating results will improve or as to
whether or when, or at what levels, any distributions will be made.
Implementation of the Partnerships' expansion plan will affect the Partnership's
levels of distributable cash, if any. See "Item 1- Business" for a discussion of
the Partnership's expansion efforts.
TWELVE MONTHS ENDED DECEMBER 31, 1995 AND 1994. Routine and ancillary
- ----------------------------------------------
revenues increased $2,400,000, or 5.1%, to $49,486,000 over the comparable
period last year. The revenue increase is primarily the result of increases in
residency fees and charges in the independent living and assisted living
component, higher than average occupancy at a majority of the RC's, significant
increases in the provision of ancillary healthcare services and a favorable net
Medicare settlement of $46,000 in 1995 and an unfavorable net Medicare
settlement of $196,000 in 1994 for the comparable period. These revenue
increases were partially offset by a revenue decrease at an RC which experienced
a decrease in occupancy and relatively flat residency fees and charges. A second
RC also experienced a decline in occupancy in 1995, but reflected increased
revenues as a result of the provision of a significantly higher level of
ancillary services.
Routine expenses and ancillary costs increased $2,561,000, or 7.6%, to
$36,073,000 compared to the same period last year. The higher costs and
expenses resulted primarily from the increased provision of ancillary
healthcare services, higher levels of average occupancy at seven of the nine
RC's and normal inflationary and other operational increases in other expenses.
The higher occupancy rates principally impact the costs associated with the
higher level of nursing, therapy, housekeeping and dining services required by
these residents. Additionally, favorable adjustments to worker's compensation
insurance costs of $229,000 and $786,000 in 1995 and 1994, respectively,
contributed to the increase in costs on a period-to-period comparative basis.
11
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Adjusted for the non-comparable items noted above, Net Operating Income ("NOI"),
calculated as routine and ancillary revenues ("operating revenues") less routine
and ancillary expenses ("operating expenses") and management fees, decreased
$40,000, or .4%, to $9,177,000 and the operating margin (operating revenues less
operating expenses) as a percentage of operating revenues decreased from 27.6%
in 1994 to 26.5% in 1995. The operating performance of the Partnership was
adversely affected by the significant under-performance at a certain RC which
experienced only marginal increases in residency fees and charges while
experiencing a decrease in occupancy. Excluding the effect of this RC, operating
margins as a percentage of operating revenues increased from 27.8% in 1994 to
28.5% in 1995.
Management fees increased as a function of revenue. Depreciation and
amortization increased as a result of current and prior year additions to
property and equipment. Total interest expense for the year ended December 31,
1995 decreased by $123,000 compared to total interest expense for 1994, due
primarily to a reduction in the principal amount of long-term debt.
Pursuant to the terms of the Management Agreement as in effect since the
Partnership's formation in 1986, management fees (based on the Partnership's
gross operating revenues) payable to Forum Group for all periods prior to 1994
have been deferred. Fees accruing after January 1, 1994 have been paid on a
current basis. The deferred management fees were expensed in the Partnership's
statements of operations and reflected on a deferred basis in the Partnership's
balance sheets for the relevant periods. Accordingly, except for changes in
management fees payable resulting from variations in revenue levels, the current
payment of such fees for periods after January 1, 1994 had a comparable impact
on the Partnership's operating and net income as compared to prior periods,
although it did affect the Partnership's cash position commencing in 1994.
TWELVE MONTHS ENDED DECEMBER 31, 1994 AND 1993. Routine and ancillary revenues
- ----------------------------------------------
for the year ended December 31, 1994 increased by $3,289,000, or 8.0%, compared
to operating revenues for 1993. This increase is primarily attributable to
increases in occupancy, residency fees and charges, and increases in the
provision of ancillary healthcare services.
A change in the estimate of amounts reimbursable by third party payors from
prior years resulted in the recognition of $210,000 and $379,000 of additional
operating revenues for 1994 and 1993, respectively.
Routine and ancillary expenses for the year ended December 31, 1994 increased by
$1,242,000, or 4.0%, compared to those combined expenses for the same period of
1993. This increase was principally attributable to changes in occupancy,
increased provision of ancillary healthcare services, and normal inflationary
increases in other operating expenses, as partially offset by a reduction of
$786,000 for the year ended December 31, 1994, due to a reduction in workers'
compensation insurance costs.
Management fees increased as a function of revenue. Depreciation and
amortization increased as a result of current and prior year additions to
property and equipment. Total interest expense for the year ended December 31,
1994 decreased by $722,000 compared to total interest expense for 1993, due
primarily to a reduction in the principal amount of long-term debt.
12
<PAGE>
INCOME TAXES. The Omnibus Budget Reconciliation Act of 1987 provides that
- ------------
certain publicly traded partnerships will be treated as corporations for federal
income tax purposes. A grandfather provision delays corporate tax status until
1998 for publicly traded partnerships in existence prior to December 18, 1987.
On August 8, 1988, the General Partner was authorized by the limited partners to
do all things deemed necessary or desirable to insure that the Partnership is
not treated as a corporation for federal income tax purposes. Alternatives
available to avoid corporate taxation after 1998 include: (i) selling or
otherwise disposing of all or substantially all of the Partnership's assets
pursuant to a plan of liquidation and (ii) converting the Partnership into a
real estate investment trust or other type of legal entity. Such actions are
prohibited or restricted under the Nomura Loan and may require the granting of a
waiver by the lender thereunder. There can be no assurance that any such waiver
would be granted. There can be no assurance that the Partnership will avoid
being taxed as a corporation for federal income tax purposes.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES. At December 31, 1995, the Partnership had
- -------------------------------
cash and cash equivalents of $2,960,000, accounts receivable of $3,057,000 and
current liabilities of $7,708,000. The Partnership believes that it has
adequate liquidity to meet its foreseeable working capital requirements.
The Partnership has initiated an expansion program relating to certain of its
properties in an effort to further improve the Partnership's results of
operations. One expansion project has been completed, three expansion projects
have commenced, an additional five expansion projects are expected to commence
by late 1996, and an additional five expansion projects are expected to commence
after 1996. The four projects as to which construction has been commenced or
completed are expected to increase the number of living units owned by the
Partnership by approximately 4% at a budgeted capital cost of $3.7 million, and
the five additional projects expected to commence by late 1996 are expected to
increase the Partnership's number of units by an additional 7% at an expected
capital cost of $6.4 million. The expansions are designed to modify the uses of
or add capacity to existing facilities without incurring substantial land
acquisition and common area build-out costs. The expansions that have not yet
commenced will require additional regulatory approvals.
The Partnership presently intends to finance the planned expansion of its
existing retirement communities out of the Partnership's cash flow from
operations. If cash flow from operations is insufficient to complete such
expansion on a timely basis, the expansion may be delayed, reduced in scope or
discontinued. In that event, the Partnership may seek to obtain financing from
Forum Group or the General Partner, although they have no obligation to provide
any such financing. The Nomura Loan restricts the ability of the Partnership to
obtain third-party financing (other than from Forum Group or the General
Partner, on an unsecured, subordinated basis) above $1 million in the aggregate,
and prohibits the imposition of liens on the Partnership's assets. There can be
no assurance that a waiver can be obtained from the lender to permit any third-
party financing, or whether, when and on what terms any such financing may be
available.
13
<PAGE>
The implementation of the expansion program and its impact on the value of an
investment in the Partnership is subject to a number of variables, including
without limitation the cost and availability of any required financing, the
timing with respect to obtaining any such financing, the ability to obtain
required zoning variances and permits from local governmental authorities and
the timing thereof, whether development and construction costs are higher or
lower than anticipated, whether construction is completed faster or slower than
anticipated, whether newly added living units are occupied faster or slower than
anticipated and whether operating costs are higher or lower than anticipated.
As discussed above, the management fee payable to Forum Group of $15,780,000 for
all periods from the formation of the Partnership in 1986 to December 31, 1993
was deferred. Management fees for periods after December 31, 1993 are being paid
quarterly, in arrears. Deferred management fees are payable to Forum Group out
of proceeds of sales and refinancings after making distributions of those
proceeds in an amount sufficient to (i) meet limited partners' tax liabilities,
(ii) repay limited partners' capital contributions, and (iii) pay a 12%
cumulative, simple annual return on limited partners' unrecovered capital
contributions. Deferred management fees become immediately due and payable in
the event that the Management Agreement is terminated, which may occur under
certain conditions including, but not limited to, if Forum Retirement, Inc. is
removed as the General Partner and 80% in interest of the limited partners vote
to terminate such agreement. The Partnership is unable to predict when or if
management fees deferred prior to January 1, 1994 will become payable.
Operating activities provided $1,057,000 less cash during the year ended
December 31, 1995 than during 1994 due principally to the timing of payments of
management fees and amounts due to parent of General Partner as well as an
increase in accrued revenues and expenses, net.
Investing activities used $2,133,000 more cash during the year ended
December 31, 1995 then during 1994, due principally to the significant increase
in expansion and renovation activity at several of the RC's funded by cash from
operating activities.
Financing activities used $326,000 more cash during the year ended December
31, 1995 then during 1994, due principally to an increase in restricted cash
which resulted from the establishment of additional fixed asset, insurance and
real estate tax reserve funds during 1995.
Operating activities provided $3,541,000 more cash during the year ended
December 31, 1994 than during 1993, due principally to improved operating
performance and reductions in other accrued revenues and expenses during 1993,
net of the above-described difference in the treatment of management fees due
the parent of the General Partner.
Investing activities used $643,000 more cash during the year ended December
31, 1994 than during 1993, due to normal fluctuations in the timing of
purchases of property and equipment.
Financing activities used $1,822,000 more cash during the year ended
December 31, 1994 than during 1993, due principally to the October, 1993
Recapitalization Agreement and the December, 1993 Nomura Loan closing.
INFLATION. Management does not believe that inflation has had a material
- ---------
effect on net income. To the extent possible, increased costs are recovered
through increased residency fees and charges.
14
<PAGE>
IMPACT OF ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED. Statement of Financial
- ----------------------------------------------------
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" was issued in March
1995 and is effective for fiscal years beginning after December 15, 1995.
On January 1, 1996, the Partnership adopted Statement of Financial Accounting
Standard (SFAS) No. 121. No adjustment of the carrying values of the
Partnership's real estate property investments was required at January 1, 1996
as a result of adopting SFAS No. 121.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements are filed under this Item:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Independent Auditors' Report .........................................................17
Consolidated Balance Sheets - December 31, 1995 and 1994..............................18
Consolidated Statements of Operations - Years ended
December 31, 1995, 1994 and 1993....................................................19
Consolidated Statements of Partners' Equity - Years ended
December 31, 1995, 1994 and 1993....................................................20
Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993....................................................21
Notes to Consolidated Financial Statements............................................22
</TABLE>
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Partners
FORUM RETIREMENT PARTNERS, L.P.:
We have audited the accompanying consolidated balance sheets of Forum Retirement
Partners, L.P. and subsidiary partnership as of December 31, 1995 and 1994 and
the related consolidated statements of operations, partners' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the
Partnership'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 Retirement
Partners, L.P. and subsidiary partnership as of December 31, 1995 and 1994 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Indianapolis, Indiana
February 9, 1996, except as to note 7,
which is as of March 25, 1996
17
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Consolidated Balance Sheets
December 31, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,960 5,588
Accounts receivable, less allowance for doubtful
accounts of $227 and $208 3,057 2,650
Other receivables 30 33
Estimated third-party settlements 550 300
Inventory and prepaid expenses 639 877
Other current assets 75 88
-------- -------
TOTAL CURRENT ASSETS 7,311 9,536
-------- -------
Restricted cash 4,154 2,625
======== =======
Property and equipment:
Land and land improvements 14,867 14,758
Buildings 99,293 97,885
Furniture and equipment 9,198 8,174
Construction in progress 1,478 33
-------- -------
124,836 120,850
Less accumulated depreciation 27,630 24,000
-------- -------
NET PROPERTY AND EQUIPMENT 97,206 96,850
-------- -------
Deferred financing costs, net of accumulated
amortization of $714 and $352 1,939 2,152
-------- -------
$110,610 111,163
======== =======
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Current liabilities:
Current portion of long-term debt 1,023 927
Accounts payable and accrued expenses 4,298 3,969
Management fees and amounts due to parent of general partner 1,121 1,195
Resident deposits 1,266 1,445
-------- -------
TOTAL CURRENT LIABILITIES 7,708 7,536
Long-term debt, less current portion due within one year 47,984 49,007
Deferred management fees due to parent of general partner 15,780 15,780
-------- -------
TOTAL LIABILITIES 71,472 72,323
-------- -------
General partner's equity in subsidiary partnership 229 228
-------- -------
Partners' equity:
General partner 495 492
Limited partners (15,285 units issued and outstanding) 38,414 38,120
-------- -------
TOTAL PARTNERS' EQUITY 38,909 38,612
Commitments and contingencies (note 4) -------- -------
$110,610 111,163
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
18
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993
(in thousands except per unit amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Routine revenue $43,609 42,215 39,781
Ancillary revenue 5,877 4,871 4,016
Other income 338 247 379
------- ------ ------
TOTAL REVENUES 49,824 47,333 44,176
------- ------ ------
Costs and expenses:
Routine expenses 31,305 29,636 29,234
Ancillary costs 4,768 3,876 3,036
Management fees to parent of general partner 3,961 3,767 3,516
General and administrative 512 714 699
Litigation 89 146 -
Depreciation 3,630 3,491 3,356
Interest, including amounts to parent of general
partner of $28, $38 and $50 5,261 5,384 6,106
------- ------ ------
TOTAL COSTS AND EXPENSES 49,526 47,014 45,947
------- ------ ------
INCOME (LOSS) BEFORE GENERAL PARTNER'S
INTEREST IN INCOME (LOSS) OF SUBSIDIARY
PARTNERSHIP AND EXTRAORDINARY CHARGE 298 319 (1,771)
General partner's interest in income (loss) of subsidiary
partnership 1 2 (9)
------- ------ ------
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE 297 317 (1,762)
Extraordinary charge - early extinguishment of debt - - (2,917)
------- ------ ------
NET INCOME (LOSS) 297 317 (4,679)
General partner's interest in net income (loss) 3 3 (47)
------- ------ ------
Limited partners' interest in net income (loss) $ 294 314 (4,632)
======= ====== ======
Average number of limited partner units outstanding 15,285 15,285 10,317
======= ====== ======
Income (loss) per limited partner unit:
Income (loss) before extraordinary charge 0.02 0.02 (0.17)
Extraordinary charge - - (0.28)
------- ------ -------
NET INCOME (LOSS) $0.02 0.02 (0.45)
------- ------ -------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Consolidated Statements of Partners' Equity
Years ended December 31, 1995, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
General Limited
partner partners
-------- ---------
<S> <C> <C>
Balances at December 31, 1992 $ 409 29,778
Capital contributions from issuance of
6,500 units, net of offering costs of $ 253 128 12,750
Net loss (47) (4,632)
------ -------
Balances at December 31, 1993 490 37,896
Offering costs (1) (90)
Net income 3 314
------ -------
Balances at December 31, 1994 492 38,120
Net income 3 294
------ -------
Balances at December 31, 1995 $ 495 38,414
------ -------
Accumulated balances:
Capital contributions 1,173 116,279
Offering costs (4) (6,715)
Cash distributions (255) (29,679)
Accumulated losses (419) (41,471)
------ -------
Balances at December 31, 1995 $ 495 38,414
------ -------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
20
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 297 317 (4,679)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation of property and equipment 3,630 3,491 3,356
Amortization of deferred financing costs 362 352 479
Extraordinary charge - - 2,917
Deferred management fees due to parent of general partner - - 3,516
Management fees and amounts due to parent of general partner 47 732 -
Accrued revenues and expenses, net (174) 42 (4,210)
Other (178) 107 121
----- ----- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,984 5,041 1,500
----- ----- ------
Cash flows from investing activities -
Additions to property and equipment (3,986) (1,853) (1,210)
----- ----- ------
NET CASH USED BY INVESTING ACTIVITIES (3,986) (1,853) (1,210)
----- ----- ------
Cash flows from financing activities:
Reduction of long-term debt (1,048) (949) (59,260)
Proceeds from long-term debt - - 50,707
Yield maintenance premium and other expenses
in connection with refinancing - - (2,602)
Deferred financing costs (49) (293) (2,436)
Capital contributions - - 13,131
Offering costs - (152) (192)
Net decrease (increase) in restricted cash (1,529) (906) 174
----- ----- ------
NET CASH USED BY FINANCING ACTIVITIES (2,626) (2,300) (478)
----- ----- ------
Net increase (decrease) in cash and cash equivalents (2,628) 888 (188)
Cash and cash equivalents at beginning of year 5,588 4,700 4,888
----- ----- ------
Cash and cash equivalents at end of year $ 2,960 5,588 4,700
----- ----- ------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
21
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Organization
------------
Forum Retirement Partners, L.P. and a subsidiary partnership (the
"Partnership") own nine retirement communities ("RCs") which were acquired
from Forum Group, Inc. ("Forum Group"). Forum Group was engaged to manage,
and continues to manage, the RCs for the Partnership.
The general partner of the Partnership, a wholly owned subsidiary of Forum
Group, receives 1% of all distributions of net cash flow until the limited
partners receive cumulative distributions equal to a 12% cumulative annual
return on the initial offering price. Thereafter, the general partner is to
receive 30% of all distributions of net cash flow.
On February 19, 1991, Forum Group commenced reorganization proceedings under
Chapter 11 of the United States Bankruptcy Code, and on April 2, 1992, Forum
Group's plan of reorganization was confirmed by the Bankruptcy Court. In
February 1993, the Partnership and Forum Group entered into a settlement
agreement disposing of certain claims which arose during the reorganization
proceedings. As part of that settlement, the Partnership received a cash
payment of $125,000 and 63,612 shares of Forum Group common stock which were
sold in August 1993 for $230,000, resulting in a gain of $130,000.
To facilitate the refinancing of its long-term debt, the Partnership and
Forum Group entered into a Recapitalization Agreement (the "Recapitalization
Agreement") in October 1993, which provided for, among other things, an
immediate infusion of $13.1 million of equity into the Partnership by a
wholly owned subsidiary of Forum Group. The Partnership applied the $13.1
million of proceeds to the partial prepayment of the outstanding principal
balance of the secured bank credit agreement that was to mature on December
31, 1993. To repay the remaining amount due on the secured bank credit
agreement and other indebtedness of the Partnership, on December 28, 1993,
the Partnership obtained $50.7 million in new mortgage financing (see note
3).
In order that the other limited partners' interests are not diluted as a
result of the Recapitalization Agreement, in January 1994, the Partnership
offered all of the other limited partners the right to purchase 0.74 of a
Partnership unit for each unit owned on October 18, 1993, at $2.00 per unit.
Proceeds from the exercise of these rights were used to repurchase 1,994,189
units from the wholly owned subsidiary of Forum Group at $2.00 per unit. The
Partnership incurred costs of $91,000 and $253,000 in 1994 and 1993,
respectively, as a result of the offering.
In September 1995, Forum Group commenced a tender offer for any and all
outstanding units not already owned by it at $2.83 per unit. The tender
offer was completed in December 1995, with 2,644,724 units being purchased.
Forum Group owned 79.0% of the Partnership at December 31, 1995.
(Continued)
22
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Notes to Consolidated Financial Statements
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Partnership and its affiliated operating partnership in which the
Partnership has a 99% limited partner's interest and the general partner of
the Partnership owns the remaining 1% interest. The effects of all
significant intercompany accounts and transactions have been eliminated in
consolidation.
Inventory and Prepaid Expenses
------------------------------
Inventory consists primarily of supplies used in the care of residents and
are stated at the lower of cost (first-in, first-out method) or market.
Prepaid expenses consist primarily of prepaid insurance costs and are
expensed ratably over the terms of the policies.
Property and Equipment
----------------------
Property and equipment are carried at cost. Depreciation is computed on the
straight-line method. The annual rate of depreciation for the Partnership's
buildings is based on a 40 year composite life. Furniture and equipment are
generally depreciated using composite lives ranging primarily from 7 years
to 10 years. The Partnership records a provision for value impairment
whenever the estimated future undiscounted cash flows from the property's
operations or projected sale are less than the property's net carrying
value.
On January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. No adjustment of the
carrying values of the Partnership's real estate property investments was
required at January 1, 1996 as a result of adopting SFAS No. 121.
Deferred Costs
--------------
Financing costs are amortized to interest expense on the straight-line
method over the term of the related loan agreement.
Revenues
--------
Routine revenue is generated from monthly charges for independent living
units and daily charges for assisted living suites and nursing beds, and is
recognized monthly based on the terms of the residents' agreements. Advance
payments received for services are deferred until the services are provided.
Ancillary revenue is generated on a "fee for service" basis for
supplementary items requested by residents, and are recognized as the
services are provided.
(Continued)
23
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Notes to Consolidated Financial Statements
Revenues include amounts estimated by management to be reimbursable by
Medicare, Medicaid 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
$261,000, $210,000 and $379,000 of additional revenue for 1995, 1994 and
1993, respectively.
Income Taxes
------------
As partnerships, the allocated share of income or loss for the year is
includable in the income tax returns of the partners; accordingly, income
taxes are not reflected in the accompanying consolidated financial
statements.
The tax basis of the Partnership's assets are approximately $20,000,000 less
than the basis reported for financial statement purposes, primarily due to
the carryover tax basis of the affiliated operating partnerships and
differences in tax reporting methods.
Per Unit Data
-------------
The net income (loss) per unit is based on the limited partners' interest in
the net income (loss) divided by the average number of limited partner units
outstanding.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
-----------------
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform with the 1995 presentation.
(2) CASH
----
Restricted cash includes required property, working capital and other
reserves amounting to $2,876,000 and $1,434,000 at December 31, 1995 and
1994, respectively, and residents' deposits of $1,278,000 and $1,191,000 at
December 31, 1995 and 1994, respectively.
Cash and cash equivalents include cash and highly liquid investments with a
maturity of three months or less.
(Continued)
24
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Notes to Consolidated Financial Statements
(3) LONG-TERM DEBT
--------------
On December 28, 1993, the Partnership entered into a new mortgage loan
agreement for $50,707,000, and the proceeds were used to retire the split
coupon mortgage notes, including the yield maintenance premium, and the bank
credit facility and to pay related fees and expenses of $775,000. The new
loan requires monthly payments of principal (based on a 20-year
amortization) and interest at 9.93% per annum 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, as defined, is below specified levels. The loan is secured by all of
the Partnership's RCs. Scheduled principal payments on the mortgage loan as
of December 31, 1995 are $1,023,000 in 1996, $1,129,000 in 1997, $1,247,000
in 1998, $1,376,000 in 1999 and $1,520,000 in 2000.
The prepayment of the split coupon mortgage notes in 1993 required a yield
maintenance premium of $2,142,000 which is included in extraordinary charge
in the accompanying consolidated statements of operations. Base interest
rates ranged from 7.75% to 9.25%, payable monthly, and additional interest
rates ranged from 2.25% to 3.00%, payable monthly from net operating cash
flow for the previous month, as defined, for an effective rate of 11.46%
through December 28, 1993.
Interest under the bank credit facility was payable quarterly through March
1993, and monthly thereafter, at the bank's reference rate plus 2%.
Amounts due to parent of general partner include long-term debt of $336,000
and $457,000 at December 31, 1995 and 1994, respectively, with a blended
interest rate of 7.2% and maturities in varying amounts through January 31,
2004.
Interest paid during 1995, 1994 and 1993 totaled $4,946,000, $4,679,000 and
$5,872,000, respectively.
(4) COMMITMENTS AND CONTINGENCIES
-----------------------------
In connection with the formation of the Partnership, the Partnership entered
into a long-term management agreement with Forum Group which requires fees
of 8% of gross operating revenues. Through December 31, 1993, the agreement
provided for the deferral of the payment of the fees if net cash flow was
not adequate to make certain distributions to limited partners. Since cash
flow was not adequate to make the distributions, the $15,780,000 of
management fees earned since formation of the Partnership through December
31, 1993 was deferred. The Partnership also reimbursed Forum Group for
general and administrative costs incurred on behalf of the Partnership,
which amounted to $180,000 in 1995, 1994 and 1993.
(Continued)
25
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Notes to Consolidated Financial Statements
On January 24, 1994, the Russell F. Knapp Revocable Trust (the "Plaintiff"),
filed a complaint (the "Iowa Complaint") in the United States District Court
for the Northern District of Iowa (the "District Court") against the General
Partner alleging breach of the Partnership Agreement, breach of fiduciary
duty, fraud and civil conspiracy. The Plaintiff subsequently amended the
Iowa Complaint, adding Forum Group as a defendant. The Iowa Complaint
alleged, among other things, that the Plaintiff holds a substantial number
of Units, that the Board of Directors of the General Partner is not
comprised of a majority of independent directors, as required by the
Partnership Agreement and as allegedly represented in the Partnership's 1986
Prospectus for its initial public offering, and that the General Partner's
Board of Directors has approved and/or acquiesced to an 8% management fee
charged by Forum Group under the Management Agreement. The Iowa Complaint
further alleged that the "industry standard" for such fees is 4% thereby
resulting in an "overcharge" to the Partnership estimated by the Plaintiff
at $1.8 million per annum, beginning in 1994. The Plaintiff sought the
restoration of certain former directors to the Board of Directors of the
General Partner and the removal of certain other directors from that Board,
an injunction prohibiting the payment of an 8% management fee, and
unspecified compensatory and punitive damages. On April 4, 1995, the
District Court entered an order dismissing the Complaint on jurisdictional
grounds. Although the Plaintiff filed a notice of appeal of the District
Court's ruling, it subsequently dismissed this appeal.
On June 15, 1995, the Plaintiff filed a complaint (the "Indiana Complaint")
in the United States District Court for the Southern District of Indiana
(the "Indiana Court") against the General Partner and Forum Group containing
essentially the same allegations asserted in the Iowa Complaint and seeking
essentially the same relief. The defendants moved to dismiss the Indiana
Complaint for failure to state a claim for which relief could be granted
and, in response, on December 11, 1995 the Plaintiff amended the Indiana
Complaint. The defendants have also moved to dismiss the amended complaint
on similar grounds. These parties are awaiting the Indiana Court's ruling.
The General Partner will continue to vigorously defend against this
litigation. In accordance with the Management Agreement, the Partnership
reimbursed the General Partner for $89,000 and $146,000, for the years ended
December 31, 1995 and 1994, respectively, of litigation costs relating to
this litigation.
(5) EMPLOYEE BENEFIT PLAN
---------------------
Effective April 1, 1993, Forum Group established a defined contribution
profit sharing plan, including features under Section 401(k) of the Internal
Revenue Code, which will provide retirement benefits to its eligible
employees. The Partnership contributes to the plan for participants employed
at the RCs. The Partnership has expensed $57,000, $43,000 and $34,000 in
1995, 1994 and 1993, respectively, relating to its portion of employee
contributions under this plan.
(Continued)
26
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Notes to Consolidated Financial Statements
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of the fair value of
all financial assets and liabilities for which it is practicable to
estimate. Fair value is defined in the Statement as the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership
believes the carrying amount of its financial instruments (excluding
property indebtedness) approximates their fair value due to the relatively
short maturity of these instruments. There is no quoted market value
available for any of the Partnership's instruments. Property indebtedness,
with a carrying amount of $49,007,000, at December 31, 1995, has been
calculated to have a fair value of $51,163,000 by discounting the scheduled
loan payments to maturity using rates that are believed to be currently
available for debt of similar terms and maturities. Due to restrictions of
transferability and prepayment, previously modified debt terms and other
property specific competitive conditions, the Partnership may be unable to
refinance the indebtedness to obtain such calculated debt amounts reported.
(7) SUBSEQUENT EVENT
----------------
On February 15, 1996, Forum Group, Marriott International, Inc, and a
subsidiary thereof (collectively "Marriott") entered into an Agreement and
Plan of Meger (the "Merger Agreement"). Pursuant to the Merger Agreement,
Marriot completed a tender offer for the shares of Forum Group on March 23,
1996. On March 25, 1996, Marriott purchased over 99.1% of the outstanding
common stock of Forum Group, following which, Marriott designated six
persons to the nine member Board of Directors of Forum Group. Marriott has
informed Forum Group that it has no present plans to cause the General
Partner to materially change the Partnership's current operations, although
it necessarily reserved the right to propose such changes as it deems
appropriate in the future.
27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
The following table lists the names and ages of all current directors and
executive officers of the General Partner; all positions and offices with the
General Partner held by each such person; each such person's term of office as a
director or an executive officer, and the period during which he has served as
such; and each such person's business experience for the past five years. The
directors of the General Partner serve as such until their successors are
elected and qualified. The executive officers of the General Partner serve at
the pleasure of the Board of Directors of the General Partner.
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION SERVED
AND BUSINESS EXPERIENCE SINCE AGE
- ----------------------- ----- ---
Directors:
- ----------
<S> <C> <C>
Paul E. Johnson, Jr. (1) March 1996 48
Mr. Johnson is Chairman of the Board and President of the General Partner,
and Executive Vice President and General Manager of the Senior Living
Services Division of Marriott. Mr. Johnson joined Marriott Corporation in
1983 in Corporate Financial Planning & Analysis. In 1987, he was promoted to
Group Vice President of Finance and Development for the Marriott Service
Group and later assumed responsibility for real estate development for
Marriott Senior Living Services. During 1989, he served as Vice President and
General Manager of Marriott's Travel Plazas division. Mr. Johnson
subsequently served as Vice President and General Manager of Marriott Family
Restaurants from December 1989 through 1991. In October 1991, he was
appointed to his present position as Executive Vice President and General
Manager of Marriott Senior Living Services.
John F. Sexton 1993 63
Mr. Sexton is a director of the General Partner; Chairman, Evans-McKinsey
Company, since 1993, theretofore Chief Financial Officer, Lomas Financial
Corporation since prior to 1989; director of Forecast Homes since 1992;
director of Americana Hotels and Realty Corp. since prior to 1989; Chairman and
Director of Mutual Equity Mortgage since 1994.
</TABLE>
(1) Mr. Johnson was appointed to fill the vacancy created by the resignation of
Mr. McNamara on March 25, 1996.
29
<PAGE>
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION SERVED
AND BUSINESS EXPERIENCE SINCE AGE
- ----------------------- ----- ---
<S> <C> <C>
James C. Leslie 1993 39
Mr. Leslie is a director of the General Partner; Executive Vice President -
Financial Services and director of The Staubach Company since 1992 and director
since prior to 1989; President and director of Wolverine Holding Company
since prior to 1989; director of Columbus Realty Trust since 1993.
William J. Shaw March 1996 50
Mr. Shaw is a Vice President of the General Partner. Mr. Shaw was elected
President of the Marriott Service Group in February 1992, which now comprises
Marriott's Contract Services Group. He joined Marriott Corporation in 1974,
was Corporate Controller in 1979 and a Vice President in 1982. In 1985, he
assumed responsibility for Marriott Corporation's Tax Department and Risk
Management department and was elected Senior Vice President - Finance. In
1986, Mr. Shaw was elected Senior Vice President - Finance and Treasurer of
Marriott Corporation. He was elected Executive Vice President of Marriott
Corporation and promoted to Chief Financial Officer in April 1988.
Terrence P. Morrow March 1996 48
Mr. Morrow is Treasurer and a Vice President of the General Partner. Mr.
Morrow is Senior Vice President of Finance for Marriott Senior Living Services
with responsibility for the Accounting, Finance and Information Systems
functions of the Business. Mr. Morrow has worked for Marriott since 1970 and
has been in his current job since 1990. Previously, he was Vice President of
Marriott Suites and Vice President of Internal Audit for Marriott Corporation.
Mr. Morrow also spent 17 years in the Hotel Division where he held positions as
a Hotel Controller, Regional Controller and Vice President Area Controller.
Lawrence B. Murphy March 1996 38
Mr. Murphy is a Vice President of the General Partner. Mr. Murphy joined
Marriott in 1983 and served in various capacities in its Lodging Division,
including Vice President of Rooms Operations, Vice President of Service
Development and General Manager, until March 1995 when he joined the Senior
Living Services Division as Vice President for Operations.
Edward L. Bednarz March 1996 53
Mr. Bednarz is a Vice President of the General Partner. Mr. Bednarz joined
Marriott's Law Department in 1973 and has served as the principal attorney
for the Senior Living Services Division since 1992.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION SERVED
AND BUSINESS EXPERIENCE SINCE AGE
- ----------------------- ----- ---
<S> <C> <C>
G. Cope Stewart III March 1996 54
Mr. Stewart is a Vice President of the General Partner. Mr. Stewart has
served as Associate General Counsel, Corporate Affairs Department of Marriott
since February 1994. From 1986 to 1994, Mr. Stewart was a partner in the
Washington, D.C. law firm of Arent Fox Kintner Plotkin & Kahn. Prior to 1986,
Mr. Stewart was engaged in the private practice of law in Washington, D.C.
</TABLE>
See. "Item 1--Business" for a discussion of a change in control of Forum
- ---
Group that occurred on March 25, 1996.
The Partnership Agreement provides that the Board of Directors of the General
Partner shall at all times contain a majority of individuals each of whom is an
Independent Director. The Partnership Agreement defines an "Independent
Director" as a person who is not (i) a director, officer or employee of, (ii) a
holder of 1% or more of the capital stock of, or (iii) an Affiliate of, the
General Partner or any of its affiliates. Vacancies of Independent Directors are
filled by the remaining Independent Director(s).
The certificate of incorporation of the General Partner requires that a majority
of the Board of Directors of the General Partner consist at all times of
individuals who are each an Independent Director. The certificate of
incorporation defines an "Independent Director" to be a person meeting the same
test set forth in the Partnership Agreement; except that, for so long as the
Nomura Loan remains outstanding, the Board of Directors of the General Partner
shall contain a majority of individuals each of whom (i) is not, and during the
immediately preceding five years has not been, a director (other than a director
of the General Partner), officer or employee of Forum Group or any of its
subsidiaries or Affiliates, and (ii) does not have, and has not had during the
immediately preceding five years, any ownership interest in the General Partner,
Forum Group or any other subsidiary or Affiliate thereof. The certificate of
incorporation provides that any vacancy on the Board created by the removal or
withdrawal of an Independent Director shall be filled by an Independent Director
selected by the remaining Independent Directors, and if there are none, by the
shareholders of the General Partner.
Messrs. Leslie and Sexton are Independent Directors under each of the foregoing
definitions. See "Item 3 - Legal Proceedings" for a discussion of certain
litigation challenging the constitution of the Board of Directors of the General
Partner and the Management Agreement entered into in 1986 in connection with the
formation of the Partnership.
ITEM 11. EXECUTIVE COMPENSATION.
No cash or other compensation is paid to any officer of the General Partner for
services rendered in any capacity to the Partnership and its affiliated
operating partnership.
Messrs. Sexton and Leslie are compensated for all services as a director at the
rate of $18,000 per year, payable quarterly in advance, plus $1,500 for each
board or committee meeting attended in person and $1,000 per meeting attended
telephonically. Mr. Johnson will receive no compensation for his service as a
director. Until his resignation in March 1996, Mr. McNamara
31
<PAGE>
was compensated for all services as a director at the rate of $15,000 per year,
payable quarterly in advance.
In addition to amounts payable to Forum Group under the Management Agreement,
Forum Group and the General Partner are entitled to the reimbursement of various
amounts and to indemnification for certain costs and losses under the Management
Agreement and the Partnership Agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners. The following table shows
-----------------------------------------------
the numbers and percentages of Units owned beneficially on January 5, 1996 by
any person known to the Partnership to be the beneficial owner of more than 5%
of the issued and outstanding units. Each person has sole voting and investment
power as to the Units beneficially owned by that person. In addition to the
Units beneficially owned by it, Forum Group beneficially owns the General
Partner's 1% general partnership interest.
<TABLE>
<CAPTION>
Units
-----
Name and Address of Percent of
Beneficial Owner Number Total
- ---------------- ------ ----------
<S> <C> <C>
Forum Group, Inc. (1) 12,072,515 79.0%
11320 Random Hills Road
Fairfax, Virginia 22030
</TABLE>
____________
(1) Includes Units owned by a wholly owned subsidiary of Forum Group.
In the fourth quarter of fiscal 1995, Forum Group acquired 2,644,724 Units
through an offer to purchase any and all outstanding Units at a price of $2.83
per Unit in cash.
(b) Security Ownership of Management. None of the directors or officers of the
--------------------------------
General Partner beneficially owns any Units, except insofar as they may be
deemed beneficially to own Units owned by Forum or its affiliates.
Changes in Control. See "Item 1- Business" for a discussion of a change of
- ------------------
control of Forum Group that occurred on March 25, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Under the Management Agreement, for fiscal 1995, Forum Group received (i)
management fees of $3,961,000, (ii) reimbursement of $180,000 for direct
expenses incurred on behalf of the Partnership, and for office expenses,
salaries, compensation expenses, administrative expenses and other expenses
necessary or appropriate to the conduct of the business of, and allocable to,
the Partnership, and (iii) reimbursement of $89,000 of litigation costs (see
Item 3, Legal Proceedings). Forum Group is the parent company of the General
Partner, and beneficially owns 79.0% of the Units.
32
<PAGE>
At December 31, 1995, deferred management fees payable to Forum Group under
the Management Agreement totaled approximately $15,780,000. See "Item 1 -
Partnership Recapitalization" and Item 7 of Part I of this Report for a
discussion of the Management Agreement.
33
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF REPORT. The following document are filed
as a part of this report:
1. FINANCIAL STATEMENTS:
The following consolidated financial statements of the Partnership and its
affiliated operating partnership are filed under Item 8 of this report:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Independent Auditors' Report..................................................17
Consolidated Balance Sheets - December 31, 1995 and 1994......................18
Consolidated Statements of Operations - Years ended
December 31, 1995, 1994 and 1993.........................................19
Consolidated Statements of Partners' Equity - Years ended
December 31, 1995, 1994 and 1993.........................................20
Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993.........................................21
Notes to Consolidated Financial Statements....................................22
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES:
The following other financial statements and financial statement
schedules are filed pursuant to this item:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Independent Auditors' Report.................................................F-1
Schedule II- Valuation and Qualifying Accounts...............................F-2
</TABLE>
All other schedules for which provision is made in Regulation S-X are not
required under the related instruction or are inapplicable, and have therefore
been omitted.
34
<PAGE>
3. EXHIBITS:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Exhibit 2(1): Option Agreement (MLP), dated December 29, 1986, by and among
Forum Group, the Partnership and Operations (incorporated by reference to
Exhibit 2(1) to Registration Statement Number 33-71498 dated November 10, 1993 (the
"1993 Form S-2")............................................................................N/A
Exhibit 2(2): Recapitalization Agreement, dated October 6, 1993, between
Forum Group and the Partnership (incorporated by reference to Exhibit 10(1) to
Partnership Current Report on Form 8-K, dated October 12, 1993 (the "October 1993 Form
8-K").......................................................................................N/A
Exhibit 2(3): Letter Agreement, dated December 14, 1993, by and among Forum
Group, Forum A/H and the Partnership (incorporated by reference to Exhibit
2(3) of Amendment No. 1 to the 1993 Form S-2, dated December 21, 1993 ("1993
Amendment No. 1"))..........................................................................N/A
Exhibit 4(1): Amended and Restated Agreement of Limited Partnership, dated
as of December 29, 1986, of the Partnership, as amended (incorporated by reference
to Exhibit 4(1) to the 1993 Form S-2).......................................................N/A
Exhibit 10(1): Management Agreement (MLP), dated as of December 31, 1986,
by and among the Partnership, Forum Retirement Operations, L.P., Forum Health
Partners I-A, L.P., Foulk Manor Associates, L.P. and Forum Group (the
"Management Agreement") (incorporated by reference to Exhibit 10(1) to the 1993
Form S-2)...................................................................................N/A
Exhibit 10(2): First Amendment to Management Agreement, dated as of
September 20, 1986 (incorporated by reference to Exhibit 10(2) to the 1993 Form
S-2)........................................................................................N/A
Exhibit 10(3): Second Amendment to Management Agreement, dated as of
September 20, 1989 (incorporated by reference to Exhibit 10(3) to the 1993 Form
S-2)........................................................................................N/A
Exhibit 10(4): Third Amendment to Management Agreement, dated as of
May 27, 1992 (incorporated by reference to Exhibit 10(4) to the 1993 Form
S-2)........................................................................................N/A
Exhibit 10(5): Fourth Amendment to Management Agreement, dated as of November
9, 1993 (incorporated by reference to Exhibit 10(5) to the 1993 Form S-2)...................N/A
Exhibit 10(6): Depositary Agreement, dated as of December 29, 1986, by and among
the Partnership, the General Partner, limited partners and assignees holding depository
receipts and Manufacturers Hanover Trust Company ("Manufacturers") (incorporated
by reference to Exhibit 10(6) to the 1993 Form S-2).........................................N/A
Exhibit 10(7): Assignment of Depositary Agreement from Manufacturers to
American Stock & Trust Company, dated January 1, 1992 (incorporated by
reference to Exhibit 10(7) of Amendment No. 2 to the 1993 Form S-2, dated January 5,
1994 ("1993 Amendment No. 2")...............................................................N/A
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Exhibit 10(8): Loan Agreement, dated as of December 28, 1993, by and among
FRP Financing Limited, L.P., Nomura Asset Capital Corporation and Bankers Trust
Company (incorporated by reference to Exhibit 10(8) to 1993 Amendment No.
2)....................................................................................... N/A
Exhibit 10(9): Amendment to Loan Agreement, dated as of January 31, 1994,
by and among FRP Financing Limited, L.P., Nomura Asset Capital Corporation and
Bankers Trust Company ................................................................... E-1
Exhibit 10(10): Second Amendment to Loan Agreement, dated as of March 31,
1995, by and among FRP Financing Limited, L.P., Nomura Asset Capital
Corporation and Bankers Trust Company ................................................... E-5
Exhibit 22: Subsidiaries of the Partnership............................................. E-22
Exhibit 99: Forward-Looking Statements ................................................. E-24
</TABLE>
Reports on Form 8-K. No reports on Form 8-K were filed by the Partnership during
the last quarter of the fiscal year covered by this report.
36
<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 RETIREMENT PARTNERS, L.P.,
A DELAWARE LIMITED PARTNERSHIP
BY: FORUM RETIREMENT, INC.
GENERAL PARTNER
Date: March 29, 1996 By: /s/ Paul E. Johnson, Jr.
-------------------------------
Paul E. Johnson, Jr., President
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
of General Partner
/s/ Paul E. Johnson, Jr. President March 29, 1996
- -------------------------
Paul E. Johnson, Jr.
(2) Principal Financial and
Accounting Officer of
General Partner:
/s/ Terrence P. Morrow Vice President, March 29, 1996
- -------------------------
Terrence P. Morrow Treasurer
S-1
<PAGE>
(3) A majority of the Board of
Directors of General Partner:
/s/ Paul E. Johnson, Jr. Director March 29, 1996
- -------------------------
Paul E. Johnson, Jr.
/s/ James C. Leslie Director March 29, 1996
- -------------------------
James C. Leslie
/s/ John F. Sexton Director March 29, 1996
- -------------------------
John F. Sexton
S-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Partners
FORUM RETIREMENT PARTNERS, L.P.:
Under date of February 9, 1996, except as to note 7, which in as of March 25,
1996 we reported on the consolidated balance sheets of Forum Retirement
Partners, L.P. and subsidiary partnership as of December 31, 1995 and 1994 and
the related consolidated statements of operations, partners' equity and cash
flows for each of the years in the three-year period ended December 31, 1995, as
contained in the annual report on Form 10-K for the year 1995. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits.
In our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
Indianapolis, Indiana
February 9, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
- ------------------------------------------------------------------------------------------------------------------------------------
Balance (1)
at Beginning Charged to Cost Charged to Other Deductions - Balance at End
Description of Period and Expenses Accounts - Describe Describe of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $208 $312 $0 $293 (1) $227
========== ========== ========== ========== ==========
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $126 $147 $0 $65 (1) $208
========== ========== ========== ========== ==========
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $ 86 $226 $0 $186 (1) $126
========== ========== ========== ========== ==========
</TABLE>
Note (1) - Uncollectible accounts receivable charged off, less recoveries
and contractual adjustments of revenue.
F-2
<PAGE>
EXHIBIT 10 (9)
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT (this "Amendment"), made as of
---------
January 31, 1994, is by and among NOMURA ASSET CAPITAL CORPORATION, a Delaware
corporation, having an address at 2 World Financial Center, Building B, New
York, New York 10281-1198 ("Lender"), FRP FINANCING LIMITED, L.P., a Delaware
------
limited partnership, having an address at 8900 Keystone Crossing, Suite 200,
Indianapolis, Indiana 46240-0498 ("Borrower") and BANKERS TRUST COMPANY, a New
--------
York banking corporation, having an address at 3 Park Plaza, 16th Floor, Irvine,
California 92714 ("Custodian").
---------
RECITALS
WHEREAS, Lender, Borrower and Custodian are parties to that certain
Loan Agreement dated as of December 28, 1993 (the "Loan Agreement"); and
--------------
WHEREAS, Lender, Borrower and Custodian desire to amend the Loan
Agreement in the respects more particularly set forth hereinbelow;
NOW, THEREFORE, the parties hereby agree as follows:
1. The definition of "Allocated Loan Amount" contained in Section
1.1 of the Loan Agreement is hereby amended by deleting the second clause (ii)
in the second sentence in its entirety and inserting in its place the following
clause (ii):
"(ii) a fraction, the numerator of which is the applicable Allocated
Loan Amount (prior to the adjustment in question) and the denominator
of which is the total of all Allocated Loan Amounts prior to the
adjustment to the Principal Indebtedness resulting in the
recalculation of the Allocated Loan Amount".
2. The definition of "REMIC Trust" contained in Section 1.1 of the
Loan Agreement is hereby amended by deleting the words "the amendment to".
3. The definition of "Securitization Closing Date" contained in
Section 1.1 of the Loan Agreement is hereby amended by deleting the words "the
amendment to".
4. Section 2.12(a) of the Loan Agreement is hereby amended by
inserting the phrase "from Custodian (given at the request of Lender or
Servicer)" after the phrase "Event of Default" in clause (ii) of the last
sentence of the section.
E-1
<PAGE>
5. Section 2.12 of the Loan Agreement is hereby amended by inserting
a new Section 2.12(j) at the end of the section as follows:
"(j) The Bank's Reliance. The Bank may rely and shall be protected in
-------------------
acting or refraining from acting upon any written notice, instruction
or request furnished to it hereunder and believed by it to be genuine
and to have been signed or presented by the proper party or parties.
The Bank may rely on notice from Lender as to the occurrence of an
Event of Default."
6. Section 2.13(b) of the Loan Agreement is hereby amended by
inserting at the end of clause (iii) the following phrase:
"and the accounts into which funds may be transferred by the
Collection Account Banks after the sweep to the Cash Collateral
Account is terminated by Lender or Custodian in any month".
7. Section 2.13(f) of the Loan Agreement is hereby amended by
inserting the following sentence at the end of the section:
"Notwithstanding the foregoing, Custodian shall have no obligation to
send notice to Borrower of any such failure unless directed to do so
by Lender or Servicer."
8. Section 2.13 of the Loan Agreement is hereby amended by inserting
a new Section 2.13(m) at the end of the section as follows:
"(m) Custodian's Reliance. Custodian may rely and shall be protected
--------------------
in acting or refraining from acting upon any written notice,
instruction or request furnished to it hereunder and believed by it to
be genuine and to have been signed or presented by the proper party or
parties. Custodian may rely on notice from Lender or Servicer as to
the occurrence of an Event of Default."
9. Section 6.1(B) of the Loan Agreement is hereby amended by
inserting the following at the end of the section:
"Prior to the first to occur of the Securitization Closing Date, the
date Lender sells the Loan and April 1, 1994, Borrower may Transfer
undeveloped
E-2
<PAGE>
portions of the Land which are not used in the operation of the
Facilities as operated on the Closing Date and Lender shall release
such portions of the Land from its Liens, provided, however, that (i)
-------- ------- ----
at least 10 days prior to such Transfer Borrower shall deliver to
Lender: (v) if requested by Lender, an updated Appraisal for the
Facility with respect to which such Transfer is to occur reflecting
the Appraised Value of such Facility without the portion of the Land
to be transferred, (w) a certificate by Borrower affirming that the
representations in Sections 4.1(T) and (FF) will be true following
--------------- ----
such Transfer, (x) all documents necessary to show that the Transfer
will be made in accordance with all applicable Legal Requirements,
including, if requested by Lender, an opinion of Borrower's counsel to
such effect, (y) a new Survey for the Facility omitting the portion of
the Land to be transferred but in all other respects identical to the
Survey for the Facility delivered on the Closing Date, and (z) an
endorsement to the Title Insurance Policy reflecting such Transfer
acceptable to Lender in its sole discretion, and (ii) Borrower shall
pay all of Lender's out-of-pocket expenses in connection with such
Transfer, including Lender's attorneys' fees and disbursements."
10. As modified by this Amendment, the Loan Agreement shall remain in
full force and effect and is hereby ratified and confirmed by the parties.
11. This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto cause this Amendment to be duly
executed by their duly authorized representatives, all as of the day and year
first above written.
LENDER:
NOMURA ASSET CAPITAL CORPORATION,
a Delaware corporation
By: /s/ Raymond M. Anthony
------------------------------
Raymond M. Anthony
Vice President
E-3
<PAGE>
BORROWER:
FRP FINANCING LIMITED, L.P.,
a Delaware limited partnership
By: Forum Retirement, Inc.,
a Delaware corporation,
General Partner
By: /s/ Daniel A. Decker
----------------------------
Name: Daniel A. Decker
Title: Vice President
CUSTODIAN:
BANKERS TRUST COMPANY,
a New York banking corporation (as
Custodian only)
By: /s/ Kevin R. Quinn
----------------------------
Kevin R. Quinn
Assistant Secretary
E-4
<PAGE>
EXHIBIT 10 (10)
SECOND AMENDMENT TO
LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Second Amendment"),
----------------
made and entered into as of March 31, 1995, by and among FRP FINANCING LIMITED,
L.P. ("Borrower"), NOMURA ASSET CAPITAL CORPORATION ("Lender") and PACIFIC
-------- ------
MUTUAL LIFE INSURANCE COMPANY ("Custodian").
---------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrower, Lender and Bankers Trust Company ("BTC") are
---
parties to a Loan Agreement dated as of December 28, 1993, as amended by
Amendment to Loan Agreement dated as of January 31, 1994 (collectively, the
"Loan Agreement");
--------------
WHEREAS, Custodian has replaced BTC as "Custodian" under the Loan
Agreement; and
WHEREAS, in connection with the Securitization (as defined in the Loan
Agreement), the parties hereto desire to amend the Loan Agreement in the
respects more particularly set forth herein below.
NOW, THEREFORE, Borrower, Lender and Custodian, acknowledging the
accuracy of the foregoing recitals, hereby agree to amend the Loan Agreement as
follows:
1. Section 1.1 of the Loan Agreement is hereby amended as follows:
(a) The definitions of "Collateral", "Custodian", "Imputed Debt
Service", "Pooling and Servicing Agreement", "Securitization Closing Date",
"Servicer", "Single-Purpose Entity" and "Yield Maintenance Premium" are
deleted in their entirety.
(b) The following definitions are inserted in the appropriate
alphabetical place:
"Collateral" means, collectively, the Land, Improvements,
----------
Equipment, Rents, Accounts (including rights to payment from patients or
private insurers arising from the operation of each Facility, and, to the
extent permitted by applicable law, all rights to payment from Medicare and
Medicaid programs or similar state or federal programs, boards, bureaus or
agencies), General Intangibles,
E-5
<PAGE>
Instruments, Inventory, Money and (to the full extent assignable) Permits
and all Proceeds, all whether now owned or hereafter acquired and all other
property which is or hereafter may become subject to a Lien in favor of
Lender as security for the Loan. Following a defeasance pursuant to
Section 8.26, Collateral shall also include the pledged U.S. Obligations.
------------
"Custodian" means Pacific Mutual Life Insurance Company or any
---------
Person appointed by the Trustee as Custodian under the Pooling and
Servicing Agreement or such Person's successor in interest.
"D&P" means Duff & Phelps Credit Rating Co., or any successor
---
thereto.
"Defeasance Date" has the meaning provided in Section 8.26.
--------------- ------------
"Defeasance Deposit" means an amount equal to the total costs
------------------
incurred or to be incurred in the purchase by Borrower of U.S. Obligations
necessary to meet the Scheduled Defeasance Payments.
"Fitch" means Fitch Investors Service, L.P., or any successor
-----
thereto.
"Imputed Debt Service" means for any period (and calculated
--------------------
either for a Facility based on its Allocated Loan Amount or for the
Facilities based on the Principal Indebtedness then outstanding) the
aggregate amount of principal and interest payments (excluding for purposes
of such calculations for the Facilities, as a whole, any Scheduled
Defeasance Payments) that would be due and payable during the applicable
period calculated using a debt constant computed on a 240 month
amortization schedule with interest at the Interest Rate.
"Pooling and Servicing Agreement" means the Pooling and
-------------------------------
Servicing Agreement to be entered into by and among Nomura Asset Securities
Corporation, as depositor, Servicer, as servicer, LaSalle National Bank, as
trustee and ABN AMRO Bank N.V., as fiscal agent, on the Securitization
Date.
"S&P" means Standard & Poor's Rating Group, or any successor
---
thereto.
"Scheduled Defeasance Payments" shall mean:
-----------------------------
(a) with respect to a defeasance in lieu of a prepayment in whole
pursuant to Section 2.6(a), payments on
--------------
E-6
<PAGE>
or prior to, but as close as possible to, each scheduled Payment Date,
after the Defeasance Date, upon which interest and principal payments are
required under this Agreement (including the amounts due on the Maturity
Date) and in amounts equal to the scheduled payments due on such dates
under this Agreement;
(b) with respect to any defeasance in lieu of a prepayment in
part pursuant to Section 2.6(a), payments on or prior to, but as close as
--------------
possible to, (i) each scheduled Payment Date, after the Defeasance Date, of
installments of principal of and interest at the Interest Rate on the
amount of the principal so defeased calculated to amortize fully the amount
of the principal so defeased over the remaining term (as of the Defeasance
Date) to the Amortization Date on the basis of equal monthly combined
installments of principal and interest and (ii) the Maturity Date, of the
unpaid portion of the amount of the principal so defeased and any accrued
and unpaid interest thereon; or
(c) with respect to any defeasance in lieu of a prepayment
pursuant to Section 2.7(a), payments on or prior to, but as close as
--------------
possible to, (i) each scheduled Payment Date, after the Defeasance Date, of
installments of principal of and interest at the Interest Rate on the
Release Price calculated to amortize fully the Release Price over the
remaining term (as of the Defeasance Date) to the Amortization Date on the
basis of equal monthly combined installments of principal and interest and
(ii) the Maturity Date, of the unpaid portion of the Release Price and any
accrued and unpaid interest thereon.
"Second Amendment" means the Second Amendment to Loan Agreement
----------------
dated as of March 31, 1995, by and among Borrower, Lender and Custodian.
"Securitization Closing Date" means the date on which the
---------------------------
Securitization is effected.
"Servicer" means Pacific Mutual Life Insurance Company, or any
--------
Person appointed as Servicer under the Pooling and Servicing Agreement or
such Person's successor in interest.
"Single-Purpose Entity" means a Person, other than an individual,
---------------------
which (i) is formed or organized solely for the purpose of holding,
directly or indirectly, an ownership interest in the Mortgaged Property,
(ii) does not engage in any business unrelated to the Mortgaged Property,
(iii) does not have any assets other than those related to its interest in
the Mortgaged Property or any indebtedness other than as permitted by this
Agreement, the Mortgages or the other Loan
E-7
<PAGE>
Documents, (iv) has its own separate books and records and has its own
accounts (other than the Collection Accounts and the Cash Collateral
Account), in each case which are separate and apart from the books and
records and accounts (except as set forth above) of any other Person, (v)
if a corporation, at all times has an Independent director (mutually
acceptable to Borrower and Lender; the present Independent directors being
acceptable to Borrower and Lender), and (vi) holds itself out as being a
Person separate and apart from any other Person. For purposes of this
Agreement, the definition of "Single-Purpose Entity" shall not prohibit
unsecured loans from the Manager to FRP.
"Treasury Yield A" means the linear interpolation of the bond
----------------
equivalent yields as reported in Federal Reserve Statistical Release H.15 -
Selected Interest Rates under the heading "U.S. Government
Securities/Treasury Constant Maturities" for the week ending prior to the
date of prepayment of U.S. Treasury constant maturities with maturity dates
(one longer and one shorter) most nearly approximating January 1, 2001.
The above calculation shall be rounded to the nearest one thousandth
percent.
"Treasury Yield B" means the linear interpolation of the bond
----------------
equivalent yields as reported in Federal Reserve Statistical Release H.15 -
Selected Interest Rates under the heading "U.S. Government
Securities/Treasury Constant Maturities" for the week ending prior to the
date of prepayment of U.S. Treasury constant maturities with maturity dates
(one longer and one shorter) most nearly approximating January 1, 2000.
The above calculation shall be rounded to the nearest one thousandth
percent.
"U.S. Obligations" means direct non-callable obligations of the
----------------
United States of America, secured by the full faith and credit of the
United States of America.
"Yield Maintenance Premium" means, with respect to any prepayment
-------------------------
pursuant to Sections 2.6, 2.7(a) or 2.7(d) of the Loan Agreement:
------------ ------ ------
(a) if Treasury Yield A is equal to or greater than 5.65%, an
amount calculated by discounting monthly to net present value the product
of (i) 8.3333% and (ii) the greater of (x)(A) the Interest Rate less (B)
----
Treasury Yield A plus 1.50% and (y) .5% and (iii) the amount prepaid, for
the period from the month in which the prepayment date occurs to January 1,
2001, using a discount rate equal to Treasury Yield A plus 1.50%; or
(b) if Treasury Yield A is less than 5.65%, an amount calculated
by discounting monthly to net present
E-8
<PAGE>
value the product of (i) 8.3333% and (ii) the greater of (x)(A) the
Interest Rate less (B) Treasury Yield B plus 1.50% and (y) .5% and (iii)
----
the amount prepaid, for the period from the month in which the prepayment
date occurs to January 1, 2000, using a discount rate equal to Treasury
Yield B plus 1.50%.
With respect to the above calculations, yield and discount rate shall be
rounded to the nearest one thousandth percent.
2. Section 2.6 of the Loan Agreement is hereby amended by deleting
such Section 2.6 in its entirety and inserting the following in its place:
Section 2.6. Voluntary Prepayment. (a) Subject to Section
-------------------- -------
8.26, Borrower may voluntarily prepay the Loan in whole after April 1,
----
1997, and, unless an Event of Default shall have occurred and be
continuing, Borrower may voluntarily prepay the Loan in part after January
1, 1997; provided, however, that, in the case of any voluntary prepayment
-------- ------- ----
prior to January 1, 2000 such prepayment must be accompanied by an amount
representing a prepayment premium equal to the Yield Maintenance Premium.
The Loan may be prepaid on or prior to January 1, 1997 only as specifically
described in Sections 2.7(b), (d) and (f). All interest accrued on the
--------------- --- ---
prepayment amount through the date of prepayment must be paid with the
prepayment amount.
(b) In the event of any such voluntary prepayment, Borrower
shall give Lender written notice (or telephonic notice promptly confirmed
in writing) of its intent to prepay, which notice shall be given at least
five Business Days prior to the date upon which prepayment is to be made
(except as provided in Section 8.26) and shall specify the date and the
------------
amount of such prepayment. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified
therein (unless such notice is revoked by Borrower prior to the date
specified therein in which event Borrower shall immediately reimburse
Lender for any costs incurred in connection with the giving of such notice
and its revocation).
(c) Any voluntary prepayment of the Loan in whole or in part or
any mandatory prepayment of a portion of the Loan pursuant to Section
-------
2.7(a) is required to be made on a Payment Date.
------
3. Section 2.7 of the Loan Agreement is hereby amended by deleting
such Section 2.7 in its entirety and by inserting the following in its place:
E-9
<PAGE>
Section 2.7. Mandatory Prepayment. (a) Borrower may Transfer any
--------------------
Individual Property at any time after January 1, 1997; provided, however,
-------- -------
that (i) Borrower may not Transfer all of the Mortgaged Property until
----
after April 1, 1997 and (ii) Borrower shall have given Lender at least 30
days' prior written notice of the Transfer and, upon the date of the
consummation of any such Transfer (unless such notice is revoked by
Borrower prior to the date specified therein in which event Borrower shall
immediately reimburse Lender for any reasonable costs incurred in
connection with the giving of such notice and its revocation), Borrower
shall either (x) defease the Loan pursuant to Section 8.26, if so required,
------------
or (y) pay to Lender:
(i) interest accrued on the portion of the Loan being prepaid;
(ii) in the case of any prepayment prior to January 1, 2000, an
amount representing a prepayment premium equal to the Yield
Maintenance Premium;
(iii) an amount equal to 125% of the Allocated Loan Amount for
such Individual Property (the "Release Price"); and
-------------
(iv) all other amounts due under the Related Mortgage.
(b) If Borrower is required by Lender under the provisions of a
Mortgage to prepay the Loan or any portion thereof in the event of damage,
destruction or a Taking of a Facility, Servicer shall prepay a portion of
the Loan (such prepayment to be applied to the Allocated Loan Amount for
such Facility) such that the principal amount prepaid together with (x)
interest thereon to the immediately succeeding Payment Date or (y) accrued
interest thereon, if such payment is made on a Payment Date, exhausts the
Insurance Proceeds or the Condemnation Proceeds available for such
prepayment by advancing the Loss Proceeds from the Custodial Account. No
Yield Maintenance Premium shall be applicable in the event of any
prepayment pursuant to this Section 2.7(b).
--------------
(c) Intentionally deleted.
(d) If Borrower fails to make any payment of principal of or
interest on the Loan when due (excluding the payment due on the Maturity
Date), Borrower shall, on each Payment Date thereafter until such amount
has been paid, prepay the Loan in an aggregate amount equal to the Excess
Cash Flow for the prior month, together with, in the event of any such
prepayment prior to January 1, 2000, an amount
E-10
<PAGE>
representing a prepayment premium equal to the Yield Maintenance Premium.
(e) Upon prepayment of the Loan in full, Borrower shall pay to
Lender, in addition to the amounts specified in Section 2.6 or this Section
----------- -------
2.7, as applicable, any other amounts then due and payable to Lender
---
pursuant to the Loan Documents. All prepayments made pursuant to Section
-------
2.6 or this Section 2.7 shall be applied in accordance with the provisions
--- -----------
of Section 2.8.
-----------
6. Section 2.8 of the Loan Agreement is hereby amended by deleting
such Section 2.8 in its entirety and by inserting the following in its place:
Section 2.8. Application of Payments. All proceeds (including
-----------------------
any Net Proceeds) of any repayment, including prepayments, of the Loan
shall be applied to pay: first, any reasonable out-of-pocket costs and
-----
expenses of Lender arising as a result of such repayment; second, any
------
interest then payable with respect to the Loan or the portion thereof
being repaid; third, the outstanding principal amount of the Loan or
-----
the portion thereof being repaid; and fourth, the Yield Maintenance
------
Premium, if any, on the Loan or the portion thereof being repaid.
7. With respect to all activities pertaining to the Collection
Accounts, Security Deposit Accounts and Cash Collateral Accounts first occurring
after April 1, 1995, Section 2.12 of the Loan Agreement is hereby amended as
follows:
(a) Sections 2.12(a) and (b) are hereby deleted in their
entirety and the following is inserted in their place:
Section 2.12. Central Cash Management. (a) Collection and
----------------------- --------------
Security Deposit Accounts. Borrower hereby acknowledges and agrees
-------------------------
that all of the Rents (other than security deposits from tenants),
Money and Proceeds received from Accounts derived from the Facilities
shall be utilized first (i) to pay all amounts to become due and
payable under the Note by funding the Debt Service Payment Sub-Account
to the extent required pursuant to Section 2.12(g)(i), (ii) to fund
------------------
the Basic Carrying Costs Sub-Account to the extent required pursuant
to Section 2.12(g)(ii), (iii) to fund the Capital Reserve Sub-Account
-------------------
to the extent required pursuant to Section 2.12(g)(iii), and (iv) to
--------------------
pay all Operating Expenses. For each Facility, Borrower shall open
and maintain at the specified Collection Account Bank a demand deposit
account (a "Collection Account")
------------------
E-11
<PAGE>
and, at Borrower's option, a second demand deposit account that is
fully segregated and distinct from the Collection Account (a "Security
--------
Deposit Account"). Each Collection Account and each Security Deposit
---------------
Account shall be assigned a separate and unique identification number
by the Collection Account Banks and shall be opened and maintained in
the name "FRP Financing Limited, L.P. as Debtor and Pacific Mutual
Life Insurance Company (as custodian) as Secured Party pursuant to the
Loan Agreement dated as of December 28, 1993 and amended by Amendment
dated as of January 31, 1994 and Second Amendment dated as of March
31, 1995". All payments constituting Rent (other than security
deposits from tenants) or made with respect to Accounts shall be
payable to Manager. Manager shall collect all such Rents, Money and
Proceeds received from Accounts and shall endorse all checks and
deposit all such funds, within one Business Day after receipt thereof,
directly into the Collection Account for the Facility. All security
deposits shall be payable to Manager. Manager shall collect all
security deposits with respect to a Facility and shall endorse all
checks and deposit all such funds within one Business Day after
receipt thereof, directly into the Security Deposit Account for the
Facility or, at Borrower's option, the Collection Account for the
Facility. Borrower may designate a new financial institution to serve
as a Collection Account Bank hereunder as provided in Section 2.13(1).
---------------
Each Collection Account shall at all times be an Eligible Account.
Borrower shall have no right of withdrawal from the Collection
Accounts or the Security Deposit Accounts except that, prior to a
Collection Account Bank's receipt of notice of the occurrence of an
Event of Default from Custodian (given at the request of Lender or
Servicer), Borrower may withdraw funds from the applicable Security
Deposit Account to refund or apply security deposits as required by
the Leases or by applicable Legal Requirements, and, after delivery of
such notice, Lender, on written request from Borrower with appropriate
supporting materials, will direct the Collection Account Banks to
release funds from the Security Deposit Accounts to refund security
deposits as required by the Leases or by applicable Legal
Requirements.
(b) Cash Collateral Account. Pursuant to the Letters of
-----------------------
Instructions delivered to the Collection Account Banks (the "Letters
-------
of Instructions") in substantially the form attached hereto as Exhibit
--------------- -------
M, Borrower has authorized and directed the Collection Account Banks
-
to transfer on a daily basis all funds in
E-12
<PAGE>
excess of $10,000 deposited in the Collection Accounts for the
Facilities to account no. 677333858 at the 135 South LaSalle Street,
Chicago, Illinois branch of the Bank entitled "Pacific Mutual Life
Insurance Company (as custodian) as Secured Party pursuant to a Loan
Agreement dated as of December 28, 1993 and amended by Amendment dated
as of January 31, 1994 and Second Amendment dated as of March 31, 1995
among FRP Financing Limited, L.P., Nomura Asset Capital Corporation
and Pacific Mutual Life Insurance Company" (the "Cash Collateral
---------------
Account"). Lender may elect to change the financial institution at
-------
which the Cash Collateral Account shall be maintained; provided,
--------
however, that Lender shall give Borrower and each Collection Account
------- ----
Bank not fewer than 30 days' prior notice of each change and the
financial institution to which the Cash Collateral Account may be
transferred shall be subject to Borrower's reasonable approval. The
Cash Collateral Account shall at all times be an Eligible Account.
Borrower has established the Cash Collateral Account in the name of
Custodian, and the Cash Collateral Account shall be under the sole
dominion and control of Custodian. Borrower shall have no right of
withdrawal in respect of the Cash Collateral Account.
(b) In the first sentence of Section 2.12(d), the phrase "which
request may be made one time per month" is inserted at the end of the
phrase "Upon the request of Borrower".
(c) The first sentence of Section 2.12 (f) is deleted in its
entirety and the following sentence is inserted in its place "On or before
the third Business Day of each month during the term of the Loan, Lender
shall notify Borrower of the Debt Service, excluding any Scheduled
Defeasance Payments pursuant to Section 8.26, that will be payable to
------------
Lender on the Payment Date in the next calendar month (the "Required Debt
-------------
Service Payment").
---------------
(d) In Section 2.12(f)(ii) the phrase "If amounts are then
allocated to the Basic Carrying Cost Sub-Account, at" is deleted and "At"
is inserted in its place.
(e) For months prior to April 1995, Section 2.12(g) as contained
in the Loan Agreement without giving effect to this Amendment shall be
applicable. For all months commencing with April 1995, Section 2.12(g) is
hereby deleted and the following is inserted in its place:
(g) Monthly Funding of Sub-Accounts. During each month in
-------------------------------
the term of the Loan commencing with
E-13
<PAGE>
April 1995 (each, the "Current Month"), all funds then in the
-------------
Collection Accounts in excess of $10,000 shall be transferred to the
Cash Collateral Account pursuant to the Letters of Instructions
referred to in Section 2.12(b), and Lender shall allocate all funds
---------------
then on deposit in the Cash Collateral Account among the Sub-Accounts
as follows and in the following priority:
(i) first, to the Debt Service Payment Sub-Account, until
-----
an amount equal to the Required Debt Service Payment for the
Payment Date occurring in the month following the Current Month
has been allocated to the Debt Service Payment Sub-Account;
(ii) second, to the Basic Carrying Costs Sub-Account, until
------
an amount equal to the Basic Carrying Costs Monthly Installment
for the Current Month has been allocated to the Basic Carrying
Costs Sub-Account; and
(iii) third, to the Capital Reserve Sub-Account, until an
-----
amount equal to the Capital Reserve Monthly Installment for the
Current Month has been allocated to the Capital Reserve Sub-
Account.
Provided that (i) no Event of Default has occurred and is
continuing and (ii) Lender has received all financial information
described in Section 5.1(Q) for the most recent periods for which the
--------------
same are due, Lender agrees that in each Current Month any amounts
deposited into or remaining in the Cash Collateral Account after the
minimum amounts set forth in clauses (i), (ii) and (iii) above have
----------- ---- -----
been satisfied with respect to the Current Month and any periods prior
thereto shall be disbursed by wire (x) once promptly following the
date such minimum amounts have been satisfied, (y) thereafter, once a
week in the then Current Month and (z) on the last Business Day of the
then Current Month, at Borrower's expense, to the following account:
Bank One, Indianapolis, N.A., Account Number: 30-70331, ABA Number:
074000010, Account Name: FRP Financing Limited, L.P., Tax I.D. #35-
1904158, or such other account that Borrower may request. Borrower
shall use any funds distributed to Borrower (or to Manager) pursuant
to the foregoing to first pay all Operating Expenses, and, unless
prepayments of the Loan from Excess Cash Flow are then required
pursuant to Section 2.7(d), all Excess Cash Flow may be retained by
--------------
Borrower and used for, or applied to, any purpose, including, without
limitation,
E-14
<PAGE>
dividends or other distributions. If an Event of Default has occurred
and so long as it is continuing, any amounts deposited into or
remaining in the Cash Collateral Account after Lender has allocated
minimum amounts as hereinabove provided shall be for the account of
Lender and may be withdrawn by Lender to be applied as provided in the
Loan Documents.
If, on any Payment Date, the balance in the Debt Service Payment
Sub-Account is insufficient to make the payment of Required Debt
Service Payment, then a Default shall exist hereunder, and Lender may
(but shall not obligated to) direct Servicer to withdraw funds from
the Basic Carrying Costs Sub-Account or the Capital Reserve Sub-
Account to pay such deficiency. In the event that Lender elects to
apply the proceeds of either such Sub-Account to pay any Required Debt
Service Payment, Borrower shall, upon demand, repay to Lender the
amount of such withdrawn funds to replenish such Sub-Account, and if
Borrower shall fail to repay such amounts within five days after such
withdrawal, an Event of Default shall exist hereunder, which Event of
Default shall not be cured unless and until Borrower repays such
amount or all Sub-Accounts have again been fully funded from Rents,
Money or Proceeds received from Accounts. Lender may, at its sole
option, replenish such Sub-Account out of available Rents, Money or
Proceeds received from Accounts in subsequent months which Borrower
would have otherwise been entitled to receive.
(f) The third sentence in Section 2.12(i) is deleted in its entirety
and the following sentences are inserted in its place:
(In the event such a change in law prohibits Borrower from assuming
liability for payment of any such Imposition, Borrower shall prepay a
portion of the Loan equal to the Allocated Loan Amount with respect to
the affected Facility (such prepayment to be applied to the Allocated
Loan Amount for such Facility), without payment of the Yield
Maintenance Premium, together with (x) interest accrued thereon to the
immediately succeeding Payment Date or (y) accrued interest thereon,
if such prepayment is made on a Payment Date. Such prepayment shall
be made on the date that is 120 days after such change in law and
failure to pay such amounts on the date due shall be an Event of
Default.)
8. Section 2.13(b) of the Loan Agreement is hereby amended by
deleting at the end of clause (iii) the following phrase:
E-15
<PAGE>
"and the accounts into which funds may be transferred by the Collection
Account Banks after the sweep to the Cash Collateral Account is terminated
by Lender or Custodian in any month".
9. Section 2.13(c) of the Loan Agreement is hereby amended by
deleting the second sentence and inserting the following sentence in its place:
Borrower and the Bank have also executed and delivered that certain
Cash Collateral Account Agreement dated as of the date of the Second
Amendment (the "CC Account Agreement"), the form of which is attached
--------------------
hereto as Exhibit O.
---------
10. Section 4.1(S) of the Loan Agreement is hereby amended by
inserting the following at the end of Section 4.1(S):
In the event (x) FRP is consolidated with another entity to create a
new limited partner of Borrower in such a manner so that immediately after
the consolidation (i) FRI ceases to be a general partner of FRP and (ii)
FRI serves as a general partner solely for Borrower and not for any other
entity and (y) FGI acknowledges in writing to Borrower that FRI is not
liable for the payment of any Deferred Management Fees (as defined in the
Management Agreement), the provisions of Section 4.1(S) of the Loan
Agreement shall no longer be applicable to such new limited partner of
Borrower.
11 Section 4.1 of the Loan Agreement is hereby amended by inserting
the following at the end of Section 4.1:
(KK) Permitted Encumbrances. The Permitted Encumbrances do not
----------------------
cause a Material Adverse Effect.
12 Section 5.1(P) of the Loan Agreement is hereby amended by
deleting the fourth sentence and inserting in the following sentence in its
place:
Notwithstanding the foregoing, any successor property manager selected
hereunder by Lender or Borrower to serve as Manager shall be a reputable
management company having at least seven years' experience in the
management of skilled nursing homes, assisted living facilities and/or
congregate care facilities (as the case may be) in the state in which the
Facility is located, and shall, if after the Securitization Closing Date,
(i) have qualifications such that the then current ratings of no class of
the Certificates would be downgraded or withdrawn by the Rating Agencies
upon such an appointment (which in the case of S&P
E-16
<PAGE>
shall be evidenced in writing from S&P) and (ii) be reasonably acceptable
to Servicer.
13. Section 6.1(C) of the Loan Agreement is hereby amended by
deleting such Section 6.1(C) in its entirety and inserting the following in its
place:
(C) Other Borrowings. Incur, create, assume, become or be
----------------
liable in any manner with respect to Other Borrowings, except that Borrower
may incur secured or unsecured indebtedness relating solely to financing or
leasing of Equipment and costs associated with such indebtedness (x) which
does not exceed $150,000 in aggregate at any Facility or $1,000,000 in the
aggregate at all the Facilities, and (y) the proceeds of which are not
distributed to Borrower except as reimbursement for monies expended by
Borrower to fund the financing or leasing of such Equipment.
14. Section 6.1(K) of the Loan Agreement is hereby amended by
deleting such Section 6.1(K) and inserting the following in its place:
(K) Admission of Partners. Admit any Person as a partner of
---------------------
Borrower, unless (i) the Person(s) who is so admitted pledges its
partnership interest to Lender pursuant to an agreement in the form of
Exhibit L attached hereto, (ii) if such Person is admitted as a general
---------
partner of the Borrower, (x) such Person is a Single-Purpose Entity, (y)
such Person confirms to Lender in writing the representations and covenants
contained in Section 4.1(S) with respect to itself, and (z) prior to such
--------------
Person's admission as a general partner, a non-consolidation opinion in
form and substance acceptable to the Rating Agencies is delivered to the
Lender and the Rating Agencies and (iii) if such Person is admitted as a
limited partner of the Borrower owning in the aggregate 49% or more of the
partnership interests in the Borrower, prior to such Person's admission as
a limited partner, a non-consolidation opinion in form and substance
acceptable to the Rating Agencies is delivered to the Lender and the Rating
Agencies.
15. Section 8.9 of the Loan Agreement is hereby amended by inserting
the following sentence at the end of Section 8.9:
Following the assignment of this Agreement, the Note, the Mortgages
and the other Loan Documents by Nomura Asset Capital Corporation ("NACC")
----
in connection with the Securitization, in addition to providing notices to
Lender's assignee in accordance with instructions received from such
assignee, Borrower shall continue to send copies of all
E-17
<PAGE>
notices and other communications to NACC at the address set forth in
Section 8.6 or to such other address as may be designated by NACC pursuant
-----------
to Section 8.6.
-----------
16. The following new Section 8.26 is hereby inserted after Section
8.25 of the Loan Agreement:
Section 8.26. Defeasance. (a) After April 1, 1997, in the event (i)
----------
Borrower exercises its option to prepay the Loan pursuant to Section 2.6(a)
--------------
or is obligated to make a mandatory prepayment pursuant to Section 2.7(a)
--------------
and (ii) the sum of (x) the amount of the prepayment (or Release Price if
Section 2.7(a) is applicable), plus (y) the Yield Maintenance Premium
-------------- ----
equals or exceeds the cost of purchasing U.S. Obligations which are
sufficient to provide Scheduled Defeasance Payments, Borrower shall defease
the Loan in lieu of making the payments specified in Sections 2.6(a) or
---------------
2.7(a), as applicable, in compliance with the following conditions
------
precedent:
(i) the delivery by Borrower of not less than 30 days' prior
written notice to Lender specifying a regularly scheduled Payment Date
(the "Defeasance Date") on which the Defeasance Deposit is to be made;
---------------
(ii) the payment to Lender of all scheduled interest and
principal payments due and unpaid on the Defeasance Date;
(iii) with respect to defeasance in lieu of a prepayment in
whole pursuant to Section 2.6(a) only, the payment to Lender of all
--------------
other sums due under the Note, the Mortgages and the other Loan
Documents;
(iv) with respect to defeasance in lieu of prepayments pursuant
to Section 2.7(a) only, (x) payment of all other amounts due under the
--------------
Related Mortgage and (y) satisfaction of the conditions contained in
Section 2.11(a);
---------------
(v) the payment to Lender of the Defeasance Deposit; and
(vi) the delivery to Lender of:
(A) a security agreement, in form and substance reasonably
satisfactory to Lender, creating a first priority lien on the
Defeasance Deposit and the U.S. Obligations purchased on behalf
of Borrower with the Defeasance Deposit in accordance with this
provision of this Section 8.26 (the "Security Agreement");
------------ ------------------
E-18
<PAGE>
(B) with respect to defeasance in lieu of a prepayment in
whole pursuant to Section 2.6(a) only, releases for each of the
--------------
Individual Properties from the lien of the Related Mortgage and
the Assignment of Leases and UCC-1 financing statements (for
execution by Lender) in forms appropriate for the jurisdiction in
which each Individual Property is located;
(C) with respect to defeasance in lieu of prepayments
pursuant to Section 2.7(a) only, the releases described in
--------------
Section 2.11(a) (for execution by Lender) in forms appropriate
---------------
for the jurisdiction in which the applicable Individual Property
is located;
(D) an officer's certificate of Borrower certifying that
the requirements set forth in this Section 8.26 have been
------------
satisfied;
(E) an opinion of counsel for Borrower in form satisfactory
to Lender stating, among other things, that Lender has a
perfected first priority security interest in the Defeasance
Deposit and the U.S. Obligations purchased by Lender on behalf of
Borrower; and
(F) such other certificates, documents or instruments as
Lender may reasonably request.
In connection with the conditions set forth above, Borrower
hereby appoints Lender as its agent and attorney-in-fact for the purpose of
using the Defeasance Deposit to purchase U.S. Obligations which provide
Scheduled Defeasance Payments and Lender shall upon receipt of the
Defeasance Deposit purchase such U.S. Obligations on behalf of Borrower.
Borrower, pursuant to the Security Agreement or other appropriate document,
shall authorize and direct that the payments received from the U.S.
Obligations shall be made directly to Lender and applied to satisfy the
obligations of Borrower under the Note.
(b) With respect to defeasance in lieu of a prepayment in whole
pursuant to Section 2.6(a), upon compliance with the requirements of
--------------
Section 8.26(a), (i) the Mortgaged Property shall be released from the
---------------
liens of the Mortgages and the Assignments of Leases, (ii) the general
partner and the limited partner of Borrower shall be released from the
pledge under the Pledge and Security Agreement and (iii) the pledged U.S.
Obligations shall be the sole source of collateral securing the Note. With
respect to a defeasance
E-19
<PAGE>
in lieu of a prepayment pursuant to Section 2.7(a), upon compliance with
--------------
the requirements of Section 8.26(a) the applicable Individual Property or
---------------
Properties shall be released pursuant to Section 2.11(a).
---------------
(c) Any portion of the Defeasance Deposit in excess of the amount
necessary to purchase the U.S. Obligations required by Section 8.26(a)
---------------
above or to satisfy the other requirements of Section 8.26(a) shall be
---------------
remitted to Borrower.
(d) If Lender determines that, notwithstanding all reasonable efforts
by Borrower, Borrower is unable to comply with the conditions precedent set
forth in Section 8.26(a) with respect to defeasance, but Borrower complies
---------------
with all requirements relating to prepayment, Borrower shall be entitled to
prepay all or a portion of the Loan.
17. Exhibit M attached hereto is hereby substituted for Exhibit M to
--------- ---------
the Loan Agreement.
18. Exhibit O attached hereto is hereby substituted for Exhibit O to
--------- ---------
the Loan Agreement.
19. On March 31, 1995 Borrower will transfer $451,000.00 to the Bank
for deposit in the Basic Carrying Costs Sub-Account.
20. As modified by this Second Amendment, the Loan Agreement shall
remain in full force and effect among the parties hereto.
21. This Second Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
E-20
<PAGE>
IN WITNESS WHEREOF, this Second Amendment has been executed as of the
day and year first above written.
NOMURA ASSET CAPITAL CORPORATION, a
Delaware corporation
By: /s/ Perry Gershon
---------------------------------
Name: Perry Gershon
Title: Vice President
FRP FINANCING LIMITED, L.P., a
Delaware limited partnership
By: Forum Retirement, Inc., a
Delaware corporation,
General Partner
By: /s/ Paul A. Shively
----------------------------
Name: Paul A. Shively
Title: Vice President
PACIFIC MUTUAL LIFE INSURANCE COMPANY,
a California corporation
By: /s/ M.A. Curran
---------------------------------
Name: M.A. Curran
Title: Vice President
By: /s/ C.S. Dillion
--------------------------------
Name: C.S. Dillion
Title: Assistant Secretary
E-21
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF FORUM RETIREMENT PARTNERS, L.P.
NAME STATE OF ORGANIZATION
---- ---------------------
FRP Financing Limited, L.P. (99% limited partnership interest) Delaware
E-22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,960
<SECURITIES> 0
<RECEIVABLES> 3,284
<ALLOWANCES> 227
<INVENTORY> 0
<CURRENT-ASSETS> 7,311
<PP&E> 124,836
<DEPRECIATION> 27,630
<TOTAL-ASSETS> 110,610
<CURRENT-LIABILITIES> 7,708
<BONDS> 47,984
0
0
<COMMON> 0
<OTHER-SE> 38,909
<TOTAL-LIABILITY-AND-EQUITY> 110,610
<SALES> 0
<TOTAL-REVENUES> 49,824
<CGS> 0
<TOTAL-COSTS> 49,526
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,261
<INCOME-PRETAX> 297
<INCOME-TAX> 0
<INCOME-CONTINUING> 297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
<PAGE>
EXHIBIT 99
IMPORTANT FACTORS REGARDING
FORWARD-LOOKING STATEMENTS
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report and presented elsewhere by management from time to time. Reference is
also made to uncertainties discussed in the following portions of the
Partnership's annual report on Form 10-K for the fiscal year ended December 31,
1995: (a) the subsections entitled "Sources of Payment," "Regulation and Other
Factors" and "Competition" in Item 2, within the "PROPERTIES" section, which
describe (i) the federal and state governmental involvement and discretion in
the funding and payment of Medicare and Medicaid payments that comprise a
significant portion of the Partnership's revenues, (ii) the federal, state and
local governmental regulation of healthcare facilities, including the
requirement of continued licensure, and (iii) the competitive conditions faced
by the Partnership, and (b) Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Competition: The profitability of retirement communities is subject to general
economic conditions, competition, the desirability of particular locations, the
relationship between supply of and demand for senior living facilities, and
other factors. The Partnership's retirement communities are generally located
in markets that contain numerous competitors, and the continued success of the
Partnership's retirement communities in their respective markets will be
dependent, in large part, upon those facilities' ability to compete in such
areas as access, location, quality of accommodations, amenities, specialized
services and rate structure.
Facility Expansion: The timing and success of the planned expansion of the
Partnership's existing retirement communities is dependent upon a number of
factors, including the ability to obtain required zoning variances and permits
from local governmental authorities and the timing thereof, whether development
and construction costs are higher or lower than anticipated, whether
construction is completed faster or slower than anticipated, whether newly added
living units are occupied faster or slower than anticipated, whether rental
rates for additional living units are higher or lower than anticipated, and
whether operating costs are higher or lower than anticipated.
Availability of Financing: The Partnership presently intends to finance the
planned expansion of its existing retirement communities out of the
Partnership's cash flow from operations. If cash flow from operations is
insufficient to complete such expansion on a timely basis, the expansion may be
delayed, reduced in scope or discontinued. In that event, the Partnership may
seek to obtain financing from Forum Group or the General Partner, although they
do not have an obligation to provide any such financing. The Nomura Loan
restricts the ability of the Partnership to obtain third-party financing (other
than from Forum Group or the General Partner, on an unsecured, subordinated
basis) above $1 million in the aggregate, and prohibits the imposition of liens
on the Partnership's assets. There can be no assurance that a waiver could be
obtained from the lender to permit any third-party financing, or whether, when
and on what terms any such financing may be available.
E-24
