<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 1994
Registration No. 33-51251
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------------
AMENDMENT NO. 3
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
FORUM GROUP, INC.
8900 KEYSTONE CROSSING, SUITE 200
INDIANAPOLIS, INDIANA 46240-0498
(317) 846-0700
INDIANA 61-0703072
(State of Incorporation) (I.R.S. Employer
Identification No.)
JOHN H. SHARPE, ESQ.
VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
FORUM GROUP, INC.
8900 KEYSTONE CROSSING, SUITE 200
INDIANAPOLIS, INDIANA 46240-0498
(317) 846-0700
(Agent for Service)
------------------
COPIES TO:
ROBERT A. PROFUSEK, ESQ.
JONES, DAY, REAVIS & POGUE
2300 TRAMMELL CROW CENTER
2001 ROSS AVENUE
DALLAS, TEXAS 75201
(214) 220-3939
------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
None of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933.
The Registrant elects to deliver its latest Annual Report on Form 10-K
pursuant to Item 11(a)(1) of this Form.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
FORUM GROUP, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Form S-2 Caption or Location
Item Number and Heading in Prospectus
----------------------- -------------------
<C> <S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Facing Page; Cross Reference
Sheet; Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................. Inside Front Cover Page of
Prospectus; Outside Back Cover
Page of Prospectus
3. Summary Information, Risk Factors,
and Ratio of Earnings to Fixed
Charges............................ "Prospectus Summary"; "Risk
Factors"
4. Use of Proceeds..................... "Use of Proceeds"
5. Determination of Offering Price..... *
6. Dilution............................ *
7. Selling Security Holders............ *
8. Plan of Distribution................ "Plan of Distribution"
9. Description of Securities to be
Registered......................... "Capital Stock"; "Special Warrants"
10. Interests of Named Experts and
Counsel............................ "Experts"; "Legal Opinion"
11. Information with Respect to the
Registrant......................... "Information Incorporated by
Reference"
12. Incorporation of Certain Information
by Reference....................... "Information Incorporated by
Reference"
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ *
</TABLE>
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* Item is omitted because answer is negative or inapplicable.
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<PAGE>
PROSPECTUS
FORUM GROUP, INC.
Up to 1,520,212 Shares of Common Stock
and
Up to 149,607 Special Warrants to Purchase Common Stock
Forum Group, Inc., an Indiana corporation (the "Company"), is offering to
certain holders of its Common Stock, without par value ("Common Stock"), the
opportunity to subscribe for and purchase additional shares of Common Stock at
$3.75 per share. (Such offering is hereinafter referred to as the "Subscription
Offering.") Forum Retirement Partners, L.P. ("FRP") is a publicly traded
limited partnership for which a wholly owned subsidiary of the Company acts as
general partner and in which the Company has a substantial equity interest. The
Company and FRP entered into a Recapitalization Agreement (the "FRP
Recapitalization Agreement") relating to the recapitalization of FRP (the "FRP
Recapitalization"). Pursuant to the FRP Recapitalization Agreement, a wholly
owned subsidiary of the Company acquired 6,500,000 newly issued Units (as
defined below) for $13.0 million in October, 1993. The Company obtained funds
for the purchase of the Units from certain shareholders of the Company who in
the aggregate own a majority of the Company's outstanding Common Stock (the "FGI
Investors") pursuant to the sale to the FGI Investors of 3,466,666 shares of
Common Stock for a total purchase price of approximately $13.0 million, or $3.75
per share. The Subscription Offering is intended to afford Eligible
Shareholders (as defined below) the opportunity to acquire additional shares of
Common Stock on substantially the same terms applicable to the FGI Investors and
thereby avoid dilution. See "The FRP Recapitalization" and "Stock Purchase
Agreements." Eligible Shareholders are urged to obtain current market
quotations prior to determining whether to accept the Subscription Privilege.
Only shareholders of record (other than the FGI Investors) as of the close of
business on October 18, 1993 (the "Record Date") (such shareholders being
hereinafter referred to as "Eligible Shareholders") will be eligible to purchase
Common Stock in the Subscription Offering. Eligible Shareholders may subscribe
for and purchase .2717458 of a share of Common Stock for each share of Common
Stock held of record by them on the Record Date at a purchase price of $3.75 per
share (the "Subscription Privilege"). No fractional shares of Common Stock will
be issued. The number of shares of Common Stock for which Eligible Shareholders
may subscribe will be based on the aggregate number of shares of Common Stock
held by the Eligible Shareholder on the Record Date and will be rounded down to
the nearest whole number. The opportunity to subscribe for and purchase
additional shares of Common Stock pursuant to the Subscription Offering is not
directly or indirectly assignable or transferable and will not be evidenced by a
certificate. The exercise of the Subscription Privilege will be irrevocable
and, if the Subscription Offering is completed, the Subscription Price will be
non-refundable. The Subscription Offering is subject to certain conditions.
See "The Subscription Offering."
In accordance with the terms of a Warrant Agreement, dated as of June 10, 1993
(the "Warrant Agreement"), between the Company and Citicorp USA, Inc. (the
"Warrant Holder"), the Company is also offering to the Warrant Holder the
opportunity to subscribe for and purchase, at its election, either 149,607
shares of Common Stock or 149,607 Special Warrants (as defined below) at a
purchase price of $3.75 per share or Special Warrant to enable the Warrant
Holder to avoid dilution. (Such offering is hereinafter referred to as the
"Warrant Offering," and the Warrant Offering and the Subscription Offering are
hereafter referred to collectively as the "Offerings.") Each Special Warrant
is purchasable for $3.75 per Special Warrant and would permit the holder thereof
to purchase one share of Common Stock at a warrant exercise price of $0.01 per
share. See "The Warrant Offering."
The Common Stock is traded in the over-the-counter market and price quotations
are reported through the National Association of Securities Dealers Automated
Quotation System (the "NASDAQ") under the symbol "FOURQ." On October 6, 1993,
the last full trading day prior to the public announcement of the first sale of
Common Stock pursuant to the Stock Purchase Agreements (as defined below), the
close bid quotation for the Common Stock as reported by the NASDAQ was $4.125
per share. On the last trading day prior to the date of this Prospectus, the
close bid quotation for the Common Stock was $ per share.
The Offerings will expire at 5:00 p.m., New York City time, on April , 1994,
unless extended in the sole discretion of the Company.
AN INVESTMENT IN THE COMMON STOCK AND SPECIAL WARRANTS OFFERED HEREBY INVOLVES
A NUMBER OF MATERIAL RISKS AND OTHER CONSIDERATIONS. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================
SUBSCRIPTION UNDERWRITER'S FEES PROCEEDS TO
PRICE AND COMMISSIONS ISSUER (1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share or Special Warrant. $ 3.75 N/A $ 3.75
- ------------------------------------------------------------------------------
Total (2).................... $5,700,795 N/A $5,700,795
==============================================================================
</TABLE>
(1) Before deduction of estimated expenses of $224,000 payable by the
Company.
(2) Assumes that Eligible Shareholders purchase 1,370,605 shares of Common Stock
in the Subscription Offering and that the Warrant Holder purchases either
149,607 shares of Common Stock or 149,607 Special Warrants in the Warrant
Offering.
The date of this Prospectus is March , 1994.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations promulgated thereunder with respect to the Common
Stock and Special Warrants offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, and to which reference is hereby made. For further information with
respect to the Company, the Common Stock and the Special Warrants, reference is
made to the Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference.
The Company is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports and other information with the
Commission. The Registration Statement, as well as such reports and other
information filed by the Company with the Commission, may be inspected at the
Public Reference Room maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and should also be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company (Commission File No. 0-6350) with
the Commission are incorporated herein by reference: (1) the Company's Annual
Report on Form 10-K for its fiscal year ended March 31, 1993 (the "1992 Form
10-K"); (2) the Company's Current Report on Form 8-K dated June 14, 1993; (3)
the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended June
30, 1993, as amended (filed with the Commission on February 14, 1994); (4) the
Company's Quarterly Report on Form 10-Q for its fiscal quarter ended September
30, 1993, as amended (filed with the Commission on February 14, 1994); (5) the
Company's Current Report on Form 8-K dated October 6, 1993; and (6) the
Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December
31, 1993, as amended (filed with the Commission on March 2, 1994) (the "1993
Third Quarter Form 10-Q").
Any statement incorporated herein shall be deemed to be modified, replaced or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies, replaces or supersedes
such statement. Any statement so modified, replaced or superseded shall not be
deemed, except as so modified, replaced or superseded, to constitute a part of
this Prospectus.
The Company is delivering copies of the 1992 Form 10-K and the 1993 Third
Quarter Form 10-Q to each person to whom this Prospectus is delivered. Upon
written or oral request, the Company will provide, without charge, to each
person to whom this Prospectus is delivered, a copy of any and all of the
documents incorporated by reference herein (not including exhibits to the
documents that are incorporated by reference unless the exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests should be directed to John H. Sharpe, Esq., Vice
President, Secretary and General Counsel, Forum Group, Inc., 8900 Keystone
Crossing, Suite 200, Indianapolis, Indiana 46240-0498, telephone (317) 846-0700.
-2-
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus. Reference is made to, and this summary is qualified in its entirety
by, the more detailed information contained elsewhere in this Prospectus, which
should be read in its entirety. Unless the context otherwise requires, all
references to "1993," "1992," "1991" and "1990" mean the Company's fiscal years
ended March 31, 1994, March 31, 1993, March 31, 1992 and March 31, 1991,
respectively.
THE COMPANY
The Company provides senior housing services in 11 states through the
operation of 22 rental retirement communities ("RCs") and three RCs
predominantly providing continuing care. The Company also operates one free-
standing nursing home. Of those facilities, eight are owned by the Company, two
are leased and 16 are managed. Nine of the facilities managed by the Company
are owned by FRP. See "The Company" and "Business and Properties of the
Company."
RECENT HISTORY
On February 19, 1991, the Company and certain of its affiliates (not including
FRP) (collectively, the "Forum Debtors") commenced proceedings (the
"Reorganization Proceedings") under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") to reorganize and restructure their liabilities.
On April 2, 1992, the Company emerged from bankruptcy pursuant to a plan of
reorganization (the "POR"). See "The Company --Reorganization Proceedings."
Thereafter, the Company entered into agreements with the FGI Investors, being
Apollo FG Partners, L.P. ("AFG"), Forum Holdings, L.P. ("Forum Holdings"),
Healthcare Resources I, L.P. ("Resources") or certain of their affiliates, which
resulted in a substantial recapitalization of the Company in June 1993 (the
"1993 Recapitalization"). The FGI Investors, in the aggregate, beneficially
owned 71.7% of the outstanding Common Stock as of the completion of the 1993
Recapitalization. See "The Company -- The 1993 Recapitalization" for a
description of the 1993 Recapitalization and see "The Offerings" with respect to
the FGI Investors' present beneficial ownership of Common Stock.
Although the Company has historically experienced significant losses,
including a net loss of $7.4 million for the fiscal year ended March 31, 1993
(see "Risk Factors--History of Unprofitable Operations"), the Company's
operating results have improved substantially in 1993 compared to prior years.
For the nine months ended December 31, 1993, the Company had net income of
approximately $1.3 million, or $0.08 per share, compared to a net loss of $7.0
million, or $(0.95) per share, for the comparable period in 1992. See "Pro
Forma Financial Information." Although the write-off of deferred financing
costs relating to the payment and prepayment of the Company's bank debt as a
result of the refinancing decribed in "The Refinancing" (the "Refinancing")
and certain other fees and expenses relating to the Refinancing will result in
extraordinary changes in the Company's fourth fiscal quarter (presently
estimated at $8.0 million), the Company presently expects its operating
results for such quarter to be generally consistent with its improved
operating results in the Company's third fiscal quarter of 1993. The Company
intends to seek growth through the acquisition of additional properties and
assets. See "The Company--Business Strategy and Outlook."
-3-
<PAGE>
RISK FACTORS
The Common Stock and Special Warrants offered hereby are subject to a number
of material risks and other investment considerations, including the Company's
high level of leverage, risks relating to floating interest rates applicable to
a substantial portion of the Company's long-term debt, restrictive covenants
applicable to the Company, the Company's history of unprofitable operations, the
Company's recent bankruptcy proceedings and recapitalization in 1993, the
Company's failure to pay dividends since 1989 and restrictions on its payment of
dividends, the risks of RC ownership generally, the risks of government
regulation and reimbursement by third-party payors, the risks of potential
future dilution and risks relating to the Company's interest in FRP. See "Risk
Factors."
-4-
<PAGE>
THE FRP RECAPITALIZATION
On December 30, 1993, FRP obtained a $50.3 million loan from Nomura (the "New
FRP Loan"). The proceeds of the New FRP Loan were used, together with equity
capital made available to FRP, to retire and repay all existing indebtedness of
FRP, including bank debt maturing on December 31, 1993 (the "FRP Bank Debt")
(the principal balance of which was approximately $22.5 million prior to the FRP
Recapitalization Agreement), and approximately $34.1 million aggregate principal
amount of FRP's split coupon first mortgage notes (the "FRP Split Coupon
Notes"), and to pay related fees and expenses. Pursuant to a Recapitalization
Agreement between FRP and the Company (the "FRP Recapitalization Agreement"),
the Company purchased through a subsidiary 6,500,000 newly issued units of
limited partners' interests ("Units") from FRP for $13.0 million, or $2.00 per
Unit. The FRP Recapitalization Agreement was the result of arms' length
negotiations between representatives of the Company and a committee of the
independent directors of the general partner of FRP, and their representatives.
Various factors were important to the Company's decision to enter into the FRP
Recapitalization Agreement, including (i) FRP's need for equity capital to
refinance its indebtedness, including the FRP Bank Debt which matured on
December 31, 1993, and the willingness of the FGI Investors to make available to
the Company the equity capital necessary therefor, (ii) the Company's
substantial equity interest in FRP and the potential adverse impact thereon
which would result if the FRP Bank Debt is not paid when it becomes due, (iii)
the terms of the New FRP Loan, including provisions that would permit FRP to
make distributions to holders of Units in certain circumstances, and the lower
debt service costs which FRP would incur if the Nomura refinancing of FRP's
indebtedness were completed, and (iv) recent improvements in FRP's results of
operations and the Company's views as to FRP's prospects. Based on the
foregoing factors, management of the Company believes that the purchase of
additional Units pursuant to the FRP Recapitalization Agreement was an
attractive investment and that the transactions contemplated by the FRP
Recapitalization Agreement will enhance the value of the Company's equity
interest in FRP.
As a result of the purchase of the 6,500,000 Units, the Company increased,
on an interim basis, its aggregate beneficial ownership of Units to 8,440,268
Units, or approximately 55.2% of the total number of Units outstanding. In
accordance with the terms of the FRP Recapitalization Agreement, following the
completion of a subscription offering made to holders of Units other than the
Company and its affiliates (the "FRP Offering"), FRP repurchased 1,994,189
Units at the same price paid by the Company's subsidiary under the
Recapitalization Agreement. Accordingly, the Company now beneficially owns
approximately 42.17% of the Outstanding Units.
Under the terms of the Company's prior long-term debt, the Company could not
enter into the FRP Recapitalization Agreement unless it obtained new investment
equity. Accordingly, the FGI Investors agreed to enter into certain stock
purchase agreements with the Company (the "Stock Purchase Agreements") pursuant
to which the FGI Investors purchased a total of 3,466,666 shares of Common Stock
from the Company in
-5-
<PAGE>
October for an aggregate purchase price of approximately $13.0 million, or $3.75
per share. The terms and conditions of the Stock Purchase Agreements, which
were modeled on the February Stock Purchase Agreement (as defined below) entered
into between the Company and Forum Holdings prior to the time at which the FGI
Investors acquired a majority interest in the Company, were determined by a
committee of the Board of Directors of the Company comprised solely of persons
who are not officers or employees of the Company or affiliates of the FGI
Investors to be fair and reasonable to, and in the best interest of, the Company
and comparable to those that could be negotiated with an unrelated third party.
See "Stock Purchase Agreements."
THE OFFERINGS
As a result of the transactions contemplated by the Stock Purchase Agreements,
the FGI Investors, in substance, advanced to the Company the equity capital
necessary to permit the Company to enter into the FRP Recapitalization Agreement
without any compensation being paid to the FGI Investors for such advance
funding. Any excess equity capital derived from the Subscription Offering or as
a result of the repurchase of Units in connection with the FRP Offering will be
retained by the Company and used for general corporate purposes, including
funding the Company's growth strategy. See "Use of Proceeds."
As a result of their purchase of 3,466,666 shares of Common Stock pursuant to
the Stock Purchase Agreements, the FGI Investors increased their aggregate
beneficial ownership of Common Stock to 16,223,682 shares (including 5,760
shares presently purchasable for a nominal price upon exercise of the Investor
Warrants (as defined below)), or approximately 76.3% of the total number of
shares outstanding, from 12,757,016 shares (including 5,760 shares presently
purchasable for a nominal price upon exercise of the Investor Warrants), or
71.7% of the shares outstanding prior thereto. The Subscription Offering is
intended to afford Eligible Shareholders the opportunity, if they elect to do
so, to purchase additional shares on substantially the same terms as the
3,466,666 shares of Common Stock were purchased by the FGI Investors and thereby
avoid dilution as a result of the issuance of such shares to the FGI Investors.
If all of the 1,520,212 shares of Common Stock being offered pursuant to the
Offerings were subscribed for and purchased by Eligible Shareholders and the
Warrant Holder, the FGI Investors' percentage ownership of Common Stock
outstanding would be approximately 71.2%. Eligible Shareholders that elect to
participate in the Subscription Offering will not be entitled to purchase any
portion of the Common Stock not subscribed for by Eligible Shareholders that
elect not to participate in the Subscription Offering. Accordingly, the FGI
Investors' percentage ownership of the total outstanding Common Stock will
exceed 71.2% to the extent Eligible Shareholders elect not to participate in the
Subscription Offering and the Warrant Holder elects not to subscribe for and
purchase shares of Common Stock pursuant to the Warrant Offering. See "Stock
Purchase Agreements."
ELIGIBLE SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO
DETERMINING WHETHER TO ACCEPT THE SUBSCRIPTION PRIVILEGE.
The Warrant Offering is required to be made under the terms of the Warrant
Agreement. The Warrant Offering will afford the Warrant Holder, as the holder
of warrants issued pursuant to the Warrant Agreement (the "Warrants"), if it
elects to do so, the opportunity to avoid dilution as a result of the issuance
of shares of Common Stock pursuant to the Stock Purchase Agreements and the
Subscription Offering. The Warrant Holder may subscribe for and purchase, at
its election, in whole or in part, either (i) 149,607 shares of Common Stock at
a purchase price of $3.75 per share or (ii) 149,607 special warrants (the
"Special Warrants"), each representing the right to purchase one share of Common
Stock upon the payment of an exercise price per Special Warrant of $0.01 at any
time prior to 5:00 p.m., Indianapolis, Indiana time, on June 11, 1999, at a
purchase price of $3.75 per Special Warrant. See "The Warrant Offering."
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS") HAS
AUTHORIZED THE SUBSCRIPTION OFFERING TO AFFORD ELIGIBLE SHAREHOLDERS THE
OPPORTUNITY, IF THEY ELECT TO DO SO, TO AVOID DILUTION AS A RESULT OF THE
ISSUANCE OF 3,466,666 SHARES OF COMMON STOCK TO THE FGI INVESTORS. ALTHOUGH THE
COMPANY HAS BEEN INFORMED BY THE FGI INVESTORS THAT THE FGI INVESTORS BELIEVE
THAT THE ACQUISITION OF ADDITIONAL SHARES OF COMMON STOCK AT $3.75 PER SHARE
REPRESENTED AN ATTRACTIVE INVESTMENT BY THE FGI INVESTORS, THE BOARD OF
DIRECTORS HAS DETERMINED TO EXPRESS NO OPINION AND MAKE NO RECOMMENDATION TO
ELIGIBLE SHAREHOLDERS REGARDING THEIR DECISION EITHER TO EXERCISE OR REFRAIN
FROM EXERCISING THEIR SUBSCRIPTION PRIVILEGE PURSUANT TO THE SUBSCRIPTION
OFFERING. ANY ANALYSIS OF THE VALUE OF AN INVESTMENT IN COMMON STOCK IS
NECESSARILY UNCERTAIN, IS BASED IN SUBSTANTIAL PART ON FUTURE EVENTS, INCLUDING
THE COMPANY'S FUTURE OPERATING PERFORMANCE, MANY OF WHICH ARE OUTSIDE THE
CONTROL OF THE COMPANY, AND IS HEAVILY DEPENDENT UPON THE PARTICULAR CRITERIA
-6-
<PAGE>
AN INVESTOR DETERMINES TO BE APPROPRIATE FOR SUCH INVESTOR'S ANALYSIS.
ACCORDINGLY, ELIGIBLE SHAREHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO
SUBSCRIBE FOR AND PURCHASE ADDITIONAL COMMON STOCK PURSUANT TO THE SUBSCRIPTION
OFFERING AND SHOULD GIVE CAREFUL CONSIDERATION TO THE TERMS OF THE SUBSCRIPTION
OFFERING AND SUCH OTHER FACTORS AS SUCH ELIGIBLE SHAREHOLDERS DETERMINE TO BE
RELEVANT, INCLUDING, IN ADDITION TO FACTORS GENERALLY APPLICABLE TO AN
INVESTMENT IN AN ENTITY SUCH AS THE COMPANY, THE FACTORS REFERRED TO UNDER THE
CAPTION "RISK FACTORS" BELOW.
THE EXERCISE OF THE SUBSCRIPTION PRIVILEGE WILL BE IRREVOCABLE AND, IF THE
SUBSCRIPTION OFFERING IS COMPLETED, THE SUBSCRIPTION PRICE WILL BE NON-
REFUNDABLE. SEE "THE OFFERING."
THE COMMON STOCK
The Common Stock is traded in the over-the-counter market and price quotations
are reported through the NASDAQ under the symbol "FOUR." On October 6, 1993,
the last full trading day prior to the public announcement of the first sale of
Common Stock pursuant to the Stock Purchase Agreements, the close bid quotation
for the Common Stock as reported by the NASDAQ was $4.125 per share. For a more
recent close bid quotation for the Common Stock, see the cover page of this
Prospectus.
USE OF PROCEEDS
The net proceeds of the Offerings (estimated to be approximately $5.5 million
assuming Eligible Shareholders and the Warrant Holder subscribe for and purchase
an aggregate of 1,520,212 shares of Common Stock pursuant to the Offerings) will
be added to the Company's working capital and used for general corporate
purposes, which could include financing future growth of the Company through
possible acquisitions (although the Company has not entered into any agreement
providing for any such acquisition). See "Use of Proceeds." The proceeds to
the Company as a result of the repurchase of Units in connection with the FRP
Offering (see "The FRP Recapitalization"), if any, will also be added to the
Company's working capital and used for general corporate purposes. The
Acquisition Loan, if completed, would require the Company to invest $1.00 of
equity capital for every $2.00 of debt financing provided under the Acquisition
Loan. Accordingly, the Company may be required to raise additional equity
capital (through one or more rights offerings or otherwise) if the Company seeks
to avail itself of the entire amount of financing to be available to it under
the Acquisition Loan.
While the Company has engaged in preliminary discussions regarding certain
possible acquisitions of additional RCs and other assets, as of the date of this
Prospectus, the Company had not entered into any agreement providing for any
acquisition of any additional property or other assets outside the ordinary
course of business. (See "Use of Proceeds" with regard to a possible joint
investment program that the Company is considering with another entity.) There
can be no assurance that any such acquisitions will be completed or, if so, as
to the timing or terms thereof. The transactions contemplated by the
Acquisition Commitment are subject to various conditions and there can be no
assurance as to the timing or terms thereof. See "Refinancing and Other Loans --
Acquisition Commitment."
SUMMARY PRO FORMA FINANCIAL DATA
The following table presents unaudited summary pro forma financial data of the
Company as of and for the nine months ended December 31, 1993 and for the year
ended March 31, 1993. The pro forma results of operations have been derived
from the Company's unaudited financial statements contained in the 1993 Third
Quarter Form 10-Q and the Company's audited financial statements contained in
the 1992 Form 10-K, as adjusted to give effect to the sale of, alternatively,
1,520,212 and no shares of Common Stock pursuant to the Offerings (assuming all
Eligible Shareholders and the Warrant Holder subscribe for and purchase all
shares of Common Stock being offered in the Offerings), the transactions
described under the caption "The Company --The 1993 Recapitalization" below, the
closing of the Refinancing Loan and the application of the proceeds from the
Refinancing Loan to the prepayment of the $49.0 million principal balance of the
Citicorp Term Loan (as defined below) and $30.0 million aggregate principal
amount of the Company's senior subordinated notes (the "Senior Subordinated
Notes") and the payment of estimated costs and expenses, as if such transactions
had been consummated on the first day of the period presented. The pro forma
balance sheet data have been adjusted to give effect to such transactions as if
the transactions had been consummated as of December 31, 1993. See "Pro Forma
Financial Information" for pro forma financial information assuming, in the
alternative, that no shares of Common Stock are purchased pursuant to the
Subscription Offering. The pro forma financial data do not purport to be
indicative of the financial position or results of operations that would
actually have been
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<PAGE>
reported had such transactions in fact been consummated on such dates or of the
financial position or results of operations that may be reported by the Company
in the future. All of the following data should be read in conjunction with the
audited financial statements contained in the 1992 Form 10-K (including the
notes thereto) and the unaudited financial statements contained in the 1993
Third Quarter Form 10-Q (including the notes thereto), copies of which accompany
this Prospectus, and the unaudited pro forma financial information and related
notes contained elsewhere in this Prospectus. See "Pro Forma Financial
Information."
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended
December 31, 1993 March 31, 1993
----------------------- -----------------------
Historical Pro Forma Historical Pro Forma
----------- ---------- ----------- ----------
(000's Omitted, except per share data)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Total Revenues (a)........................ $ 80,636 $ 80,636 $ 93,302 $ 93,302
Operating Expenses........................ (57,450) (57,450) (70,417) (70,417)
Depreciation.............................. ( 5,841) ( 5,841) ( 8,793) ( 8,793)
Interest expense.......................... (13,241) (14,330) (18,192) (19,578)
Other expenses............................ ( 3,787) ( 3,787) ( 5,411) ( 5,411)
Income (loss) before minority
interests and extraordinary charge..... 317 ( 772) (9,511) (10,897)
Minority interests...................... 972 972 2,152 2,152
-------- -------- -------- --------
Net income (loss) before
extraordinary charge................... 1,289 200 (7,359) ( 8,745)
======== ======== ======== ========
Net income (loss) per share
before extraordinary charge............ $0.08 $0.01 $(0.98) $( 0.38)
======== ======== ======== ========
</TABLE>
- --------------------
(a) A change in the estimate of amounts reimbursable to third party payors from
prior years resulted in the recognition of $1,115,000 of revenue in the
nine-month period ended December 31, 1993, $54,000 of which applies to the
fiscal year ended March 31, 1993.
<TABLE>
<CAPTION>
At December 31, 1993
------------------------------------------------------
Pro Forma with Pro Forma with-
Additional Sale out Additional
Historical of Stock Sale of Stock
------------- ------------------- ------------------
(000's Omitted)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................. $ 14,334 $ 18,604 $ 12,903
Total assets.......... 286,991 293,236 287,535
Long-term debt........ 191,917(a) 206,218(a) 206,218(a)
Shareholders' equity.. 50,971 48,448 42,747
</TABLE>
- -------------------------
(a) Includes $76,381,000 of secured non-recourse obligations of the Company.
See Note 1(c) of Notes to Pro Forma Financial Statements."
PRINCIPAL TERMS OF THE SUBSCRIPTION OFFERING
Eligible Shareholders........ Each shareholder of record as of the close of
business on the Record Date (October 18, 1993),
other than the FGI Investors. See "The
Subscription Offering -- Subscription Privilege."
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<PAGE>
Subscription Privilege....... Each Eligible Shareholder may subscribe for and
purchase .2717458 of a share of Common Stock for
each share of Common Stock held of record by that
Eligible Shareholder on the Record Date. No
fractional shares of Common Stock will be issued.
The number of shares of Common Stock for which
each Eligible Shareholder may subscribe will be
based on the aggregate number of shares of Common
Stock held by the Eligible Shareholder on the
Record Date and will be rounded down to the
nearest whole number. See "The Subscription
Offering -- Subscription Privilege."
Subscription Price........... $3.75 in cash per share of Common Stock subscribed
for pursuant to the Subscription Privilege (the
"Subscription Price"). See "The Subscription
Offering -- Subscription Privilege."
Subscription Privilege
Not Transferable............ The opportunity to subscribe for and purchase
Common Stock pursuant to the Subscription Offering
is not directly or indirectly assignable or
transferable by the Eligible Shareholder and will
not be evidenced by a certificate. See "The
Subscription Offering -- Subscription Privilege."
Subscription Privilege
Not Revocable................ Once an Eligible Shareholder has exercised the
Subscription Privilege, such exercise may not be
revoked by an Eligible Shareholder. See "The
Subscription Offering -- No Revocation."
Expiration Date.............. April , 1994, at 5:00 p.m., New York City time,
subject to extension in the sole discretion of the
Company. See "The Subscription Offering --
Expiration Date."
Procedures for Exercising
Subscription Privilege....... The Subscription Privilege may be exercised by
properly completing the Notice of Exercise of
Subscription Privilege enclosed herewith ("Notice
of Exercise") or a facsimile thereof and
forwarding such Notice of Exercise, together with
payment of the Subscription Price for each share
of Common Stock subscribed for pursuant to the
Subscription Offering, to the Subscription Agent
so that it is received prior to the Expiration
Date. If the mail is used to forward Notices of
Exercise, it is recommended that registered mail
be used. See "The Subscription Offering --
Exercise of the Subscription Privilege."
Persons Holding Common
Stock Through Others......... Persons who on the Record Date held Common Stock
through a broker, dealer, commercial bank, trust
company or other nominee should contact the
appropriate institution or nominee and request it
to effect the transactions for them. See "The
Subscription Offering -- Exercise of Subscription
Privilege."
Issuance of Share
Certificates................. Share certificates evidencing Common Stock
purchased pursuant to the Subscription Offering
will be delivered to
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<PAGE>
Eligible Shareholders as soon as practicable after
they have validly exercised their Subscription
Privilege. See "The Subscription Offering --
Exercise of Subscription Privilege."
Subscription Agent........... American Stock Transfer & Trust Company.
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<PAGE>
RISK FACTORS
The Common Stock and Special Warrants offered hereby are subject to a number
of material risks and other investment considerations. These risks and
investment considerations should be carefully considered by Eligible
Shareholders prior to the exercise of the Subscription Privilege pursuant to the
Subscription Offering and by the Warrant Holder prior to its election to
purchase shares of Common Stock or Special Warrants pursuant to the Warrant
Offering.
HIGH LEVERAGE
Although the net proceeds of the Offerings, if any, will increase the
shareholders' equity of the Company, the Company will continue to have
indebtedness that is substantially greater than its shareholders' equity even
after giving effect to the Offerings. On a pro forma basis accounting for the
Offerings (assuming subscription by the Eligible Shareholders and the Warrant
Holder of all 1,520,212 shares of Common Stock being offered pursuant to the
Offerings), the Company's ratio of long-term indebtedness, including the current
portion thereof, to shareholders' equity was 4.26:1.0 at December 31, 1993, and
its ratio of operating income to net interest expense was .44:1.0 and .95:1.0,
respectively, for the fiscal year ended March 31, 1993 and the nine-month period
ended December 31, 1993. See "Pro Forma Financial Information."
RESTRICTIVE COVENANTS
The terms of the Company's long-term debt include various restrictive
covenants, including restrictions on the Company's ability to incur additional
indebtedness or liens, prohibitions on the payment of dividends and other
restrictions. The terms of the Nomura Loans contain various restrictive
covenants applicable to the subsidiary borrowers thereunder, including covenants
prohibiting the borrowers from engaging in any activity other than owning and
operating certain properties and incurring additional debt. Moreover, the
Nomura Loans provide that the Company could be replaced as manager of the Owned
Properties (as defined below) or Acquired Properties (as defined below), as the
case may be, upon the vote of the holders of 66-2/3% of the principal amount of
the related notes in certain limited circumstances. See "Business and
Properties of the Company -- Mortgages" and "Refinancing and Other Loans --
Refinancing Loan" and "Refinancing and Other Loans -- Acquisition Commitment."
FLOATING INTEREST RATES
A substantial portion of the Company's indebtedness bears interest at variable
rates tied to certain interest rate indices. Interest payable under the Nomura
Loans fluctuates by reference to LIBOR, although the Nomura Loans include a
feature that permit the Company to elect, subject to certain restrictions, to
convert to a fixed interest rate structure. See "Refinancing and Other Loans --
Refinancing Loan -- Refinancing Option." Accordingly, while interest rates
generally have been low in recent periods, the Company's results of operations
could be adversely affected by increases in such rates.
In connection with the Refinancing Loan, the subsidiary borrower thereunder
entered into an interest rate cap agreement with a financial institution that
provides that such financial institution will reimburse the subsidiary borrower
for any interest paid under the Refinancing Loan in excess of 8.925% per annum.
The interest rate cap agreement is for the term of the Refinancing Loan. See
"Refinancing and Acquisition Loan -- Refinancing Loan." It is contemplated that
the Company will enter into interest rate cap agreements or similar arrangements
in respect of variable rate debt under the Acquisition Loan.
HISTORY OF UNPROFITABLE OPERATIONS
For the fiscal year ended March 31, 1993, the Company had a net loss of
$7,359,000. For the nine months ended December 31, 1993, the Company had net
loss of $483,000 compared to a net loss of $7,081,000 for the same period of the
previous fiscal year. For the three months ended December 31, 1993, the Company
had net income of $272,000, compared to a net loss of $1,815,000 for the same
period of the previous fiscal year. The net loss for the nine-months period
ended December 31, 1993 included extraordinary charges totalling $1,772,000
related to the early extinguishment of the Company's and FRP's debt. A change
in the estimate of
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<PAGE>
amounts reimbursable to third party payors from prior years resulted in the
recognition of $1,115,000 of operating revenue in the nine-month period ended
December 31, 1993. The Company's objective is to continue to increase occupancy
rates and improve its operating margins through controlling expenses so that the
Company can generate, on a sustainable basis, positive results of operations.
As a result of the completion of the Refinancing Loan, the Company will be
required to incur a non-cash write-off of deferred financing costs of
approximately $5.0 million, to expense a $3,000,000 fee paid in connection with
the prepayment of the Senior Subordinated Notes in the Company's fiscal quarter
ended March 31, 1994, and to recognize certain other expenses. There can be no
assurance that the Company will have profitable operations in future periods.
RECENT BANKRUPTCY PROCEEDINGS AND 1993 RECAPITALIZATION
The Forum Debtors commenced the Reorganization Proceedings under Chapter 11 of
the Bankruptcy Code in 1991, the Company emerged from bankruptcy in 1992, and it
required a substantial recapitalization in 1993. See "The Company --
Reorganization Proceedings" and "The Company -- The 1993 Recapitalization."
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company has not declared or paid dividends on the Common Stock since 1989
and does not anticipate paying regular dividends on the Common Stock in the
foreseeable future, but rather presently expects to reinvest any excess cash
flow in the Company's businesses. See "Dividend Policy." Dividends and other
distributions are prohibited by the terms of the Senior Secured Notes as long as
such Notes remain outstanding. See "Refinancing and Other Loans -- Other Long-
Term Debt." Distributions by the borrowers under the Nomura Loans to the
Company are subject to certain financial tests and other limitations described
below. See " -- Restrictive Covenants," "Refinancing and Other Loans --
Refinancing Loan" and " -- Acquisition Commitment."
RISKS OF RC OWNERSHIP GENERALLY
The RCs owned or operated by the Company may be affected by the risks
generally incident to the ownership and operation of real property, including
adverse changes in general or local economic conditions, increases in real
estate taxes and other operating expenses (including costs of energy), adverse
governmental rules and policies (including environmental restrictions), changes
in competitive conditions within their respective geographical market areas,
uninsured losses, repair and replacement of fixed assets, unbudgeted
contingencies and other factors beyond the Company's control. Such changes may
negatively effect the profitability of operations and the value of owned or
leased RCs and may have a direct or indirect result of reducing management fee
income in respect of managed RCs.
The value and profitability of the Company's RCs may also be affected by
changes in the overall demand for such rental communities and assisted living
and nursing facilities, as well as general economic and capital market
conditions. Although the Company believes that demand is currently at high
levels relative to supply of comparable RCs, there can be no assurance that
demand for RCs will continue at those levels or, even if it does continue, that
the Company will be successful in capitalizing upon that demand. Residents of
the independent and assisted living components of the rental RCs enter into
residency agreements on a short-term basis; consequently, there can be no
assurance that independent living units and assisted living suites presently
occupied will continue to be occupied. The Company's RCs may be subject to
competition from other rental and continuing care RCs and assisted living and
nursing facilities in the respective geographic areas of such facilities. See
"Business and Properties of the Company -- Competition."
One of the owned or leased RCs and two of the managed RCs have not yet
achieved stabilized occupancy (generally considered to be approximately 90%). A
high percentage of the Company's operating expenses are fixed and are therefore
incurred regardless of the level of occupancy. To the extent any RC is unable
to achieve stabilized occupancy, it may adversely affect the Company's results
of operations. See "Business and Properties of the Company -- Rental RCs."
-12-
<PAGE>
GOVERNMENT REGULATION
RC operations are subject to federal, state and local government regulations.
Facilities are subject to periodic inspection by state licensing agencies to
determine whether the standards necessary for continued licensure are
maintained. In granting and renewing licenses, the state agencies consider,
among other things, buildings, furniture and equipment; qualifications of
administrative personnel and staff; quality of care and compliance with laws and
regulations relating to operation of the facilities. State licensure of a
nursing facility is a prerequisite to certification for participation in the
Medicare and Medicaid programs. The Company believes that all of its RCs are
presently in substantial compliance with applicable federal, state and local
regulations with respect to healthcare licensure requirements. However, because
those standards are subject to change, there can be no assurance that its RCs
will be able to maintain their licenses upon a change in standards, and future
changes in those standards could necessitate substantial expenditures by the
Company. Most states have licensure requirements for the assisted living
components of RCs; however, those requirements are generally much less
comprehensive and stringent than requirements for licensure of nursing
facilities. None of the states in which the Company's RCs are located presently
have healthcare licensure requirements for the independent living components of
RCs.
RCs offering continuing care are subject to additional standards administered
by state regulatory agencies, including reporting requirements. Certain
compliance issues have recently arisen with respect to Forum/Rancho San Antonio,
a continuing care RC located in Cupertino, California, subject to regulation by
the California Department of Social Services ("DSS"). Forum/Rancho San Antonio
is owned by a nonprofit cooperative housing corporation controlled by residents
of the community (the "RSA Co-op") and managed by a subsidiary of the Company
(the "RSA Manager"). In consideration of development activities and a
construction loan, the RSA Co-op issued a subsidiary of the Company several
promissory notes in the aggregate principal amount of $18,493,000. It is
contemplated that these notes, as well as other substantial loans for
construction, will be repaid from the proceeds from the sales of memberships in
the RSA Co-op. In September 1993, DSS advised the Company that as a consequence
of certain alleged reporting and other deficiencies membership purchase price
deposits paid by prospective residents of the community were to be retained in
escrow. As a consequence, closings on the sale of memberships were delayed. On
January 21, 1994, DSS and the entities which it has heretofore certified to
provide continuing care at Forum/Rancho San Antonio (including the RSA Co-Op,
the RSA Manager and a non-profit subsidiary of the Company which leases the on-
site healthcare center from the RSA Co-op (the "Health Corporation")) entered
into an agreement whereby DSS issued a new certificate for buildings I, II and
III of Forum/Rancho San Antonio, but conditioned the continued validity of the
certificate on the satisfaction of certain requirements, including changes in
the composition of the officers and directors of the RSA Manager and of the
Health Corporation and modification of the management agreement among the RSA
Co-op, the RSA Manager and the Health Corporation. As a consequence of this
agreement, DSS authorized the release of the purchase price deposits from
escrow, thereby allowing closings to resume. DSS has stated that this
certificate may be forfeited in the event of a material breach of the specified
conditions. While the Company believes that Forum/Rancho San Antonio will be
able to satisfy such conditions, there can be no assurance with respect thereto.
Notwithstanding the foregoing, the Company believes that all of its continuing
care RCs are presently in substantial compliance with applicable reporting and
other governmental requirements. However, because continuing care certification
requirements are subject to change, there can be no assurance that the Company's
continuing care RCs will be able to maintain their certification.
The failure to obtain or renew certain required regulatory approvals or
licenses, the delicensing or decertification of any of the Company's RCs,
including Forum/Rancho San Antonio, or the disqualification of the Company, FRP
and other affiliates of the Company from participation in certain federal and
state reimbursement programs could have a material adverse effect upon the
Company. See "Business and Properties of the Company -- Regulation and Other
Factors."
The Federal Omnibus Budget Reconciliation Act of 1993 includes certain changes
in the Medicare program effective October 1, 1993, including, among other
things, the elimination of the provision allowing Medicare providers to receive
a return on equity as part of the provider's payment under the program. See
"Business and Properties of the Company -- Sources of Payment." Although the
Company does not expect this change to have a material adverse effect on the
Company's financial condition or results of operations, there can be no
assurance in this regard.
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<PAGE>
In January 1993, President Clinton established the Task Force on National
Health Care Reform (the "Task Force"). The Task Force was charged with
preparing health care reform legislation to be presented to Congress. Among the
stated concerns considered by the Task Force were the means to control or reduce
public and private spending on health care, to reform the payment methodology
for healthcare goods and services by both the public (Medicare and Medicaid) and
private sectors and to provide universal access to health care. The Task Force
has presented its report and recommendations to the Administration, and the
Administration has recently proposed legislation to Congress. The Company
cannot predict the effect the Task Force's report and recommendations or the
proposed legislation may have on its business, and no assurance can be given
that any such report and recommendations or the proposed legislation will not
have a material adverse effect on the Company. Various other legislative and
industry groups are studying numerous healthcare issues, including access,
delivery and financing of long-term health care, and at any given time there are
numerous federal and state legislative proposals relating to the funding and
reimbursement of healthcare costs. It is difficult to predict whether these
proposals will be adopted or the form in which they might be adopted, and no
assurance can be given that any such legislation, if adopted, would not have a
material adverse effect on the Company.
REIMBURSEMENT BY THIRD-PARTY PAYORS
For the nine months ended December 31, 1993, the Company derived approximately
16% of its operating revenues from Medicare and Medicaid and approximately 84%
of its operating revenues from private pay sources. Governmental and other
third-party payors have adopted and are continuing to adopt cost containment
measures designed to limit payments to healthcare providers. Medicaid
reimbursement rates are generally less than the rates charged to private pay
residents. There can be no assurance that payments under governmental or third-
party payor programs will remain at levels comparable to present levels or will,
in the future, be sufficient to cover the costs allocable to residents
participating in such programs. Because of the level of revenues which the
Company derives from Medicare and Medicaid, the Company's results of operations
are sensitive to changes in Medicare and Medicaid rates. See "Business and
Properties of the Company -- Sources of Payment."
POTENTIAL FUTURE DILUTION
The Warrant Agreement provides for the issuance of up to 550,205 shares of
Common Stock at $2.86 per share (subject to adjustment in certain
circumstances). The Warrant Offering would permit the Warrant Holder to
subscribe for and purchase, at its election, either 149,607 shares of Common
Stock or 146,607 Special Warrants at $3.75 per share or Special Warrant. See
"The Warrant Offering." In addition, as a result of the 1993 Recapitalization,
the FGI Investors hold warrants to purchase up to 5,760 shares of Common Stock
at $0.001 per share and will receive 1.1555 shares of Common Stock for each
additional share of Common Stock issued by the Company pursuant to its POR. See
"The Company -- The 1993 Recapitalization." In addition, the Company presently
expects to seek to raise additional equity capital to fund acquisitions. See
"Summary --Business Strategy and Outlook" and "Use of Proceeds." Any of the
foregoing could dilute the equity interest of shareholders interests in the
Company.
RISK OF RELATIONSHIPS WITH IN FRP
The Company has a substantial equity in FRP and a wholly owned subsidiary of
the Company is the general partner of FRP. In addition, the Company acts as
manager of the RCs owned by FRP pursuant to a management agreement entered into
in connection with the formation of FRP in 1986 (as amended, the "FRP Management
Agreement").
On January 24, 1994, the Russell F. Knapp Revokable Trust, a substantial
Unitholder of FRP that purchased Preferred Depositary Units in 1992 (the "Knapp
Trust"), filed a complaint (the "Complaint) in the United States District Court
for the Northern District of Iowa against FRP's general partner, a wholly owned
subsidiary of the Company, alleging breach of FRP's Amended and Restated
Agreement of Limited Partnership, dated as of December 29, 1986, as amended (the
"Partnership Agreement"), breach of fiduciary duty, fraud and civil conspiracy.
The Complaint alleges, among other things, that the Board of Directors of FRP is
not comprised of a majority of Independent Directors, as defined in and required
by the Partnership Agreement and as allegedly represented in the 1986 Prospectus
of the Partnership (the "1986 Prospectus"), and that the general
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<PAGE>
partner's Board of Directors has approved and/or acquiesced in 8% management
fees being charged by the Company under the Management Agreement. The Complaint
further alleges that the "industry standard" for such fees is 4% thereby
resulting in an "overcharge" to FRP estimated by the Knapp Trust at $1.8 million
per annum, beginning in 1994. The Knapp Trust is seeking the restoration of
certain former directors to the Board of Directors of FRP's general partner and
the removal of certain other directors from such Board, an injunction
prohibiting the payment of 8% management, fees and unspecified compensatory and
punitive damages. The Company believes that the allegations in the Complaint
are without merit and intends vigorously to defend this litigation.
THE COMPANY
The Company provides senior housing and associated convenience and healthcare
services in 11 states through the operation of 22 rental RCs and three RCs
predominantly providing continuing care. The Company also operates one free-
standing nursing home. Of those facilities, eight are owned by the Company, two
are leased and 16 are managed. Nine of the managed RCs are owned by FRP.
Except as described below, each RC contains an independent living component and
a full-care nursing component available to residents should the need arise, and
certain RCs also include an assisted living component. One RC consists of an
assisted living component and a nursing component, and does not contain an
independent living component. Another RC consists of an independent living
component and assisted living component, and does not contain a nursing
component, but is adjacent to and enjoys the benefits of an RC which contains a
nursing component.
The Company was incorporated under the laws of Kentucky on November 13, 1969
and changed its corporate domicile to Indiana on June 10, 1981. The principal
executive offices of the Company are located at 8900 Keystone Crossing, Suite
200, Indianapolis, Indiana 46240-0498, telephone (317) 846-0700.
REORGANIZATION PROCEEDINGS
On February 19, 1991, the Forum Debtors commenced the Reorganization
Proceedings to reorganize and restructure their liabilities. The Company
emerged from bankruptcy on April 2, 1992. The POR provided for (i) the
cancellation of 32,548,108 shares of Common Stock of the Company, (ii) the
issuance of up to 10,000,000 shares of Common Stock of the reorganized Company,
with the Forum Debtors' unsecured creditors to receive approximately 93% thereof
and the Company's then-existing shareholders to receive approximately 7%
thereof, and (iii) the Forum Debtors' secured creditors to be paid in full. As
of the business day immediately preceding the date of this Prospectus, less than
266,000 shares of Common Stock continued to be reserved for possible issuance
under the POR to holders of general unsecured claims. The POR also contemplated
the sale and refinancing of assets to provide working capital and pay down
secured bank debt. Contemporaneously with the Company's emergence from
bankruptcy, the Company and its pre-petition bank lenders entered into a Senior
Secured Term Loan Agreement (the "Senior Secured Term Loan Agreement"), and
executed and delivered other documents (including without limitation term notes)
incident to the loan thereunder (the "Senior Secured Term Loan").
THE 1993 RECAPITALIZATION
Notwithstanding the completion of the Reorganization Proceedings in April of
1992, by the fourth calendar quarter of 1992, the Company lacked sufficient
funds to pay amounts required to be paid under its Senior Secured Term Loan
Agreement in accordance with the terms thereof. Following amendments to the
terms of the Senior Secured Term Loan Agreement, including the deferral of a
portion of the $13.5 million principal amount due December 31, 1992, on February
1, 1993, the Company entered into an agreement (the "February Stock Purchase
Agreement") with Forum Holdings pursuant to which Forum Holdings purchased
shares of preferred stock of the Company for $5.0 million, which amount was used
by the Company to pay the deferred bank debt. On February 1, 1993, the Company
also entered into an agreement (the "Agreement in Principle") with certain
affiliates of the FGI Investors providing for the purchase, for $15.0 million,
of a number of shares of Common Stock that would result in such persons owning
approximately 51% of the outstanding Common Stock and warrants to purchase a
number of shares of Common Stock equal to approximately 10% of the outstanding
Common Stock at an aggregate exercise price of $6.0 million.
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<PAGE>
Under the Agreement in Principle, the purchasers thereunder had the right to
substantially match competing recapitalization or acquisition proposals received
by the Company. On April 13, 1993, in response to offers from other investors,
the purchasers under the Agreement in Principle presented the Board of Directors
with a revised offer pursuant to which (i) the Senior Secured Term Loan would be
replaced with (a) a new bank credit facility of up to $50.0 million (the
"Citicorp Term Loan Agreement") and (b) up to $40.0 million aggregate principal
amount of Senior Subordinated Notes and (ii) the purchasers under the Agreement
in Principle would acquire Common Stock either by (a) purchasing, for $20.0
million, a number of newly issued shares of Common Stock that would equal 37.8%
of the number of outstanding post-closing Common Stock (the "Non-Liquidity
Transaction") or (b) purchasing, for $20.0 million, a number of newly issued
shares of Common Stock that would equal 39.9% of the number of outstanding post-
closing Common Stock and also providing shareholders (other than the purchasers
and their affiliates) the opportunity to receive $3.62 per share, in cash, for
their Common Stock (the "Liquidity Transaction"). The Board of Directors
selected the Non-Liquidity Transaction, and on April 18, 1993, the Company and
certain affiliates of the FGI Investors entered into a definitive acquisition
agreement relating thereto (the "Acquisition Agreement").
On April 29, 1993, a competing investor and certain other persons
(collectively, the "Plaintiffs") initiated litigation against the Company and
others in the Superior Court for Marion County, Indiana (the "Trial Court"),
seeking, among other things, (i) the rescission of the Agreement in Principle,
the February Stock Purchase Agreement (and the issuance of preferred stock to
Forum Holdings pursuant thereto) and the Acquisition Agreement and (ii) an
injunction prohibiting the consummation of the transactions contemplated by the
Acquisition Agreement. On June 4, 1993, the Trial Court issued an order (the
"June 4 Order") which enjoined the defendants from taking any action to
consummate the Non-Liquidity Transaction, but otherwise permitted the defendants
to proceed with the transactions contemplated by the Acquisition Agreement,
provided that it was modified to implement the Liquidity Transaction. The
Plaintiffs appealed the decision of the Trial Court to the Indiana Court of
Appeals. The Indiana Court of Appeals denied the appeal on procedural grounds,
and the Plaintiffs appealed such denial to the Indiana Supreme Court.
Subsequently, the Indiana Supreme Court ruled against the Plaintiffs' appeal.
The Company intends vigorously to defend against such additional proceedings, if
any, which may result therefrom and believes that the Plaintiff's allegations
therein are without merit. However, there necessarily can be no assurance as to
the ultimate outcome of this litigation.
On June 14, 1993, the transactions (other than the Liquidity Transaction),
contemplated by the Acquisition Agreement, as modified in accordance with the
June 4 Order, were consummated (the "June Closing"). At the June Closing, the
purchasers under the Acquisition Agreement collectively purchased from the
Company, for an aggregate price of $20.0 million in cash, (i) 7,098,200 newly
issued shares of Common Stock and (ii) warrants ("Investor Warrants") entitling
the purchasers to purchase for a nominal price an aggregate of 1.1555 shares of
Common Stock for each share of Common Stock issued on or after June 14, 1993
under the POR for the payment of pre-reorganization general unsecured claims.
(Since June 14, 1993, 4,984 shares of Common Stock have been issued under the
POR for the payment of general unsecured claims.) In addition, at the June
Closing, Forum Holdings exchanged all of its shares of preferred stock of the
Company for 2,500,000 shares of Common Stock, and the Company also (i) entered
into the Citicorp Term Loan Agreement, (ii) issued and sold $40.0 million
aggregate principal amount of Senior Subordinated Notes (one-half of which were
purchased by an affiliate of AFG for a managed account and one-half of which
were purchased by the limited partners of Forum Holdings), and (iii) prepaid all
amounts outstanding under the Senior Secured Term Loan. In connection with the
Citicorp Term Loan Agreement, the Company also entered into the Warrant
Agreement and issued the Warrants to the Warrant Holder. Pursuant to the
Warrant Agreement, the Warrant Holder currently holds Warrants, exercisable
prior to 5:00 p.m., Indianapolis, Indiana time, on June 11, 1999, to purchase
550,205 shares of Common Stock at a purchase price equal to $2.86 per share of
Common Stock, subject to specified annual increases and other adjustments.
The Senior Subordinated Notes accrue interest at the rate of 12.5% per annum,
which interest is paid semi-annually. The Senior Subordinated Notes mature on
June 1, 2003, at which time the entire principal amount becomes due. The
Company may prepay the Senior Subordinated Notes as long as a prepayment premium
is paid as well (10% through April 1, 1994, and decreasing 1.0% annually
thereafter). The terms of the Senior Subordinated Notes prohibit the Company
from paying dividends so long as such Notes are outstanding. The Senior
Subordinated Notes are subordinated to all indebtedness of the Company which has
been designated as "Senior Indebtedness" by the Board of Directors of the
Company, including the Refinancing Loan.
-16-
<PAGE>
Pursuant to the Acquisition Agreement, as modified, on July 27, 1993 the FGI
Investors commenced a tender offer for any and all outstanding shares of Common
Stock at $3.62 per share, net to the seller in cash. On August 31, 1993, the
FGI Investors purchased 1,345,543 shares of Common Stock for an aggregate
purchase price of approximately $4,870,865 pursuant to the tender offer.
Immediately after such purchase, the FGI Investors beneficially owned 12,757,016
shares of Common Stock (approximately 71.7% of the then-outstanding shares).
Business Strategy and Outlook
The Company has historically experienced significant losses, including a net
loss of $7.4 million for the fiscal year ended March 31, 1993. See "Risk
Factors -- History of Unprofitable Operations". However, the Company's
operating results have improved substantially in 1993 compared to 1992.
Excluding the effects of changes in certain prior year estimates, the Company's
operating revenues increased 19% (or $4.4 million and $13.5 million) in both
the three- and nine-month periods ended December 31, 1993 over operating
revenues for the comparable periods in 1992, and the Company's net operating
income (operating revenues less operating expenses, including general and
administrative expenses and depreciation and amortization) for those periods
in 1993 was $4.2 million (289%) and $10.0 million (241%), respectively, higher
than its net operating income for the comparable periods in 1992. See "Pro
Forma Financial Information." Although the write-off of deferred financing
costs relating to the payment and prepayment of the Company's bank debt result
of the refinancing described in "The Refinancing" and certain other fees and
expenses relating to the Refinancing will result in extraordinary charges in
the Company's fourth fiscal quarter of 1993 (presently estimated at $8.0
million), the Company presently expects its operating results for such quarter
to be generally consistent with its improved operating results in the
Company's third fiscal quarter of 1993.
The improvement in operating revenues during the first nine months of 1993
was attributable both to improved occupancy rates for the Company's RCs during
1993 and to increases in the amount of revenue generated per occupied unit.
Average occupancy of the Company's RCs for the first nine months of 1993 was
90.3% as compared to average occupancy of 83.0% for 1992, and average revenues
per occupied unit for the same periods improved from $24,564 to $26,664. A
change in the estimate of amounts reimbursable to third party payors from
prior years, resulted in the recognition of $1,115,000 of operating revenue in
the nine-month periods ended December 31, 1993. The Company participates in
the Medicare program and in certain Medicaid programs which reimburse the
Company on the basis of allowable costs. Allowable cost is subject to
retroactive examination and adjustment by the agencies administering the
programs, and provisions are made in the financial statements for potential
adjustments that may result. To the extent that those estimated provisions
differ from the administering agencies' determinations, operations are
routinely charged or credited in the period of such determinations. As a
result, the Company changed its estimate of amounts reimbursable to third-
party payors in 1993 from prior years.
Because most of the Company's operating expenses are fixed, a substantial
portion of incremental revenues generated by improvements in occupancy are
expected to flow through to increase the Company's net operating income.
In addition, management of the Company is implementing various systems
designed to control and, in some instances, decrease operating expenses, and
as discussed below, in February 1994 the Company refinanced its long-term
indebtedness on terms that reduce the Company's overall level of indebtedness
and total required debt service payments during the term of the new loan. See
"The Recapitalization-- The Nomura Loan" and "Pro Forma Financial
Information."
The terms of the Company's prior bank debt required that a substantial portion
of excess cash flow be applied by the Company to reduce indebtedness thereunder
whereas the terms of the Company's new long-term debt (the "Refinancing Loan")
do not require such prepayments and have an amortization period of 25 years (but
with a stated maturity of February 1, 2001). As a result, the Company may use
excess cash flow, if any, to pursue its growth strategy. In addition, the
Refinancing Loan is generally on terms more favorable than the terms applicable
under the Company's prior long-term debt. The Refinancing Loan also includes an
option that, subject to certain conditions, could enable the Company to
increase the amount of borrowings if the operating cash flows from the assets
pledged to secure the Refinancing Loan improve during the 24-month period
ending February 1, 1996, in which event the increased borrowing proceeds could
be used to fund the Company's growth through acquisitions of additional
properties, to expand or upgrade the Company's existing RCs or for other
corporate purposes. In addition, the Refinancing Loan permits the Company to
convert the initial floating interest rate structure (generally 4.3% over the
London Interbank Offered Rate ("LIBOR") which at the closing of the
Refinancing Loan was 3.125%, plus servicing costs, presently estimated to be
0.2% per year) under the Refinancing Loan to a fixed interest rate
structure.
The Company intends to seek to grow through the acquisition of additional
properties and other assets. In connection with the Company's 1993
Recapitalization, the FGI Investors stated their intention to make up to $30.0
million of additional equity capital available to the Company for this purpose.
Although the FGI Investors already invested an additional $13.0 million in the
Company since the completion of the 1993 Recapitalization, such amount was
contributed to the capital of FRP and used by FRP to pay bank debt. See "The
FRP Recapitalization." Any additional equity investment by the FGI Investors
would be subject to the negotiation of mutually acceptable terms. Accordingly,
there can be no assurance that any such additional investment will be made or as
to the timing or terms thereof. The Company has also entered into a commitment
letter agreement (the "Acquisition Commitment") with Nomura Asset Capital
Corporation ("Nomura") providing for up to $100.0 million in new debt financing
(the "Acquisition Loan" and, collectively with the Refinancing Loan, the "Nomura
Loans"), the proceeds of which would be used, together with equity to be
provided by the Company, to fund the purchase price for acquisitions of skilled
nursing home, assisted living and other senior housing properties. Under the
acquisition facility, Nomura would advance $2.00 of debt financing for each
$1.00 of equity capital invested by the Company, which equity is presently
expected to be obtained from the Subscription Offering, future offerings of
additional shares of Common Stock to shareholders, including the FGI Investors,
cash from operations (including cash from sales of units in the Company's
existing RCs, primarily Forum/Rancho San Antonio (as defined below)) or a
combination of the foregoing. During the 24-month period in which amounts could
be drawn to finance acquisitions under the Acquisition Loan, the Company would
have the right, subject to the satisfaction of certain conditions, to convert
the indebtedness thereunder to seven-year debt under either a fixed or floating
interest rate structure. During such period, the Company could also repay such
indebtedness using proceeds from other financing sources, if any such financing
becomes available on more favorable terms. The Company would have an option that
would permit the Company to increase the borrowings against the properties
acquired if, at the end of 24 months after the initial closing of the
Acquisition Loan, the debt service coverage computed on a trailing 12-month
basis exceeded certain thresholds, in which event the increased borrowings, like
any increased borrowings under the Refinancing Loan, could be used to fund the
Company's growth or for other corporate purposes. See "Refinancing and Other
Loans --Acquisition Commitment -- Refinancing." There can be no assurance that
any acquisitions will be completed or, if so, as to the timing or terms thereof.
The Acquisition Commitment is subject to the negotiation of definitive
documentation and certain conditions. Moreover, Nomura's obligation to provide
financing under the acquisition facility, if completed, will be subject to a
number of conditions, and there can be no assurance that such conditions will be
satisfied. See "Refinancing and Other Loans -- Acquisition Commitment."
REFINANCING AND OTHER LOANS
REFINANCING LOAN
Pursuant to an Amended and Restated Loan Agreement with Nomura (the
"Refinancing Loan Agreement"), the Company obtained the Refinancing Loan on
February 1, 1994, borrowing $93.3 million. The Refinancing Loan was made to FGI
Financing I Corporation, a bankruptcy remote entity formed by the Company
("Newco I") and, in connection with the Refinancing Loan, the Company
transferred, or caused the transfer of, the Owned Properties (as defined below),
together with all regulatory licenses required for the operation thereof and
related contracts, agreements, assets and liabilities, including insurance
customarily required to be maintained on similar property, to Newco I. In
connection with such transfer, Newco I entered into management agreements with
the Company providing for the management of the Owned Properties. See " --
Management Agreements; Removal of Manager."
A summary of certain provisions of the Refinancing Loan follows.
Interest. The note issued under the Refinancing Loan Agreement (the "Nomura
Note") bears interest, payable monthly. Subject to the refinancing option
described below, the interest rate structure is floating based on a 4.3% spread
to 30-day LIBOR, which was 3.125% as of the closing date of the Refinancing
Loan. The foregoing spread includes servicing costs, which are 0.20% of the
principal amount of the Refinancing Loan per annum.
In connection with the Refinancing Loan, Newco I entered into an interest rate
cap agreement with a financial institution that provides that such financial
institution will reimburse Newco I for any interest paid under the Refinancing
Loan in excess of 8.925% per annum. The interest rate cap agreement is for the
term of the Refinancing Loan. See "Refinancing and Acquisition Loan --
Refinancing Loan." It is contemplated that the Company will enter into interest
rate cap agreements or similar arrangements in respect of variable rate debt
under the Acquisition Loan.
Maturity. The Nomura Note matures February 1, 2001.
Amortization. The Nomura Note amortizes over a 25-year schedule.
Prepayment. The Nomura Note is not prepayable for three years from the date
of closing of the Refinancing Loan (the "Refinancing Loan Closing Date") (except
for a prepayment resulting from an exercise of the refinancing option described
below, application of certain casualty and condemnation proceeds, the imposition
of certain taxes on Nomura, and the required application of excess cash flow
following a decrease in the debt service coverage ratio ("DSCR") as described
below). Any prepayment during the 37th through the 72nd month would require a
yield maintenance payment calculated by discounting monthly to net present value
the product of (x) 8.3333% and (y) 50 basis points multiplied by the amount
prepaid, for the period from the month of prepayment to February 1, 2000,
utilizing a discount rate equal to the then current 30-day LIBOR rate at the
time of prepayment plus the pricing spread (as indicated above) less 50 basis
points.
Refinancing Option. On any interest payment date during the 24 months
following the Refinancing Loan Closing Date (the "Refinancing Date"), Newco I
has the option to refinance the Nomura Note, with either a fixed rate structure
or a floating rate structure (as Newco I may select) to apply after such
refinancing. Depending on the aggregate DSCR for the Owned Properties, the
interest rate spreads would be as follows:
-17-
<PAGE>
<TABLE>
<CAPTION>
Aggregate Spread to Spread to
DSCR 30-day LIBOR Seven Year U.S. Treasury
============== ================= ========================
<S> <C> <C>
1.60 and above 2.80% 3.10%
1.50-1.59 3.35% 3.65%
1.40-1.49 4.10% 4.40%
============== ================= ========================
</TABLE>
The spreads quoted above do not include servicing costs, which are anticipated
to be between 0.15% and 0.20% of the principal amount per annum, but not to
exceed 0.35% per annum.
Both the 30-day LIBOR and the yield of seven-year U.S. Treasury Securities
have been near historical lows in recent periods, although there has been some
recent upward movement in these rates. There can be no assurance that there
will not be an adverse change in such rates during the 24-month period following
the Refinancing Loan Closing Date. See "Risk Factors -- Floating Interests
Rates." If such rates were to increase, the option to refinance the Nomura Note
may no longer be attractive and in certain circumstances may not be available.
If at the time of refinancing, the aggregate DSCR is greater than 1.4x,
subject to certain conditions, Newco I would have the option to increase the
principal amount of the Nomura Note to an amount which would maintain a DSCR of
at least 1.4x. These provisions are intended to permit the Company to benefit
from improvements, if any, in operating cash flow over the 24-month period
following the Refinancing Loan Closing. See "Summary -- Business Strategy and
Outlook." However, there can be no assurance that Newco I will be able to
increase the amount of indebtedness in connection with the refinancing of the
Refinancing Loan.
The refinanced Nomura Note could not be prepaid for a period of 36 months
after the Refinancing Date, except for an exercise of the refinancing option,
application of certain casualty and condemnation proceeds, the imposition of
certain taxes on Nomura, and a prepayment resulting from the required
application of excess cash flow following a decrease in DSCR. Any prepayment of
a fixed rate loan during the 37th through the 72nd month after the Refinancing
Date would require a yield maintenance payment calculated by discounting monthly
to net present value the product of (x) 8.3333% and (y) the greater of (i) the
coupon on the refinanced Nomura Note less a rate equal to the sum of (a) the
U.S. Treasury Security yield of a Security with a comparable maturity for such
period and (b) 150 basis points and (ii) 50 basis points, in either case
multiplied by the amount prepaid for the period from the month of prepayment to
January 1, 2000, utilizing a discount rate equal to the U.S. Treasury Security
yield of a Security with a comparable maturity, for such period plus 150 basis
points. Any prepayment of a floating rate loan during the 37th through the 72nd
month after the Refinancing Date, other than as a result of an exercise of the
refinancing option, application of certain casualty and condemnation proceeds,
the imposition of certain taxes on Nomura, and prepayments required upon
application of excess cash flow following a decrease in DSCR, would require a
yield maintenance payment similar to the calculation described under the caption
" -- Prepayment" above. After such refinancing, the Nomura Note would mature
seven years from the effective date of the refinancing and would be amortized
over the remaining portion of the original 25-year schedule.
Negative Covenants. The Refinancing Loan Agreement includes negative
covenants customarily included in similar agreements, including covenants
prohibiting Newco I from (i) engaging in any activity other than owning and
operating the Owned Properties and (ii) incurring any additional debt (other
than certain purchase money debt incurred in the ordinary course of business).
These covenants, however, will not apply to the Company or any of its affiliates
other than Newco I.
Financial Tests. The aggregate principal amount of the Nomura Note was
allocated among the Owned Properties based on their respective DSCRs. DSCR was
on annualized pro forma net operating income ("NOI") for each Owned Property,
based on actual occupancy levels (assuming a stable or positive occupancy
trend). For this purpose, NOI was net of (i) allowances for capital
expenditures of at least $380 per bed or unit (as applicable) per annum and (ii)
annual management fees of 5% of gross revenue. NOI was also adjusted to provide
for a vacancy factor of 5%, where actual vacancies are less than 5% (average
vacancies
-18-
<PAGE>
for the Owned Properties for the nine months ended December 31, 1993 were 9.9%)
(see "Business and Properties of the Company -- Rental RCs").
If the aggregate DSCR of the Owned Properties at the end of a calendar quarter
is less than 1.3x or 1.2x, then 50% and 100%, respectively, of the excess cash
flow from the Owned Properties could not be distributed to the Company and would
be applied to amortize the principal balance of the Nomura Note, for so long as
the aggregate DSCR of the Owned Properties remains below such levels. No
prepayment penalties or yield maintenance premiums would be required in
connection with such amortization. Under the terms of the Refinancing Loan,
"excess cash flow" means all available cash from the Owned Properties after the
payment of debt service, operating expenses, management fees and permitted
capital expenditures, in excess of prudent levels to be maintained for working
capital, capital expenditure reserves and other Newco I purposes.
Security. The Nomura Note is secured by first priority and perfected mortgage
liens on the Owned Properties, assignments of rents and a security interest in
all related personal property, contract rights, general intangibles and other
assets of Newco I. The mortgages on the Owned Properties are recorded and are
cross-defaulted and cross-collateralized. The Nomura Note is non-recourse to
Newco I, except for certain specific, and presently unanticipated,
circumstances. The "Owned Properties" include The Forum at Brookside, The Forum
at Deer Creek, The Forum at Desert Harbor, The Forum at Memorial Woods, The
Forum at Overland Park, The Forum at Park Lane and The Forum at Tucson. See
"Business and Properties of the Company --Mortgages."
A specific Owned Property may be released from the applicable lien securing
the Refinancing Loan after February 1, 1997 provided that (i) an amount equal to
125% of such Owned Property's allocated portion of the aggregate principal
amount of the Nomura Note is applied to the prepayment of the Nomura Note, (ii)
the aggregate DSCR of the remaining Owned Properties is not lower than 1.15x the
aggregate DSCR of such Owned Properties on the Refinancing Closing Date and
(iii) the aggregate DSCR for the remaining Owned Properties is not lower than
1.4x.
Use of Proceeds. The proceeds of the Refinancing Loan were required to be
used for the following purposes: (i) to repay existing debt (including without
limitation the $49.0 million principal balance of the Citicorp Term Loan and
$30.0 million aggregate outstanding principal amount of Senior Subordinated
Notes, and all related costs and expenses, including a total of $3,000,000
million of fees payable in connection with the prepayment of the Senior
Subordinated Notes), (ii) to pay to Nomura and affiliates thereof the financing
and securitization fees and to pay or reimburse other expenses directly related
to the Refinancing Loan, (iii) to pay the approximately $7.4 million necessary
to purchase an interest rate cap agreement, and (iv) to fund reserves for
capital expenditures.
Financing Fees; Expenses. Financing fees totaling approximately $1.9 million
were paid by Newco I to Nomura and one of its affiliates on the Refinancing Loan
Closing Date. An additional fee of approximately 2% will be payable on the
Refinancing Date to the extent of the increase in total principal amount of the
refinanced loan. The Company or Newco I will also be obligated to pay all
reasonable fees and expenses relating to the transactions contemplated by the
refinancing of the Refinancing Loan.
Possible Securitization. Subsequent to the issuance of the Nomura Note,
Nomura could sell the Nomura Note or, in connection with a securitization, could
deposit the Nomura Note into a trust (the "Newco I Trust") to be created
pursuant to a pooling and servicing agreement between Nomura and a trustee to be
selected by Nomura (the "Newco I Trustee") in exchange for certificates (the
"Certificates") representing beneficial interests in the Newco I Trust and sell
the Certificates to sophisticated investors. Newco I would be required to pay
or reimburse Nomura for fees, costs and expenses relating to any such
securitization, including without limitation (i) all costs associated with or
incidental to the preparation of offering documentation in connection therewith
and (ii) the fees and expenses of rating agencies in connection with the rating
of the Certificates (if Nomura determines to rate the offering).
-19-
<PAGE>
As a condition to rating the Certificates, rating agencies may require Newco I
to (i) establish debt service, operating, deferred maintenance or capital
expenditure reserve funds or accounts and (ii) agree to escrow or deposit funds
on a periodic basis to fund debt service, operating, deferred maintenance or
capital expenditure reserve funds or accounts. Pursuant to the Refinancing Loan
Agreement, Newco I would be required to comply with such rating agency
requirements. To the extent funds required for such reserve funds, escrow
accounts or similar items were in excess of $500,000, Newco I would not be
permitted to dividend or otherwise apply its resources until such requirements
were satisfied and would be required to apply excess cash flow to build up
reserves and escrows to satisfy required levels. All reserve funds and other
accounts would be interest bearing and for the benefit of Newco I (and Newco I's
interest therein would be subject to the security interest described above) and
may be invested only in specified types of investment grade investments, such as
Treasury securities.
To the extent required by the rating agencies, all revenue from the Owned
Properties would be deposited directly for credit into a sweep account
maintained by the Newco I Trustee. On a monthly basis, excess cash flow,
subject to the limitations described above, may be distributed by Newco I to the
Company.
Funds necessary to complete certain deferred capital improvements will be
deposited by Newco I into a reserve account and will be released by the Newco I
Trustee to cover such expenses. In addition, Newco I would make a monthly
deposit into an escrow account of an amount to cover one-twelfth of the annual
replacement reserve for capital expenditures. Newco I would pledge the amounts
on deposit in the reserve account and the escrow account to the Newco I Trust as
additional collateral for repayment of the Nomura Note.
Management Agreements; Removal of Manager. The Company and Newco I entered
into a management agreement pursuant to which the Company would manage the Owned
Properties and in exchange for such services would receive fees based upon gross
revenues of the Owned Properties. The Company could be replaced as manager of
any Owned Property upon the vote of the holders of 66-2/3% of the principal
amount of the then-outstanding Nomura Note (or Certificates) in certain
circumstances.
ACQUISITION COMMITMENT
On October 21, 1993, the Company obtained the Acquisition Commitment from
Nomura. See "Summary --Business Strategy and Outlook" with respect to the
events giving rise to the Acquisition Commitment and the Company's strategy
relating thereto.
Under the terms of the Acquisition Commitment, Nomura will make available to
the Company up to $100.0 million to finance a portion of the purchase price for
the acquisition of fee title interests in skilled nursing home, assisted living
and other senior housing properties ("Acquired Properties") during the 24-month
period (the "Financing Period") following the execution of the Acquisition Loan
Agreement (as defined below) (the "Initial Acquisition Loan Closing"). The
Acquisition Commitment contemplates that the Acquisition Loan will be made
available to a bankruptcy remote entity to be formed by the Company ("Newco
II"), which will be structured and governed substantially the same as Newco I.
The Company anticipates that prior to March 31, 1994 Newco II and Nomura will
enter into a loan agreement (the "Acquisition Loan Agreement"), pursuant to
which Newco II will issue notes (the "Acquisition Notes") on substantially the
terms described below. The Acquisition Loan Agreement would provide that during
the Financing Period the Acquisition Notes could be refinanced as described
below.
THE TRANSACTIONS CONTEMPLATED BY THE ACQUISITION COMMITMENT ARE SUBJECT TO A
NUMBER OF CONDITIONS, INCLUDING THE EXECUTION OF DEFINITIVE DOCUMENTATION
ACCEPTABLE TO NOMURA AND THE COMPANY AND OTHER CONDITIONS, AND THERE CAN BE NO
ASSURANCE THAT SUCH CONDITIONS WILL BE SATISFIED. Both the Company and Nomura
are required to perform their respective obligations in good faith and to
proceed expeditiously to enter into definitive loan documents relating to the
transactions described in the Acquisition Commitment. Although the Company is
engaged in the analysis of a number of acquisition possibilities, as of the date
of this Prospectus, it has not entered into any agreement or commitment for any
acquisition. See "Use of Proceeds."
A summary of certain provisions of the Acquisition Commitment follows.
-20-
<PAGE>
Equity Requirements. For each dollar of value of unencumbered property
contributed by the Company to Newco II, two dollars would be available under the
Acquisition Loan Agreement to be applied to fund up to 100% of the purchase
price of Acquired Properties. For each dollar in cash contributed by the
Company to Newco II and used to acquire an Acquired Property, two dollars would
be available under the Acquisition Loan Agreement to be applied to fund up to
66.67% of the purchase price of such Acquired Property. If the Company
contributes no unencumbered property to Newco II, in order to utilize the full
amount of the Acquisition Commitment, the Company would be required to
contribute $50.0 million in cash to Newco II. The Company may seek to raise
additional equity capital to fund such requirements through other debt or equity
financings by the Company, including future offerings of additional shares of
Common Stock to its existing shareholders, including the FGI Investors, cash
from operations (including cash from sales of units in the Company's existing
RCs, primarily Forum/Rancho San Antonio) or a combination thereof.
Selection of Acquired Properties. The Acquired Properties would be selected
by the Company, but would have to be approved by Nomura, based upon Nomura's due
diligence and financial analysis. The aggregate DSCR for the Acquired
Properties must be at least 1.4x based on an annualization of the most recent
month's net operating income (assuming a stable or positive occupancy trend),
taking into account the payment of management fees equal to 5% of the Acquired
Property's gross revenue and provision for capital expenditures of at least $300
per bed or unit (as applicable) per annum. Notwithstanding the foregoing, an
Acquired Property may have a DSCR of less than 1.4x provided that (i) the
Company or Newco II demonstrates to Nomura's satisfaction that the Acquired
Property in issue can reasonably be expected to perform at a DSCR of at least
1.4x by the end of the Financing Period and (ii) the inclusion of the Acquired
Property in the pool of Acquired Properties previously acquired would not lower
the aggregate DSCR of all the Acquired Properties to less than 1.4x.
Interest. The Acquisition Notes would bear interest, payable monthly.
Pursuant to the Acquisition Commitment, the interest rate structure would be
floating at a rate equal to one-month U.S. Dollar LIBOR plus 3.35% per annum
during the Financing Period. Thereafter, if the Acquisition Notes are not
refinanced, modified or repaid as described below, interest will accrue at one-
month U.S. Dollar LIBOR plus 6.5% per annum, and all excess cash flow will be
applied to principal repayment.
Maturity. The Acquisition Notes would mature 108 months following the Initial
Acquisition Closing Date, unless refinanced as described below.
Amortization. The Acquisition Notes would not require the repayment of any
principal during the Financing Period, although the Acquisition Notes would
become due at the end of two years unless refinanced as described under the
caption "-- Refinancing" below.
Prepayment. The Acquisition Notes would be prepayable without penalty or
premium during the Financing Period. If the Acquisition Notes are not prepaid
at the end of the Financing Period, unless prepaid at the option of the Company,
the terms would be modified as described below under the caption "--
Refinancing" below.
Refinancing. On or before the last day of the Financing Period, the Company
would have the option to cause Newco II to elect to: (i) repay the Acquisition
Notes in whole or in part; (ii) if the aggregate DSCR is equal to or greater
than 1.4x, have the Acquisition Notes modified as described below; (iii) if the
aggregate DSCR is greater than 1.4x, increase the principal amount of the
Acquisition Notes; or (iv) if the aggregate DSCR is less than 1.4x, repay a
portion of the aggregate principal balance of the Acquisition Notes sufficient
to increase the DSCR to 1.4x and then have the Acquisition Notes modified or
refinanced. If, at the end of the Financing Period, Newco II does not elect any
of the above options, Newco II would be required to repay the entire principal
balance of the Acquisition Notes. Alternative (i) above would permit Newco II
to pay off the Acquisition Notes during the Financing Period at par, plus
accrued interest, using proceeds from other financing sources, which may be
available on more favorable terms.
At any time on or before the last day of the Refinancing Period, the
Acquisition Notes may be refinanced based upon the election by Newco II of a
floating rate structure or a fixed rate structure. Under the floating rate
structure and the fixed rate structure, based upon the aggregate DSCR of the
Acquired Properties, the interest rate spreads would be as follows:
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<PAGE>
<TABLE>
<CAPTION>
Aggregate Option 1: Floating Rate Structure Option 2: Fixed Rate Structure
DSCR Spread to 30-day LIBOR Spread to 7 yr. U.S. Treasury
============== ================================== ==============================
<S> <C> <C>
1.60 and above 2.80% 3.10%
1.50-1.59 3.35% 3.65%
1.40-1.49 4.10% 4.40%
============== ================================== ==============================
</TABLE>
The spreads quoted above do not include servicing costs, which would be paid by
Newco II.
Both the 30-day LIBOR and the yield of seven-year U.S. Treasury Securities
have been near historical lows in recent periods. However, there has been some
recent upward movement in these rates and rates may increase further in the
future. There can be no assurance that there will not be an adverse change in
such rates during the Financing Period. If such rates were to increase, the
option to refinance the Acquisition Notes may no longer be attractive and in
certain circumstances may not be available. See "Risk Factors -- Floating
Interests Rates."
If, upon refinancing, the aggregate DSCR is greater than 1.4x, the aggregate
principal amount of the Acquisition Notes may be increased to an amount which
would maintain an aggregate DSCR of at least 1.4x for the pool of Acquired
Properties. These provisions are intended to permit the Company to benefit from
improvements, if any, in the operating results of Acquired Properties during the
Financing Period. However, there can be no assurance that Newco II will be able
to increase in the amount of indebtedness under the Acquisition Loan.
The refinanced Acquisition Notes may not be prepaid for a period of 36 months
after the effective date of the refinancing (the "Acquisition Refinancing
Date"), except for a prepayment resulting from the required application of
excess cash flow following a decrease in DSCR. Any prepayment of the
Acquisition Notes during the 37th through the 72nd month after the Acquisition
Refinancing Date would require a yield maintenance payment substantially similar
to that required when the Nomura Note is prepaid. See "-- Refinancing Loan --
Refinancing Option." After such refinancing, the Acquisition Notes would mature
seven years from the Acquisition Refinancing Date and would amortize based on a
240-month amortization schedule.
Use of Proceeds. The proceeds of the Acquisition Loan would be required to be
used for the following purposes: (i) to pay for the acquisition of Acquired
Properties, including reasonable costs and expenses directly related thereto;
(ii) to repay any existing debt or liabilities relating to the Acquired
Properties; (iii) to pay to Nomura and any affiliate thereof the financing and
securitization fees and to pay or reimburse other expenses directly related to
the transactions contemplated thereby; (iv) to pay the amount necessary to
purchase interest rate caps contracts, if necessary; and (v) to fund reserves
for capital expenditures.
Financing Fees, Expenses. An investment banking fee of $1,000,000 will be
payable to an affiliate of Nomura at the Initial Acquisition Loan Closing.
Financing fees totalling 3% of the principal amount of the Acquisition Notes
would be payable by Newco II to Nomura and one of its affiliates on the closing
date of any issuance of Acquisition Notes under the Acquisition Loan Agreement.
Additionally, if the aggregate principal amount of the Acquisition Notes is
increased upon refinancing, on the Acquisition Refinancing Date a financing fee
of 2% of the principal amount of any increased financing would be payable by
Newco II to Nomura. The Company or Newco II would also be obligated to pay all
reasonable fees and expenses related to the transactions contemplated by the
Acquisition Commitment.
Interest Rate Caps. Upon issuance of any Acquisition Note and, if the
Acquisition Notes are refinanced and a floating interest rate structure is
selected, on the Acquisition Refinancing Date, Newco II would be required to
purchase a like principal amount of 30-day LIBOR interest rate cap contracts
with a term at least equal to the remaining term of the Acquisition Notes, from
a financing institution acceptable to Nomura. The interest rate cap contracts
would be owned by Newco II and would be pledged as security for the Acquisition
Notes.
-22-
<PAGE>
Miscellaneous. The Acquisition Commitment also contains provisions
substantially similar to those described under the captions "-- Refinancing Loan
- -- Negative Covenants," "-- Refinancing Loan -- Financial Tests," "--
Refinancing Loan -- Security," "-- Refinancing Loan -- Possible Securitization"
and "-- Refinancing Loan -- Management Agreements; Removal of Manager."
OTHER LONG-TERM DEBT
In addition to the Refinancing Loan, the Company has additional long-term
debt, the aggregate principal amount of which was $113 million at December 31,
1993 (giving effect to the Refinancing Loan and the application of the net
proceeds thereof as described in "-- Refinancing Loan"). Approximately $76
million of such long-term debt was non-recourse secured debt secured by assets
of subsidiaries of the Company. The terms of such additional long-term debt
impose various restrictions on the Company or the subsidiaries obligated
thereunder, including prohibitions on the payment of dividends by the Company.
See "Dividend Policy." The total principal payments required to be made in
respect of all such debt (including the Refinancing Loan) is as follows:
<TABLE>
<CAPTION>
Fiscal Year Total Recourse Non-Recourse
Ended March 31, Obligations Obligations Obligations
----------- ----------- ------------
<S> <C> <C> <C>
1994 $ 762,142 $ 467,019 $ 295,123
1995 4,892,664 3,644,726 1,247,938
1996 4,389,995 3,061,297 1,328,698
1997 50,055,134 3,271,540 46,783,594
1998 17,254,217 16,897,201 357,016
1999 29,416,593 3,048,129 26,368,464
2000 and
thereafter $99,447,232 $99,447,232 $ 0
</TABLE>
The Company continues to be a party to the Citibank Term Loan Agreement
notwithstanding the payment of $49.0 million in term debt thereunder with a
portion of the net proceeds of the Refinancing Loan because letters of credit in
the aggregate notational amount of $6.8 million issued thereunder remain
outstanding. Citibank has waived the application of the covenants under the
Citibank Term Loan Agreement for a period ending March 17, 1994 as the parties
negotiate appropriate amendments to the Citibank Term Loan Agreement. There can
be no assurance that the Company will be able to negotiate amendments acceptable
to it, in which event the Company may be forced to seek to replace the above-
referenced letters of credit.
THE FRP RECAPITALIZATION
The events giving rise to the FRP Recapitalization and the execution of the
FRP Recapitalization Agreement are described under the caption "Summary -- The
FRP Recapitalization."
Pursuant to the FRP Recapitalization Agreement, the Company purchased
through a subsidiary 6,500,000 newly issued Units from FRP at a purchase price
of $2.00 per Unit. In accordance with the FRP Recapitalization Agreement, FRP
applied the $13.0 million of proceeds from the sale of Units to the partial
prepayment of the FRP Bank Debt. The proceeds of the New FRP Loan were used,
together with equity capital made available to FRP, to retire and repay all
existing indebtedness of FRP, including the FRP Bank Debt, the principal
balance of which was approximately $22.5 million prior to the FRP
Recapitalization Agreement, and approximately $34.1 million aggregate
principal amount of the FRP Split Coupon Notes, to pay related fees and
expenses and for general corporate purposes. As contemplated by the FRP
Recapitalization Agreement, FRP made the FRP Offering pursuant to which
unitholders of record as of October 18, 1993 (other than the Company and its
affiliates) acquired 1,994,189 additional Units at $2.00 per unit. Under the
FRP Recapitalization Agreement, the proceeds of the FRP Offering were used to
repurchase 1,994,184 Units from the Company at $2.00 per unit. Accordingly, as
of the date of this Prospectus, the Company beneficially owns 6,446,079 Units,
or approximately 42.17% of the total number of Units outstanding.
-23-
<PAGE>
STOCK PURCHASE AGREEMENTS
FRP obtained the FRP Commitment in an effort to refinance its indebtedness
prior to the maturity date of the FRP Bank Debt. FRP, through the independent
directors of FRP's general partner, requested that the Company enter into the
FRP Recapitalization Agreement to provide FRP a measure of assurance that it
would be able to pay the FRP Bank Debt at maturity even if the New FRP Loan did
not close by the maturity date of the FRP Bank Debt. Under the terms of the
Citibank Term Loan, the Company was unable to enter into the FRP
Recapitalization Agreement unless it obtained new investment equity.
Accordingly, the FGI Investors agreed to enter into the Stock Purchase
Agreements pursuant to which the FGI Investors purchased a total of 3,466,666
shares of Common Stock for an aggregate purchase price of approximately $13.0
million, or $3.75 per share. Of the shares of Common Stock so purchased, AFG
and Forum Holdings each individually purchased 1,488,413 shares of Common Stock
and Resources purchased 489,840 shares of Common Stock. The terms and
conditions of the Stock Purchase Agreements, which were modeled after the
February Stock Purchase Agreement entered into between the Company and Forum
Holdings prior to the time at which the FGI Investors acquired a majority
interest of the Company, were determined by a committee of the Board of
Directors of the Company comprised solely of persons who are not officers or
employees of the Company or affiliates of the FGI Investors to be fair and
reasonable to, and in the best interest of, the Company and comparable to those
that could be negotiated with an unrelated third party.
As a result of their purchase of 3,466,666 shares, the FGI Investors increased
their aggregate beneficial ownership of Common Stock to 16,223,682 shares
(including 5,760 shares presently purchasable for a nominal price upon exercise
of the Investor Warrants), or approximately 76.3% of the total number of shares
outstanding, from 12,757,016 shares (including 5,760 shares presently
purchasable for a nominal price upon exercise of the Inventory Warrants), or
approximately 71.7% of the shares outstanding prior thereto. The Stock Purchase
Agreements provide that in order to afford Eligible Shareholders the
opportunity, if they elect to do so, to avoid dilution as a result of the
issuance of the 3,466,666 shares of Common Stock to the FGI Investors, the
Company, at its sole cost and expense, will make the Subscription Offering to
Eligible Shareholders. If all of the 1,520,212 shares of Common Stock being
offered pursuant to the Offerings are subscribed for and purchased by Eligible
Shareholders and the Warrant Holder, the FGI Investors' percentage ownership of
the Common Stock outstanding would be approximately 71.2%. Eligible
Shareholders that elect to participate in the Subscription Offering will not be
entitled to purchase any portion of the Common Stock not subscribed for by
Eligible Shareholders that elect not to participate in the Subscription
Offering. Accordingly, the FGI Investors' percentage ownership of the total
outstanding Common Stock will exceed 71.2% to the extent Eligible Shareholders
elect not to participate in the Subscription Offering and the Warrant Holder
elects not to subscribe for and purchase shares of Common Stock pursuant to the
Warrant Offering.
DIVIDEND POLICY
The Company has not declared or paid dividends on the Common Stock since 1989
and does not anticipate paying regular dividends on the Common Stock in the
foreseeable future, but rather expects to reinvest any excess cash flow in the
Company's businesses.
The terms of the Senior Subordinated Notes prohibit the Company from paying
dividends so long as such Notes are outstanding. The current terms of the
Citibank Term Loan Agreement also prohibit the Company
-24-
<PAGE>
from paying dividends. See "Refinancing and Other Loans -- Other Long-Term
Debt." The Refinancing Loan Agreement includes provisions that permit, under
certain circumstances, the payment of dividends on the Common Stock. See "Risk
Factors -- Restrictive Covenants" "Refinancing and Other Loans." The Company's
ability to pay dividends in the future will require continued improvements in
the Company's results of operations (including cash from sales of units in the
Company's existing RCs, particularly Forum/Rancho San Antonio (see "Risk Factors
- -- Government Regulation")), and an amendment or waiver of the foregoing
covenants. There can be no assurance as to the level of dividends, if any,
which the Company may declare in the future. See "Risk Factors."
Although the Company does not presently intend to commence the payment of
regular quarterly dividends on shares of Common Stock, in the event that cash
flow from operations (including sales of units of existing RC's such as
Forum/Rancho San Antonio) or proceeds from refinancings (including proceeds from
increases in or refinancings of the Nomura Loans) exceed the amounts determined
to be necessary to prepay the then-outstanding principal amount of Senior
Subordinated Notes (see "The Company -- The 1993 Recapitalization") and to fund
the Company's ordinary operations and the requirements of its growth strategy,
the Company intends from time to time to consider the possibility of declaring
special dividends on the Common Stock then outstanding. THERE CAN BE NO
ASSURANCE AS TO THE TIMING OR AMOUNTS OF ANY SUCH SPECIAL DIVIDENDS.
USE OF PROCEEDS
The net proceeds of the Offerings (estimated to be approximately $5.5 million
assuming Eligible Shareholders and the Warrant Holder subscribe for and purchase
an aggregate of 1,520,212 shares of Common Stock pursuant to the Offerings) will
be added to the Company's working capital and used for general corporate
purposes, which could include financing of future growth of the Company through
possible acquisitions of additional RCs or other similar assets or businesses
(although the Company has not entered into any agreement providing for any such
acquisition). Any proceeds to the Company as a result of the repurchase of
Units in connection with the FRP Offering (see "The FRP Recapitalization") will
also be added to the Company's working capital and used for general corporate
purposes. The Acquisition Loan, if completed, would require the Company to
invest $1.00 of equity capital for every $2.00 of debt financing provided under
the Acquisition Loan. Accordingly, the Company may be required to raise
additional equity capital (through one or more rights offerings or otherwise) if
the Company seeks to avail itself of the entire amount of financing to be
available to it under the Acquisition Loan.
While the Company has engaged in preliminary discussions regarding certain
possible acquisitions of additional RCs and other assets, as of the date of this
Prospectus, the Company had not entered into any agreement providing for any
acquisition of any additional property or other assets outside the ordinary
course of business. There can be no assurance that any such acquisitions will
be completed or, if so, as to the timing or terms thereof. The transactions
contemplated by the Acquisition Commitment are subject to various conditions and
there can be no assurance as to the timing or terms thereof. See "Refinancing
and Other Loans -- Acquisition Commitment."
On March 2, 1994, the Company entered into an agreement in principle with
National Guest Homes, Inc. ("NGH") and the principals of NGH (the "NGH
Agreement in Principle"), under which the Company and NGH would jointly pursue
the possible development and acquisition of assisted-living communities. The
agreement in principle contemplates that the Company would make up to $125.0
million of debt and equity financing available for this purpose, but the
Company would retain the right to decide, in its sole discretion, whether to
invest in any particular project with NGH. The Company presently expects that,
if it enters into a binding agreement with NGH, the Company would obtain the
debt and equity financing contemplated by the NGH Agreement in Principle from
proceeds of the Acquisition Loan, if completed (see "Refinancing and Other
Loans -- The Acquisition Commitment"), the Company's then-exisiting cash
balances (including any net proceeds of the Subscription Offering), cash
generated by operations and from any additional equity capital raised, whether
through one or more rights offerings or otherwise. The NGH Agreement in
Principle is subject to various conditions, including the negotiation and
execution of definitive documentation and the selection of properties to be
developed or acquired. There can be no assurance that these conditions will be
satisfied. Accordingly, while it is the Company's present intention actively
to pursue the investment program contemplated by the NGH Agreement in
Principle, the Company cannot predict as of the date of this Prospectus
whether it will actually develop or acquire properties in connection with NGH.
-25-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization and long-term debt of the
Company as of December 31, 1993, as adjusted to give effect to the sale of,
alternatively, 1,520,212 and no shares of Common Stock to Eligible Shareholders
and the Warrant Holder pursuant to the Offerings. This presentation does not
purport to represent the capitalization that would actually have been reported
had such transactions in fact been consummated on December 31, 1993. The
presentation should be read in conjunction with the audited financial statements
contained in the 1992 Form 10-K (including the notes thereto) and the unaudited
financial statements contained in the 1993 Third Quarter Form 10-Q (including
the notes thereto), copies of which accompany this Prospectus, and the unaudited
pro forma financial information, related notes and other information contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As Adjusted
--------------------------------------
<S> <C> <C> <C>
Assuming Assuming No
At December Additional Sales Additional Sales
31, 1993 of Stock of Stock
--------- ----------------- -----------------
(000's Omitted)
Long-term debt, including current portion........ $191,917(a) $206,218(a) $206,218(a)
Other partners' equity........................... 1,686 1,686 1,686
Shareholders' equity:
Common stock: 48,000,000 shares authorized,
21,261,625 shares issued and outstanding
(22,781,837 shares issued and outstanding 58,813 64,290 58,589
as adjusted)...............................
Accumulated deficit............................. (7,842) (15,842) (15,842)
-------- -------- --------
Total shareholders' equity.............. 50,971 48,448 42,747
-------- -------- --------
Total capitalization............................. $244,574 $256,352 $250,651
======== ======== ========
- -----------------------------
</TABLE>
(a) Includes $76,381,000 of secured, non-recourse obligations of the Company.
See Note 1(d) under "Notes to Pro Forma Financial Statements."
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information is based upon the
Company's unaudited financial statements as of and for the nine months ended
December 31, 1993 contained in the 1993 Third Quarter Form 10-Q and the
Company's audited financial statements for the year ended March 31, 1993
contained in the 1992 Form 10-K. The Pro Forma Condensed Consolidated
Statements of Operations include the transactions provided for in the Stock
Purchase Agreements and have been adjusted to give effect to the Offerings, the
transactions described under the caption "The Company -- The 1993
Recapitalization" above, the closing of the Refinancing Loan and the application
of proceeds therefrom to the prepayment of the $49.0 million principal balance
of the Citicorp Term Loan and $30.0 million aggregate principal amount of the
Senior Subordinated Notes and to the payment of estimated costs and expenses, as
if such transactions had been consummated on the first day of the period
presented. See "Financings." The Pro Forma Condensed Consolidated Balance
Sheet has been adjusted to give effect to the purchase of, in the alternative,
all 1,520,212 shares of Common Stock pursuant to the Offerings (assuming all
Eligible Shareholders and the Warrant Holder subscribe for and purchase all
shares of Common Stock offered in the Offerings), or none of such shares of
Common Stock, and the other transactions specified above as if such transactions
had been consummated on December 31, 1993. The following pro forma financial
information does not purport to be indicative of the financial position or
results of operations that would actually have been reported had such
transactions in fact been consummated on such dates or of the financial position
or results of operations that may be reported by the Company in the future. The
following pro forma financial information should be read in conjunction with the
audited financial statements contained in the 1992 Form 10-K (including the
notes thereto) and the unaudited financial statements contained in the 1993
Third Quarter Form 10-Q (including the notes thereto), copies of which accompany
this Prospectus, and the other financial information contained elsewhere in this
Prospectus.
-26-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1993
(000'S OMITTED)
(WITHOUT AUDIT)
<TABLE>
<CAPTION>
ASSUMING ADDITIONAL ASSUMING NO ADDITIONAL
SALES OF STOCK SALES OF STOCK
------------------------------ --------------------------------
PRO PRO
HISTORICAL DEBIT CREDIT FORMA DEBIT CREDIT FORMA
----------- ----- ------ -------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Property and equipment, net $212,710 $212,710 $212,710
Cash and cash equivalents 14,334 4,270(a) 18,504 $5,701(a) 12,903
Investment in Affiliates 31,298 3,988(a) 27,310 27,310
Deferred costs, net 9,116 3,176(a) 5,000(b) 7,292 7,292
Restricted cash 8,478 360(a) 8,838 8,838
Other assets 11,055 7,427(a) 18,482 18,482
-------- -------- --------
Total assets $286,991 $293,236 $287,535
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Long-term debt(c) $191,917 49,000(a) 93,301(a) $206,218 $206,218
30,000(a)
Accounts payable and accrued expenses 18,678 4,075(a) 13,145 13,145
1,458(a)
Resident deposits and deferred income 23,739 23,739 23,739
-------- -------- --------
Total liabilities 234,334 243,102 243,102
-------- -------- --------
Minority interests 1,686 1,686 1,686
Shareholders' equity:
Common Stock, no par value - 48,000,000 58,813 224(a) 5,701(a) 64,290 5,701(a) 58,589
shares authorized, 21,261,625 and
22,781,837 shares issued and outstanding
Accumulated deficit (7,842) 3,000(a) (15,842) (15,842)
5,000(b)
Shareholders' equity 50,971 -------- --------
-------- 48,448 42,747
-------- --------
Total liabilities and shareholder's equity $286,991 $293,236 $287,535
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
-27-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1993
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
(WITHOUT AUDIT)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Operating revenues $ 90,963 $ 90,963
Investment income 1,192 1,192
Other income 1,147 1,147
-------- --------
Total revenues 93,302 93,302
Costs and expenses:
Operating expenses 70,417 70,417
General and administrative 5,411 5,411
Depreciation 8,793 8,793
Litigation expense 0 0
Interest expense 18,192 1,386(a) 19,578
-------- ------ --------
Total costs and expense 102,813 1,386 104,199
-------- ------ --------
Income (loss) before minority
interest and extraordinary item (9,511) (1,386) (10,897)
Minority interest 2,152 2,152
-------- --------
Net income (loss) before
extraordinary item ($7,359) (1,386) ($8,745)
======== ====== ========
Average number of common
shares outstanding 7,493 22,782
Net income (loss) per share:
Income (loss) before
extraordinary item ($0.38)
========
($0.98)
========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
-28-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1993
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
(WITHOUT AUDIT)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Operating revenues $ 79,620 $79,620
Investment income 645 645
Other income 371 371
-------- -------
Total revenues 80,636 80,636
Costs and expenses:
Operating expenses 57,450 57,450
General and administrative 2,470 2,470
Depreciation 5,841 5,841
Litigation expense 1,317 1,317
Interest expense 13,241 1,089(a) 14,330
-------- ----- -------
Total costs and expenses
80,319 1,089 81,408
-------- ------ -------
Income (loss) before minority
interest and extraordinary item 317 (1,089) (772)
Minority interest 972 972
-------- -------
Net income (loss) before
extraordinary item $1,289 (1,089) $ 200
======== ====== =======
Average number of common
shares outstanding 15,858 22,782
Net income (loss) per share:
before extraordinary item $0.08 $0.01
======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
-29-
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(WITHOUT AUDIT)
NOTE 1 - PRO FORMA CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1993
(a) To adjust for the proposed Refinancing Loan and Offerings:
<TABLE>
<S> <C> <C>
Sources of Cash:
Refinancing Loan $ 93,301
Sale of FRP Units pursuant to FRP Subscription
Offering 3,988
Funds from Offerings contemplated hereby 5,701
--------
Total sources of cash $102,990
Uses of Cash:
Repayment of Citicorp Term Loan 49,000
Repayment of estimated portion of Senior Subordinated
Notes 30,000
Payment of accrued interest on Citicorp Term Loan and
on Senior Subordinated Notes 1,458
Prepayment premium on Senior Subordinated Notes 3,000
Costs and expenses of the Refinancing Loan 3,176
Costs and expenses of the Offerings 224
Payment of Real Estate Tax and Insurance Obligations 4,075
Purchase of interest rate cap contracts 7,427
Escrow reserve for capital expenditures 360
--------
Total uses of cash 98,720
--------
Net increase in cash $ 4,270
========
</TABLE>
- --------
(b) To write off the balance of the deferred financing costs associated with
the Citicorp Term Loan and Senior Subordinated Notes.
(c) Schedule of long-term debt:
<TABLE>
<CAPTION>
At
December 31,
Maturity Interest Rate 1993 Pro Forma
-------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Citicorp Term Loan Mar-99 LIBOR + 3.5% 49,000 0
Senior Subordinated Notes Jun-03 12.50% 40,000 10,000
Refinancing Loan Dec-00 LIBOR + 4.30% 0 93,301
1st Mortgage on Knightsbridge Dec-97 10.50% 14,905 14,905
Lafayette Capital Lease Apr-06 7.54% 5,959 5,959
Lexington Capital Lease May-16 9.50% 2,514 2,514
Continuing Care Refund Loans Various 6.00% 600 600
Cupertino Resident Refund Loans Various Various 597 597
Resident Debentures Various Various 632 632
Income Tax Liability Loan Apr-98 8.50% 750 750
Other Various Various 579 579
-------- --------
Total recourse obligations 115,536 129,837
1st Mortgage on FRC II May-96 LIBOR + 1.3% 46,880 46,880
2nd Mortgage on FRC II May-96 Treasury + 3% 1,824 1,824
1st Mortgage on FRC I Feb-99 LIBOR + 1.5% 26,031 26,031
2nd Mortgage on FRC I Feb-99 Treasury + 3% 1,646 1,646
-------- --------
</TABLE>
-30-
<PAGE>
<TABLE>
<S> <C> <C>
Total non-recourse obligations 76,381 76,381
-------- --------
Total long-term debt $191,917 $206,218
======== ========
</TABLE>
NOTE 2 - PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED MARCH 31, 1993 AND FOR THE NINE MONTHS ENDED DECEMBER 31, 1993
(a) To adjust for the increase in interest expense reflecting the increased cost
of borrowing resulting primarily from the amortization of the interest rate
cap contract for the Refinancing Loan. An increase or decrease in the
interest rate of the Refinancing Loan of 1/8% per annum would have
increased or decreased, respectively, the interest expense related thereto
by approximately $116,000 per annum.
-31-
<PAGE>
THE SUBSCRIPTION OFFERING
SUBSCRIPTION PRIVILEGE
The Company is offering to shareholders of record (other than the FGI
Investors) as of the close of business on the Record Date (October 18, 1993),
the opportunity to subscribe for and purchase Common Stock for a price of $3.75
per share. Eligible Shareholders may subscribe for and purchase 0.2717458 of a
share of Common Stock for each share of Common Stock held of record by them on
the Record Date.
No fractional shares or cash in lieu thereof will be issued. The number of
shares of Common Stock for which each Eligible Shareholder may subscribe will be
based on the aggregate number of shares of Common Stock held by such Eligible
Shareholder on the Record Date and will be rounded down to the nearest whole
number. A broker, dealer, commercial bank, trust company or other nominee
holding Common Stock on the Record Date for more than one beneficial owner will
be required to certify to the Subscription Agent and the Company (i) the total
number of shares of Common Stock subscribed for by such nominee on behalf of
beneficial owners pursuant to the Subscription Privilege; (ii) the aggregate
number of shares of Common Stock held by it as of the Record Date on behalf of
each beneficial owner for which it has exercised the Subscription Privilege;
(iii) the aggregate number of shares of Common Stock subscribed for by it on
behalf of each such beneficial owner; and (iv) that, to its knowledge, it has
not exercised the Subscription Privilege in respect of any shares of Common
Stock held by it as of the Record Date on behalf of any of the FGI Investors.
The number of shares of Common Stock which may be subscribed for and purchased
on behalf of each beneficial owner will be based on the aggregate number of
shares of Common Stock held for such beneficial owner on the Record Date and
will be rounded down to the nearest whole number.
EXPIRATION DATE
The opportunity to subscribe for and purchase shares of Common Stock pursuant
to the Subscription Offering will expire at the Expiration Date. The term
"Expiration Date" means 5:00 p.m., New York City time, on April , 1994, unless
and until the Company, in its sole discretion, has extended the time for
expiration of the opportunity to subscribe for and purchase Common Stock
pursuant to the Subscription Offering, in which event the term "Expiration Date"
will mean the latest time and date on which such opportunity, as so extended by
the Company, expires. The Company will not honor any purported exercise of the
Subscription Privilege received by the Subscription Agent after the Expiration
Date, regardless of when the documents relating to such exercise were sent.
Any extension of the Expiration Date beyond April , 1994 will be followed by
public announcement thereof no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Company may choose to make any public
announcement, the Company currently intends to make announcements by issuing a
release to the Dow Jones News Service.
EXERCISE OF SUBSCRIPTION PRIVILEGE
The Subscription Privilege may be exercised by delivering to American Stock
Transfer & Trust Company at, or prior to the Expiration Date, a properly
completed and executed Notice of Exercise or a facsimile thereof, together with
payment in full of the Subscription Price for the Common Stock subscribed for
pursuant to the Subscription Privilege. A copy of the Notice of Exercise
accompanies this Prospectus.
Such payment in full must be by (i) check or bank draft drawn upon a U.S. bank
or postal, telegraphic or express money order payable to American Stock Transfer
& Trust Company, as Subscription Agent, or (ii) wire transfer of funds to the
account maintained by the Subscription Agent for such purpose at Chemical Bank,
Account No. 610093045; ABA No. 021000128 (reference should be made to Forum
Group, Inc. and the name of the Eligible Shareholder making such payment should
be indicated). The Subscription Price will be deemed to have been received by
the Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a U.S. bank or of any postal, telegraphic or express money order, or (iii)
receipt of good funds in the Subscription Agent's account designated above. If
paying by uncertified personal check, please note that the funds paid thereby
may take at least five business days to clear. Accordingly, Eligible
Shareholders who wish to pay the Subscription Price by means of uncertified
personal check are urged to make payment
-32-
<PAGE>
sufficiently in advance of the Expiration Date to ensure that such payment is
received and clears by such date and are urged to consider payment by means of
certified or cashier's check, money order or wire transfer of funds.
The address to which Notices of Exercise and payment of the Subscription Price
should be delivered is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL STREET, 46TH FLOOR
NEW YORK, NEW YORK 10005
ATTENTION: REORGANIZATION DEPARTMENT
Eligible Shareholders, such as brokers, dealers, commercial banks and trust
companies, who on the Record Date held Common Stock for the account of others
should notify the respective beneficial owners of such shares as soon as
possible to ascertain such beneficial owners' intentions and to obtain
instructions with respect to the Subscription Privilege. Beneficial owners of
Common Stock held through such a nominee holder on the Record Date should
contact the Eligible Shareholder and request the Eligible Shareholder to effect
transactions in accordance with the beneficial owner's instructions. If the
beneficial owner so instructs, the Eligible Shareholder should complete a Notice
of Exercise and submit it to the Subscription Agent with the proper payment. A
broker, dealer, commercial bank, trust company or other nominee holding shares
of Common Stock on the Record Date for one of the FGI Investors may not exercise
the Subscription Privilege with respect to such shares.
The instructions accompanying the Notice of Exercise should be read carefully
and followed in detail. Do not send Notices of Exercise or payments of the
Subscription Price to the Company.
The method of delivery of Notices of Exercise and payment of the Subscription
Price to the Subscription Agent will be at the election and risk of the Eligible
Shareholder, but if sent by mail it is recommended that such Notices of Exercise
and payments be sent by registered mail, with return receipt requested, and that
a sufficient number of days be allowed to ensure delivery to the Subscription
Agent and clearance of payment prior to the Expiration Date. Because
uncertified personal checks may take at least five business days to clear, you
are urged to pay, or arrange for payment, by means of certified or cashier's
check, money order or wire transfer of funds.
All questions concerning the timeliness, validity, form and eligibility of any
exercise of Subscription Privilege will be determined by the Company, whose
determinations will be final and binding. The Company in its sole discretion
may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Subscription Privilege. Subscriptions will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as the Company determines in its sole discretion. Neither the Company
nor the Subscription Agent will be under any duty to give notification of any
defect or irregularity in connection with the submission of Notices of Exercise
or incur any liability for failure to give such notification.
Any questions or requests for assistance concerning the method of exercising
Subscription Privileges or requests for additional copies of this Prospectus or
Notices of Exercise, should be directed to John H. Sharpe, Esq. in writing at
8900 Keystone Crossing, Suite 200, Indianapolis, Indiana 46240-0498 or by
telephone at (317) 846-0700.
ISSUANCE OF CERTIFICATES
Certificates representing Common Stock purchased pursuant to the Subscription
Offering will be delivered to Eligible Shareholders as soon as practicable after
they have validly exercised their Subscription Privilege.
NO REVOCATION
Once an Eligible Shareholder has exercised the Subscription Privilege, such
exercise may not be revoked.
-33-
<PAGE>
THE WARRANT OFFERING
Under the Warrant Agreement, if the Company issues shares of Common Stock at a
price per share of Common Stock that is less than the Current Market Price (as
such term is defined in the Warrant Agreement) per share of Common Stock on the
date the Company fixed the price of such additional shares of Common Stock, then
the number of shares of Common Stock thereafter purchasable upon the exercise of
each Warrant is required to be adjusted to avoid dilution. The Warrant
Agreement, however, provides that no such adjustment is required to be made on
account of any issuance of New Investment Equity (as such term is defined in the
Warrant Agreement) pursuant to a rights offering made to shareholders in which
each holder of Warrants is given the opportunity to participate on the same
basis as shareholders as though such holder of Warrants owned, as of the record
date for such rights offering, the shares of Common Stock then purchasable upon
the exercise of its Warrants, provided that any holder of Warrants participating
in such offering is given the option to receive upon the payment of the
applicable purchase price, in lieu of each share of Common Stock otherwise
purchasable upon such payment, one warrant representing the right to purchase
one share of Common Stock upon the payment of an exercise price per warrant of
$0.01 at any time prior to 5:00 p.m., Indianapolis, Indiana time, on June 11,
1999.
The issuance of shares of Common Stock pursuant to the transactions
contemplated by the Stock Purchase Agreement, including the Subscription
Offering, will be at a price per share less than the Current Market Price per
share of Common Stock. Accordingly, the Company is offering to the Warrant
Holder the opportunity to subscribe for and purchase either shares of Common
Stock or Special Warrants. The Warrant Holder may subscribe for and purchase,
at its election, in whole or in part, either (i) 149,607 shares of Common Stock
at a purchase price of $3.75 per share or (ii) 149,607 Special Warrants, each
representing the right to purchase one share of Common Stock upon the payment of
an exercise price per Special Warrant of $0.01 at any time prior to 5:00 p.m.,
Indianapolis, Indiana time, on June 11, 1999, at a purchase price of $3.75 per
Special Warrant. The opportunity being given to the Warrant Holder to subscribe
for and purchase either shares of Common Stock or Special Warrants pursuant to
the Warrant Offering will not be directly or indirectly assignable or
transferable and will not be evidenced by a certificate.
The Warrant Holder may exercise its opportunity to subscribe for and purchase
either shares of Common Stock or Special Warrants by notifying the Company in
writing of its election to do so prior to the Expiration Date. Such notice
shall specify the number of shares of Common Stock or Special Warrants which
the Warrant Holder wishes to purchase and shall be accompanied by payment in
full for the shares of Common Stock or Special Warrant for which it
subscribes. The Company will not honor any purported exercise by the Warrant
Holder received after the Expiration Date, regardless of when the notice
relating thereto was sent. Payment of the purchase price for shares of Common
Stock or Special Warrants subscribed for by the Warrant Holder must be by
check or bank draft drawn upon a U.S. bank or postal, telegraphic or express
money order payable to Forum Group, Inc. or wire transfer to an account
designated by the Company for such purpose and will be deemed to have been
received by the Company only upon clearance of any uncertified check, receipt
by the Company of any certified check or bank draft drawn on a U.S. bank or of
any postal, telegraphic or express money order, or receipt of good funds in an
account designated by the Company as provided above.
-34-
<PAGE>
BUSINESS AND PROPERTIES OF THE COMPANY
The Company provides senior housing and associated convenience and healthcare
services in 11 states through the operation of 22 rental RCs and three RCs
predominantly providing continuing care. The Company also operates one
freestanding nursing home. Of those facilities, eight are owned by the Company,
two are leased and 16 are managed. Nine of the managed RCs are owned by FRP.
Except as described below, each RC contains an independent living component and
a full-care nursing component available to residents should the need arise.
Certain RCs also include an assisted living component. One RC consists of an
assisted living component and a nursing component, and does not contain an
independent living component. Another RC consists of an independent living
component and assisted living component, and does not contain a nursing
component, but is adjacent to and enjoys the benefits of a RC which contains a
nursing component. The Company presently owns, leases and manages RCs as
follows:
<TABLE>
<CAPTION>
Number of Units
Number of Facilities and/or Beds
----------------------------- -----------------------------
Class of Facility Owned Leased Managed Total Owned Leased Managed Total
================= ============================= =============================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental RCs 7 1 14 22 1,851 211 2,615 4,677
Continuing Care 1 0 2 3 274 0 667 941
RCs
Nursing Home 0 1 0 1 0 89 0 89
================= ============================= =============================
Totals 8 2 16 26 2,125 300 3,282 5,707
================= ============================= =============================
</TABLE>
For each of the Company's last three fiscal years and the nine-month period
ended December 31, 1993, the percentage of total revenues contributed by each of
the foregoing classes of facilities was as follows (000's omitted):
<TABLE>
<CAPTION>
Year ended March 31,
Nine Months Ended -----------------------------
Class of Facility December 31, 1993 1993 1992 1991
===================== ================================================
<S> <C> <C> <C> <C>
Rental RCs $62,573 $71,889 $68,719 $66,783
Continuing Care RCs 13,856 15,780 9,762 8,053
Nursing Home 2,192 2,670 2,718 7,932
===================== ================================================
</TABLE>
RENTAL RCS
The Company owns rental RCs in Arizona (two), Florida, Kansas, Ohio and Texas
(two); leases a rental RC in Kentucky; and manages rental RCs in California
(two), Delaware (six), Florida, Indiana, New Mexico, South Carolina and Texas
(two).
Except as described below, each of the Company's rental RCs contains an
independent living component and a nursing component. Certain of the Company's
rental RCs also include an assisted living component. One of the Company's
rental RCs consists of an assisted living component and a nursing component and
does not contain an
-35-
<PAGE>
independent living component. Another of the Company's rental RCs consists of
an independent living component and an assisted living component, and does not
contain a nursing component, but is adjacent to and enjoys the benefits of one
of the Company's rental RCs which contains a nursing component.
The independent living component (if any) of each of the Company's rental RCs
contains a variety of accommodations, together with amenities such as dining
facilities, lounges and game and craft rooms. All residents of the independent
living components are provided security, meals, housekeeping and linen service.
Emergency healthcare service is available 24 hours a day from an on-site nursing
staff, and each independent living unit is equipped with an emergency call
system. The independent living components of the Company's rental RCs consist
of apartments, villas and, in the case of two RCs, condominiums. Rental RC
independent living first person residency fees presently range from $850 to
$5,920 per month, depending on the size of accommodations. Each rental RC
apartment and villa resident enters into a residency agreement that may be
terminated by the resident on short notice, and each rental RC condominium
resident enters into a residency agreement coterminous with his or her
ownership. Although there can be no assurance that, as apartment and villa
residency agreements expire or are terminated, available apartments and villas
will be reoccupied, 80-90% of the residents of the apartments and villas
historically have renewed their residency agreements from year to year. All
residents of the independent living components of the Company's rental RCs are
assured space (subject to availability) in the assisted living (if any) and
nursing components should the need therefor arise.
The nursing component (if any) of each of the Company's rental RCs provides
residents a full range of nursing care. Residents have private or semiprivate
rooms, and share communal dining and social facilities. In most instances, each
resident of the independent living component of a Company rental RC is entitled
to care in the assisted living (if any) or nursing component at no extra charge
for up to a specified number of days annually or an aggregate of a specified
number of days during the resident's lifetime. After utilizing this accrued
time, the resident pays for both independent living occupancy, and assisted
living or nursing care, until canceling one or the other. The charge for a
semiprivate nursing bed presently ranges from $70 to $184 per day.
The assisted living component (if any) of each of the Company's rental RC
provides residents a semistructured environment that encourages independent
living. Residents have private or semiprivate suites, eat meals in a private
dining room, and are provided the added services of scheduled activities,
housekeeping and linen service, preventive health surveillance, periodic health
monitoring, assistance with activities of daily living and emergency care. The
charge for a private assisted living suite presently ranges from $53 to $128 per
day.
The Company's rental RCs provide ancillary healthcare services, including the
operation of an adult day care center on the premises of one RC.
The following tables indicate the name, location, capacity, occupancy rate and
average effective annual fees/charges per unit/suite/bed for each of the last
five fiscal years and for the nine-month period ended December 31, 1993 (each of
the last five calendar years and the nine-months ended December 31, 1993 in the
case of RCs owned by FRP and its affiliated operating partnerships) of each of
the Company's rental RCs:
-36-
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
OWNED AND LEASED FACILITIES
=====================================================================================================================
Capacity Occupancy Rate
------------------------------------------- -------------------------------------------
Nine
Independent Assisted Total Months Year Ended March 31,
Living Living Nursing Units/ Ended --------------------------------
Name and Location Units Suites Beds Suites/Beds 12/31/93 1993 1992 1991 1990 1989
- --------------------------- ------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Owned Facilities:
The Forum at Memorial Woods 198 36 96 330 79.7% 65.2% 49.7% 29.6% 16.2% N/A
Houston, Texas
The Forum at Park Lane 190 38 90 318 91.9% 77.3% 57.7% 23.7% N/A N/A
Dallas, Texas
The Forum at Deer Creek 180 30 60 270 94.5% 82.1% 60.2% 28.9% N/A N/A
Deerfield Beach, Florida
The Forum at Tucson 149 30 67 246 91.6% 82.4% 55.2% 31.9% 8.5% N/A
Tucson, Arizona
The Forum at Desert Harbor 154 30 57 241 92.5% 84.6% 62.8% 27.3% 6.2% N/A
Peoria, Arizona
The Forum at Knightsbridge 120 59 60 239 93.8% 89.1% 70.3% 42.4% 22.7% N/A
Columbus, Ohio
(ground lease expires 2028*)
The Forum at Overland Park 117 30 60 207 93.1% 87.3% 65.6% 48.8% 21.0% N/A
Overland Park, Kansas
All Owned Facilities: 1,108 253 490 1,851 90.5% 87.1% 71.1% 45.8% 20.1% N/A
- ---------------------------------------------------------------------------------------------------------------------
Leased Facility:
The Lafayette at Country
Place/Lexington Country Place
Lexington, Kentucky 100 -0- 111 211 94.9% 94.5% 94.3% 94.4% 95.0% 93.8%
(leases expire 2010 and
2016, respectively)*
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================
Average Effective Annual Fees/Charges Per Unit/Suite/Bed
--------------------------------------------------------
Nine
Months Year Ended March 31,
Ended ----------------------------------------
Name and Location 12/31/93 1993 1992 1991 1990 1989
- --------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Owned Facilities:
The Forum at Memorial Woods $29,015 $28,950 $29,194 $30,649 $ 9,445 N/A
Houston, Texas
The Forum at Park Lane $28,172 $27,783 $27,868 $29,242 N/A N/A
Dallas, Texas
The Forum at Deer Creek $24,084 $24,448 $23,452 $25,083 N/A N/A
Deerfield Beach, Florida
The Forum at Tucson $24,636 $23,959 $24,670 $26,404 $11,217 N/A
Tucson, Arizona
The Forum at Desert Harbor $23,332 $22,217 $21,660 $24,769 $37,206 N/A
Peoria, Arizona
The Forum at Knightsbridge $30,920 $28,610 $29,973 $30,452 $ 7,377 N/A
Columbus, Ohio
(ground lease expires 2028*)
The Forum at Overland Park $22,839 $23,923 $24,872 $25,991 $21,514 N/A
Overland Park, Kansas
All Owned Facilities: $26,316 $23,740 $21,849 $19,558 $10,372 N/A
- ------------------------------------------------------------------------------------------
Leased Facility:
The Lafayette at Country
Place/Lexington Country Place
Lexington, Kentucky $23,805 $22,936 $21,785 $20,997 $19,663 $18,332
(leases expire 2010 and
2016, respectively)*
==========================================================================================
</TABLE>
- ----------
* Assumes the exercise of all available extensions and/or renewal options.
-37-
<PAGE>
MANAGED FACILITIES OWNED BY FRP*
<TABLE>
<CAPTION>
==================================================================================================================
Capacity Occupancy Rate
------------------------------------------- ----------------------------------------
Assisted Year Ended December 31,
Independent Living Nursing Total Units/ ----------------------------------------
Name and Location Living Units Suites Beds Suites/Beds 1993 1992 1991 1990 1989 1988
- --------------------------- ------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Montevista at Coronado
El Paso, Texas 123 15 120 258 85.5% 81.6% 81.1% 74.3% 58.9% 40.9%
The Park Summit of Coral
Springs
Coral Springs, Florida 199 22 35 256 89.7% 81.7% 76.3% 76.3% 77.4% 62.6%
The Forum at Lincoln
Heights
San Antonio, Texas 152 30 60 242 94.0% 86.8% 68.5% 56.3% 17.1% N/A
The Montebello on Academy
Albuquerque, New Mexico 114 15 60 189 96.1% 90.1% 85.0% 87.4% 80.8% 65.8%
Millcroft
Newark, Delaware 63 0 100 163 92.1% 90.6% 87.9% 90.0% 93.6% 95.2%
Shipley Manor
Wilmington, Delaware 61 0 82 143 93.3% 85.8% 85.9% 90.8% 90.7% 97.6%
Myrtle Beach Manor
North Myrtle Beach,
South Carolina 60 0 80 140 93.6% 89.9% 79.4% 86.1% 88.6% 87.5%
Foulk Manor North
Wilmington, Delaware 58 11 46 115 90.9% 89.9% 88.1% 82.7% 84.6% 89.4%
Foulk Manor
Wilmington, Delaware 0 51 52 103 83.5% 80.2% 70.9% 83.5% 87.0% 93.8%
=========================== =========================================== ========================================
All Managed
Facilities Owned
by FRP 830 144 635 1,609 91.0% 85.9% 79.0% 77.8% 76.4% 73.0%
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================
Average Effective Annual Fees/Charges Per Unit/Suite/Bed
--------------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1993 1992 1991 1990 1989 1988
- --------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Montevista at Coronado
El Paso, Texas $24,081 $22,588 $20,321 $19,823 $17,890 $12,145
The Park Summit of Coral
Springs
Coral Springs, Florida $24,602 $24,687 $25,072 $24,177 $21,596 $19,451
The Forum at Lincoln Heights
San Antonio, Texas $27,417 $26,366 $18,858 $22,779 $10,190 N/A
The Montebello on Academy
Albuquerque, New Mexico $27,530 $27,426 $26,722 $24,804 $24,815 $22,005
Millcroft
Newark, Delaware $28,804 $27,803 $27,087 $25,071 $23,308 $23,167
Shipley Manor
Wilmington, Delaware $29,704 $29,501 $29,396 $26,655 $24,826 $23,482
Myrtle Beach Manor
North Myrtle Beach,
South Carolina $23,061 $21,813 $20,752 $19,349 $17,872 $17,152
Foulk Manor North
Wilmington, Delaware $29,175 $28,322 $26,711 $25,678 $23,601 $22,155
Foulk Manor
Wilmington, Delaware $29,941 $30,149 $31,612 $29,583 $26,735 $25,656
=========================== ====================================================
All Managed
Facilities Owned
by FRP $26,738 $26,067 $24,573 $24,158 $20,175 $20,938
=======================================================================================
</TABLE>
- --------------
* Pursuant to the FRP Management Agreement, the Company manages all nine of
the facilities owned by FRP and is entitled to receive management fees in
respect thereof, payable quarterly, in an amount equal to 8% of FRP's gross
operating revenues. Pursuant to the FRP Management Agreement, all management
fees payable since the formation of FRP in 1986 through December 31, 1993 have
been deferred. FRP deferred management fees in the following amounts for the
following calendar years: 1987: $928,000;
-38-
<PAGE>
1988: $1,398,000; 1989: $1,595,000; 1990: $1,615,000; 1991: $3,391,000; 1992:
$3,337,000; 1993: $3,515,575. At December 31, 1993, deferred management fees
totalled approximately $15,779,507. Under the terms of the FRP Management
Agreement, management fees are no longer deferrable from and after January 1,
1994. Deferred management fees will generally be paid quarterly in accordance
with the provisions of the Management Agreement; however, under such provisions,
it is not anticipated that any such deferred management fees will be paid by FRP
to the Company in the foreseeable future. See "Risk Factors -- Risk of
Relationships With FRP.
-39-
<PAGE>
MANAGED FACILITIES OWNED BY OTHER AFFILIATED ENTITIES
<TABLE>
<CAPTION>
====================================================================================================================
Capacity Occupancy Rate
------------------------------------------- ------------------------------------------
Nine
Independent Assisted Total Months Year Ended March 31,
Living Living Nursing Units/ Ended --------------------------------
Name and Location Units Suites Beds Suites/Beds 12/31/93 1993 1992 1991 1990 1989
- --------------------------- ----------- -------- ------- ----------- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Forwood Manor
Wilmington, Delaware
(management agreement
expires upon the
expiration or termination
of the term of Forum
Retirement Communities
II, L.P. ("FRCIILP")
(59.4%-owned), and
provides for management
fees equal to (i) for the
first six years a varying
percentage of net cash
flow after debt service,
and (ii) thereafter, 5%
of gross operating
revenues) 119 30 60 209 95.0% 89.2% 76.7% 67.1% 64.8% 23.2%
The Remington Club at
Rancho Bernardo - Phase I
San Diego, California
(management agreement
expires upon the
expiration or termination
of the term of FRCIILP,
and provides for
management fees equal to
(i) for the first six
years, a varying
percentage of net cash
flow after debt service,
and (ii) thereafter, 5%
of gross operating
revenues) 146 0 59 205 85.2% 82.2% 79.5% 78.9% 90.4% 64.2%
Stonegates (50%-Owned)
Greenville, Delaware
(management agreement
expires in 2004, and
provides for management
fees equal to 8% of gross
operating revenues) 162 0 39 201 93.2% 94.8% 92.3% 93.1% 93.5% 92.3%
The Remington Club at
Rancho Bernardo - Phase II
San Diego, California
(management agreement
expires upon the
expiration or termination
of the term of Forum
Retirement Communities I,
L.P. ("FRCILP")
(58.95%-owned), and
provides for management
fees equal to (i) the
first six years, a
varying percentage of net
cash flow after debt
service, and (ii)
thereafter, 5% of gross
operating revenues) 100 100 0 200 83.5% 68.5% 47.2% 26.3% N/A N/A
The Forum at the Crossing
Indianapolis, Indiana
(management agreement
expires upon the
expiration or termination
of the term of FRCIILP,
and provides for
management fees equal to
5% of gross operating
revenues) 117 14 60 191 94.9% 91.8% 93.2% 95.3% 91.4% 91.1%
=========================== =========== ======== ======= =========== ========= ==== ==== ==== ==== ====
All Managed
Facilities Owned
by Other
Affiliated
Entities 644 144 218 1,006 90.5% 84.7% 77.8% 71.1% 76.2% 74.2%
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================
Average Effective Annual Fees/Charges Per Unit/Suite/Bed
--------------------------------------------------------
Nine
Months Year Ended March 31,
Ended -------------------------------------------
12/31/93 1993 1992 1991 1990 1989
- -------------------------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Forwood Manor
Wilmington, Delaware
(management agreement
expires upon the
expiration or termination
of the term of Forum
Retirement Communities
II, L.P. ("FRCIILP")
(59.4%-owned), and
provides for management
fees equal to (i) for the
first six years a varying
percentage of net cash
flow after debt service,
and (ii) thereafter, 5%
of gross operating
revenues) $32,840 $32,228 $32,073 $31,339 $24,193 $19,322
The Remington Club at
Rancho Bernardo - Phase I
San Diego, California
(management agreement
expires upon the
expiration or termination
of the term of FRCIILP,
and provides for
management fees equal to
(i) for the first six
years, a varying
percentage of net cash
flow after debt service,
and (ii) thereafter, 5%
of gross operating
revenues) $34,339 $33,183 $31,625 $31,606 $26,006 $28,085
Stonegates (50%-Owned)
Greenville, Delaware
(management agreement
expires in 2004, and
provides for management
fees equal to 8% of gross
operating revenues) $26,556 $24,897 $24,514 $23,287 $22,659 $21,334
The Remington Club at
Rancho Bernardo - Phase II
San Diego, California
(management agreement
expires upon the
expiration or termination
of the term of Forum
Retirement Communities I,
L.P. ("FRCILP")
(58.95%-owned), and
provides for management
fees equal to (i) the
first six years, a
varying percentage of net
cash flow after debt
service, and (ii)
thereafter, 5% of gross
operating revenues) $32,868 $32,715 $31,088 $33,110 N/A N/A
The Forum at the Crossing
Indianapolis, Indiana
(management agreement
expires upon the
expiration or termination
of the term of FRCIILP,
and provides for
management fees equal to
5% of gross operating
revenues) $29,263 $26,919 $26,038 $24,128 $22,898 $21,178
=========================== ======= ======= ======= ======= ======= =======
All Managed
Facilities Owned
by Other
Affiliated
Entities $31,094 $29,991 $28,626 $27,953 $24,634 $20,466
===================================================================================
</TABLE>
-40-
<PAGE>
CONTINUING CARE RCS
The Company owns one continuing care RC, namely The Forum at Brookside
("Forum/Brookside"), in Louisville, Kentucky, Inc. and manages two continuing
care RCs, namely The Forum - Pueblo Norte ("Forum/Pueblo Norte"), in Scottsdale,
Arizona, and Forum/Rancho San Antonio, in Cupertino, California.
Forum/Brookside and Forum/Pueblo Norte were acquired by their respective owners
from other developers subsequent to commencement of operations. Forum/Rancho
San Antonio was developed by Forum Lifecare, Inc., a wholly owned subsidiary of
the Company ("Forum Lifecare").
The Forum at Overland Park ("Forum/Overland Park") in Overland Park, Kansas,
an RC owned by the Company, is approved under applicable state law to provide
continuing care. In addition to rental residency agreements, residents of
Forum/Overland Park may choose to enter into agreements providing for "front-
end" payments which, upon termination, are refunded in whole or in part
depending upon the refund option selected by the resident. Myrtle Beach Manor
in Myrtle Beach, South Carolina, an RC managed by the Company, is also approved
under applicable state law to provide continuing care. However, the predominant
mode of residency at each of Forum/Overland Park and Myrtle Beach Manor is
rental residency agreements. These RCs are therefore considered rental RCs.
Each of the Company's continuing care RCs contains an independent living
component and a nursing component. Forum/Brookside and Forum/Rancho San Antonio
also include an assisted living component. The accommodations and services
provided in the various components of the Company's continuing care RCs are
substantially the same as those provided in the various components of the
Company's rental RCs.
Forum/Brookside, Forum/Pueblo Norte and Forum/Rancho San Antonio differ from
the Company's rental RCs in the method(s) of payment by current and former
independent living residents. At the Company's rental RCs, independent living
residents generally make no "front-end" payment and only pay monthly residency
fees. At the Company's continuing care RCs, independent living residents
generally make substantial "front-end" payments and pay monthly residency (and,
in the case of two continuing care RCs, healthcare) fees that are substantially
less than monthly residency fees for comparable accommodations at the Company's
rental RCs. In addition, independent living residents of the Company's
continuing care RCs who transfer to the assisted living (if any) or nursing
component generally pay healthcare fees which are substantially less than those
paid by independent living residents of the Company's rental RCs who so
transfer.
Each of Forum/Pueblo Norte and Forum/Rancho San Antonio is owned by a
nonprofit cooperative housing corporation sponsored by Forum Lifecare. At those
RCs, the "front-end" payment takes the form of the purchase price of a
membership in the cooperative housing corporation. Each membership is allocated
to an independent living unit in the RC, and the purchase of a membership
entitles the purchaser to a long-term proprietary lease of the unit. Upon
resale of the membership, the resident (or his or her estate) and the
cooperative housing corporation share equally any excess of the sale proceeds
over the resident's membership purchase price. At Forum/Pueblo Norte,
independent living residents may elect to purchase memberships subject to an
option in favor of the cooperative housing corporation to repurchase upon
cessation of occupancy at a price which reduces to zero over six or 60 months.
The assisted living (if any) and nursing components of each of Forum/Pueblo
Norte and Forum/Rancho San Antonio are leased to a separate nonprofit
corporation, the sole member of which is Forum Lifecare, and each
member/independent living resident is required to enter into a healthcare
agreement with that lessee. Membership purchase prices at Forum/Pueblo Norte
and Forum/Rancho San Antonio presently range from $68,250 to $236,250, and
$199,000 to $630,000, respectively; first person monthly residency fees at those
RCs for independent living residents purchasing memberships presently range from
$910 to $1,500, and $1,035 to $2,335, respectively; and first person monthly
healthcare fees at those RCs for members presently range from $230 to $412,
respectively.
At Forum/Brookside, the "front-end" payment takes the form of an interest-free
loan to the owner of the RC, which may or may not be repaid in whole or in part
(depending upon the refund option selected by the resident) from the proceeds of
the next "front-end" payment in respect of the subject unit. Required interest-
free
-41-
<PAGE>
loans at Forum/Brookside presently range from $62,140 to $159,900; and first
person monthly residency fees at that RC for independent living residents making
interest-free loans presently range from $740 to $1,300.
At each of Forum/Brookside and Forum/Pueblo Norte, certain independent living
residents are parties to residency agreements with the previous sponsors which
were assumed by the current owners. Under those agreements, the "front-end"
payments took the form of an entrance fee which is 100% (in the case of
Forum/Brookside) or 90% (in the case of Forum/Pueblo Norte), as the case may be,
refundable to the resident (or his or her estate) from the next entrance fee
paid in respect of the subject unit. Refundable entrance fees at
Forum/Brookside and Forum/Pueblo Norte ranged from $31,500 to $111,000; and
first person monthly residency fees at those RCs for independent living
residents paying refundable entrance fees presently range from $494 to $1,119,
and $893 to $1,754, respectively.
At Forum/Brookside and Forum/Pueblo Norte, independent living residents are
also offered the alternative of a rental residency agreement. First person
rental residency fees at Forum/Brookside, Forum/Pueblo Norte and Forum/Rancho
San Antonio presently range from $1,275 to $2,625, $1,000 to $2,730, and $1,035
to $1,835, respectively.
The following table indicates the name, location, capacity, occupancy rate and
average effective annual fees/charges per unit-suite/bed for each of the last
five fiscal years and for the nine-month period ended December 31, 1993, of each
of the Company's continuing care RCs:
-42-
<PAGE>
CONTINUING CARE RCS
<TABLE>
<CAPTION>
=======================================================================================================================
Capacity Occupancy Rate
-------------------------------------------- ---------------------------------------------
Nine
Independent Assisted Total Months Year Ended March 31,
Living Living Nursing Units/ Ended ---------------------------------
Name and Location Units Suites Beds Suites/Beds 12/31/93 1993 1992 1991 1990 1989
- -------------------------- -------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Owned Facility:
The Forum at Brookside
Louisville, Kentucky 214 20 40 274 90.5% 83.7% 77.3% 67.9% 63.0% 37.1%
- -------------------------- -------------------------------------------- ---------------------------------------------
Managed Facilities:
The Forum at Rancho San
Antonio
Cupertino, California
(management agreement
expires in 1996 and
provides for management
fees equal to 4% of gross
operating revenues) 319 34 48 401 61.9% 53.3% 34.3% N/A N/A N/A
The Forum-Pueblo Norte
Scottsdale, Arizona
(management agreement
expires in 1993 and
provides for management
fees equal to 4% of gross
operating revenues) 169 0 97 266 92.6% 85.9% 56.2% 63.5% 69.9% 70.0%
- -------------------------- -------------------------------------------- ---------------------------------------------
All Managed Continuing
Care RCs 488 34 145 667 72.2% 63.0% 55.3% 63.5% 69.9% 70.0%
========================== ============================================ =============================================
All Continuing Care RCs 702 54 185 941 76.9% 69.2% 59.9% 66.2% 65.0% 53.9%
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================================================
Average Effective Annual Fees/Charges Per Unit/Suite/Bed
--------------------------------------------------------
Nine
Months Year Ended March 31,
Ended ------------------------------------------
Name and Location 12/31/93 1993 1992 1991 1990 1989
- -------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Owned Facility:
The Forum at Brookside
Louisville, Kentucky $19,369 $18,597 $18,112 $17,863 $15,677 $13,800
- -------------------------- -----------------------------------------------------
Managed Facilities:
The Forum at Rancho San
Antonio
Cupertino, California
(management agreement
expires in 1996 and
provides for management
fees equal to 4% of gross
operating revenues) $22,071 $19,300 $13,364 N/A N/A N/A
The Forum-Pueblo Norte
Scottsdale, Arizona
(management agreement
expires in 1993 and
provides for management
fees equal to 4% of gross
operating revenues) $21,818 $21,922 $24,870 $20,930 $18,286 $ 8,844
- -------------------------- ------------------------------------------------------
All Managed Continuing
Care RCs $22,337 $21,916 $17,287 $20,930 $18,286 $ 8,844
========================== =====================================================
All Continuing Care RCs $21,606 $20,685 $17,822 $19,267 $17,608 $10,547
==================================================================================
</TABLE>
-43-
<PAGE>
The following table indicates the number of independent living units
occupied at each of the Company's continuing care RCs as of December 31, 1993,
under each payment method described above:
<TABLE>
<CAPTION>
=======================================================================================
Interest- Refundable
Membership Free Entrance
Name and Location Purchase Loan Fee Rental Total
=======================================================================================
<S> <C> <C> <C> <C> <C>
The Forum at Rancho San Antonio
Cupertino, California 197 N/A N/A -- 197
The Forum-Pueblo Norte
Scottsdale, Arizona 65 N/A 52 43 160
The Forum at Brookside
Louisville, Kentucky N/A 75 23 99 197
=======================================================================================
All Continuing Care RCs 262 75 75 142 554
=======================================================================================
</TABLE>
NURSING HOME
The Company leases one nursing home, namely Lewes Convalescent Center, in
Lewes, Delaware ("Lewes"), which has a capacity of 89 beds, pursuant to a lease
expiring in 2029.
Lewes provides convalescent and rehabilitative treatment of inpatient adults,
including those who are admitted after hospitalization and before returning to
their homes, and is designed to supplement general hospital care, rather than
compete directly with general hospitals. The services furnished at Lewes
include room, board, nursing care, drugs, supplies, medical equipment, other
medical services, social activities and occupational, physical, recreational and
speech therapies. Lewes contains private and semiprivate rooms, and the charge
for a private room is presently $92 per day. Lewes contains a dining room, a
kitchen, a physical therapy section for therapeutic and rehabilitative care,
offices, lounges, a television room and reception areas. The admission,
treatment and discharge of each resident are under the direction of the
resident's attending physician. Although no full-time staff physicians are
retained, Lewes has consulting and on-call physicians as required. Lewes has a
transfer agreement with a nearby hospital, facilitating the transfer of
residents and medical records, and providing access to emergency medical
treatment if required.
The following table indicates the occupancy rate and average effective annual
charges per bed for each of the past five fiscal years and for the nine-month
period ended December 31, 1993, for Lewes:
<TABLE>
<CAPTION>
===============================================================
Average Effective
Annual Charges
Time Period Occupancy Rate Per Bed
- ---------------------------------------------------------------
<S> <C> <C>
Nine Month Period Ended
December 31, 1993 95.3% $28,512
Year ended March 31, 1993 91.1% $26,306
Year ended March 31, 1992 96.0% $26,604
Year ended March 31, 1991 95.9% $27,068
Year ended March 31, 1990 97.7% $25,720
Year ended March 31, 1989 94.9% $30,739
===============================================================
</TABLE>
-44-
<PAGE>
MORTGAGES
Each rental RC formerly owned by the Company and now owned by Newco I, other
than The Lafayette at Country Place/Lexington Country Place, Forum/Pueblo Norte,
Forum/Knightsbridge and Lewes, is subject to a first mortgage lien securing
borrowings under the Refinancing Loan. The outstanding principal amount
outstanding under the Refinancing Loan is $93.3 million, which currently bears
interest at a variable rate equal to 4.3% over one-month LIBOR. The Refinancing
Loan matures on February 1, 2001. The mortgages on the Properties securing the
Refinancing Loan are recorded and are cross-defaulted and cross-collateralized.
See "Refinancing and Other Loans -- Refinancing Loan."
Forum/Knightsbridge is subject to a first mortgage securing a loan made by
Teachers Insurance and Annuity Association of America (the "Teachers' Loan").
The current outstanding principal amount of the Teachers' Loan is $14,905,000,
and the Teachers' Loan bears interest at the rate of 10-1/2% per annum.
Principal and interest are payable in varying monthly installments through and
including December 1, 1997, and a "balloon" payment of $13.5 million is payable
on December 31, 1997. The Company may not prepay the Teachers' Loan prior to
January 1, 1996; thereafter, the Company may prepay the Teachers' Loan without
premium or penalty. Subject to repayment of the Teachers' Loan, the Refinancing
Loan will also be secured by a mortgage lien on Forum/Knightsbridge.
Substantially all of the Company's other assets have also been pledged or
otherwise encumbered as security under the Refinancing Loan.
-45-
<PAGE>
DEPRECIATION
The following table indicates, with respect to each component of each RC owned
or leased by the Company, and of Lewes, upon which depreciation is taken, the
net federal tax basis as of March 31, 1993, rate, method and life claimed with
respect to that component for purposes of depreciation:
<TABLE>
<CAPTION>
=================================================================================
Net Federal
Name and Tax Basis Life
Location Component (3/31/93) Rate Method* (Years)
=================================================================================
<S> <C> <C> <C> <C> <C>
The Forum at Real property $12,943,291 Various SL 15-40
Memorial Woods Personal property 1,141,057 Various ADS/SL 5-10
Houston, Texas
- ---------------------------------------------------------------------------------
The Forum at Real property 25,267,504 Various SL 20-40
Park Lane Personal property 1,154,103 Various ADS/SL 5-10
Dallas, Texas
- ---------------------------------------------------------------------------------
The Forum at Real property 19,939,275 Various SL 40
Deer Creek Personal property 780,488 Various ADS/SL 7-10
Deerfield Beach,
Florida
- ---------------------------------------------------------------------------------
The Forum at Real property 16,466,589 Various SL 40
Tucson Personal property 577,387 Various ADS/SL 5-10
Tucson, Arizona
- ---------------------------------------------------------------------------------
The Forum at Real property 16,754,554 Various SL 40
Desert Harbor Personal property 650,323 Various ADS/SL 7-10
Peoria, Arizona
- ---------------------------------------------------------------------------------
The Forum at Real property 13,307,120 Various SL 20-40
Knightsbridge Personal property 635,410 Various ADS/SL 5-10
Columbus, Ohio
- ---------------------------------------------------------------------------------
The Forum at Real property 13,254,387 Various SL 15-40
Overland Park Personal property 625,815 Various ADS/SL 5-10
Overland Park,
Kansas
- ---------------------------------------------------------------------------------
The Forum at Real property 11,430,314 Various MACRS/SL 15-31
Brookside Personal property 260,164 Various MACRS/SL 5-7
Louisville,
Kentucky
- ---------------------------------------------------------------------------------
The Lafayette at Real property 7,175,856 Various MACRS/SL 15-31
Country Place/ Personal property 258,970 Various MACRS/SL 5-7
Lexington
Country Place
Lexington,
Kentucky
- ---------------------------------------------------------------------------------
Lewes Real property 553,992 Various ACRS/MACRS 15-31
Convalescent Personal property 107,309 Various MACRS 5-7
Center
Lewes, Delaware
==================================================================================
</TABLE>
- ----------
* ACRS = Accelerated cost recovery system
ADS = Alternative depreciation system
MACRS = Modified accelerated cost recovery system
SL = Straight line
-46-
<PAGE>
REAL ESTATE TAXES
The following table indicates, with respect to each RC owned or leased by the
Company, and Lewes, the assessed value, real estate tax rate and annual real
estate taxes for calendar year 1992:
<TABLE>
<CAPTION>
==========================================================================
Assessed Real Estate Annual Real
Name and Location Value Tax Rate Estate Taxes
==========================================================================
<S> <C> <C> <C>
The Forum at Memorial Woods $17,213,240 2.89% $ 497,862
Houston, Texas
- --------------------------------------------------------------------------
The Forum at Park Lane 15,721,380 2.53 397,439
Dallas, Texas
- --------------------------------------------------------------------------
The Forum at Deer Creek 7,184,993 2.57 184,993
Deerfield Beach, Florida
- --------------------------------------------------------------------------
The Forum at Tucson 8,544,375 1.77 151,187
Tucson, Arizona
- --------------------------------------------------------------------------
The Forum at Desert Harbor 9,322,070 1.56 145,804
Peoria, Arizona
- --------------------------------------------------------------------------
The Forum at Knightsbridge 8,757,686 1.77 155,140
Columbus, Ohio
- --------------------------------------------------------------------------
The Forum at Overland Park 7,255,300 1.72 124,861
Overland Park, Kansas
- --------------------------------------------------------------------------
The Forum at Brookside 8,200,000 0.95 78,146
Louisville, Kentucky
- --------------------------------------------------------------------------
The Lafayette at Country Place/ 5,460,000 0.97 52,716
Lexington Country Place
Lexington, Kentucky
- --------------------------------------------------------------------------
Lewes Convalescent Center 441,840 2.98 13,159
All $88,100,884 2.04% $1,801,307
==========================================================================
</TABLE>
SOURCES OF PAYMENT
The independent and assisted living components (if any) of the Company's RCs
receive direct payment for resident occupancy solely on a private pay basis.
The Company's nursing facilities (including the nursing components, if any, of
the Company's RCs) receive payment for resident care directly on a private pay
basis, including payment from private health insurance, and from governmental
reimbursement programs such as the federal Medicare program for certain elderly
and disabled residents, and state Medicaid programs for certain indigent
residents. The following table indicates the approximate percentages of
operating revenues for each of the last five fiscal years and the nine-month
period ended December 31, 1993 derived by the facilities owned or leased by the
Company from private sources, Medicare and Medicaid, and other sources:
-47-
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Nine
Months Ended Fiscal Year ended March 31,
December 31, --------------------------------------
1993 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
================================================================================
All RCs:
Private 85.6% 88.6% 97.3% 95.0% 90.1% 92.9%
Medicare and Medicaid 14.4 11.3 2.4 5.0 9.8 6.9
Other 0 0.1 0.3 0 0.1 0.2
----- ----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
================================================================================
Lewes:
Private 40.5% 37.3% 48.2% 34.0% 38.9% 33.9%
Medicare and Medicaid 58.5 61.7 50.3 65.0 49.2 62.0
Other 1.0 1.0 1.5 1.0 11.9 4.1
----- ----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
================================================================================
All RCs and Lewes:
Private 83.8% 86.5% 94.7% 90.0% 66.1% 48.8%
Medicare and Medicaid 16.1 13.4 5.0 10.0 28.2 48.2
Other 0.1 0.1 0.3 0 5.7 3.0
----- ----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
================================================================================
</TABLE>
Most private insurance carriers reimburse their policyholders, or make direct
payment to facilities, for covered services at rates established by the
facilities. Where applicable, the resident is responsible for any difference
between the insurance proceeds and the total charges. In certain states, Blue
Cross plans pay for covered services at rates negotiated with facilities. In
other states, Blue Cross plans are administered under contracts with facilities
providing for payment under formulae based on the cost of services. The
Medicare program also makes payment under a cost-based reimbursement formula.
Under the Medicaid program, each state is responsible for developing and
administering its own reimbursement formula.
Both governmental and third-party payors have employed cost containment
measures designed to limit payments made to healthcare providers such as the
Company. Those measures include the adoption of initial and continuing
recipient eligibility criteria which may limit payment for services, the
adoption of coverage criteria which limit the services that will be reimbursed
and the establishment of payment ceilings which set the maximum reimbursement
that a provider may receive for services. Furthermore, government reimbursement
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding restrictions, all of
which may materially increase or decrease the rate of program payments to the
Company for its services. There can be no assurance that payments under
governmental and private third-party payor programs will remain at levels
comparable to present levels or will be sufficient to cover the costs allocable
to patients eligible for reimbursement pursuant to such programs. See "Risk
Factors -- Government Regulation" and "Risk Factors -- Reimbursement by Third-
Party Payors."
-48-
<PAGE>
REGULATION AND OTHER FACTORS
RC and nursing home operations are subject to federal, state and local
government regulations. Facilities offering continuing care are subject to
regulation by state agencies. Facilities are subject to periodic inspection by
state healthcare licensing agencies to determine whether the standards necessary
for continued licensure are maintained. In granting and renewing licenses, the
state agencies consider, among other things, buildings, furniture and equipment;
qualifications of administrative personnel and staff; quality of care; and
compliance with laws and regulations relating to operation of facilities. State
licensure of a nursing facility is a prerequisite to certification for
participation in the Medicare and Medicaid programs. The Company believes that
all of the Company's facilities are presently in substantial compliance with all
applicable federal, state and local regulations with respect to certification
and licensure requirements. However, because those standards are subject to
change, there can be no assurance that the Company's facilities will be able to
maintain their certification and licenses upon a change in standards, and future
changes in those standards could necessitate substantial expenditures by the
Company to comply therewith. See "Risk Factors -- Government Regulation." Most
states have licensure requirements for the assisted living components of RCs;
however, those requirements are generally much less comprehensive and stringent
than requirements for licensure of nursing facilities. Most states do not have
licensure requirements for the independent living components of rental RCs.
Certain states in which the Company operates nursing facilities have adopted
certificate of need ("CON") statutes which provide that, prior to construction
of a new nursing facility or provision of new nursing services, a state agency
must determine that a need for the new facility or services exists. A CON for a
new nursing facility is generally issued for a specific maximum amount of
expenditure, and the holder of a CON is generally required to implement the
approved project within a specific time period. In most states, CONs are not
required for the independent and assisted living components of RCs.
COMPETITION
The Company's facilities compete with senior housing and long-term healthcare
facilities of varying similarity in the respective geographical market areas in
which the Company's facilities are located. Competing facilities are operated
on a national, regional and local basis by religious groups and other nonprofit
organizations, as well as by private operators, some of which have substantially
greater resources than the Company. The independent living components of the
Company's RCs face competition from the various types of residential
opportunities available to the elderly. However, the number of luxury
residential communities that offer on-premises healthcare services is limited.
The assisted living and nursing components of the Company's RCs, as well as
Lewes, compete with other assisted living and nursing facilities, and, to a
lesser extent, with general hospitals. Because the target market segment of the
Company's RCs is relatively narrow, the risk of competition may be higher than
with some other types of RCs. Additionally, the Company's facilities may be
subject to competition from new RCs, and assisted living and nursing facilities,
developed in close proximity to them.
Significant competitive factors for attracting residents to the independent
living components of the Company's RCs include price, physical appearance, and
amenities and services offered. Additional competitive factors for attracting
residents to the assisted living and nursing components of the Company's RCs,
and to Lewes, include quality of care, reputation, physician and nursing
services available, and family preferences. The Company believes that its
facilities are generally competitive based on these factors, except that its
facilities are generally more expensive than competing facilities. The assisted
living and nursing components of the Company's RCs, and Lewes, are designed to
supplement, not to compete with, services provided by general hospitals.
The Company experiences competition in the search for nurses, technicians,
aides and other high quality professional and nonprofessional employees.
However, the Company has not historically experienced shortages of key
personnel.
-49-
<PAGE>
INSURANCE
The Company maintains professional liability, comprehensive general liability
and other typical insurance coverage on all its facilities. The Company
believes that its insurance is adequate in amount and coverage.
EMPLOYEES
The Company employs approximately 4,000 persons, of whom approximately 80 are
employed pursuant to collective bargaining agreements. The Company has not
experienced any material labor disputes.
CAPITAL STOCK
The following description of the capital stock of the Company is summary in
nature, and is qualified in its entirety by reference to the provisions of the
Company's Restated Articles of Incorporation (the "Restated Articles of
Incorporation"), which are an exhibit to the Registration Statement of which
this Prospectus is a part.
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of 48,000,000 shares of Common
Stock, without par value, and 2,000,000 shares of Preferred Stock, without par
value. As of the date of the Prospectus, 21,261,625 shares of Common Stock have
been issued and are outstanding and no shares of Preferred Stock are
outstanding. All outstanding shares of Common Stock are fully paid,
nonassessable and not subject to future call.
COMMON STOCK
All holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to the vote of the shareholders. In any
election of directors, each share will be entitled to one vote and the holders
of a majority of the shares voting at the meeting will be able to elect all of
the directors if they choose to do so and, in such event, the other shareholders
will not be able to elect any directors.
Holders of Common Stock are entitled to receive ratably, subject to the rights
of any holders of Preferred Stock, such dividends as may be declared from time-
to-time by the Board of Directors out of any sums legally available therefor.
See "Dividend Policy."
In the event of the liquidation, dissolution or winding-up of the Company, the
holders of Common Stock are entitled to share pro rata in any assets remaining
after payment of the Company's liabilities and payment to outstanding shares of
Preferred Stock. The Common Stock has no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares.
PREFERRED STOCK
Pursuant to the Restated Articles of Incorporation, the Board of Directors has
the authority to determine the designation and number of shares constituting
each series of Preferred Stock, the rights, preferences, privileges and
restrictions, the conversion rights, voting rights, the right to receive
dividends, the right to assets upon any liquidation and other relative benefits,
restrictions and limitations on any series of Preferred Stock without further
shareholder approval, except as otherwise required by law. The Board of
Directors may, by resolution, determine, alter or revoke the rights,
preferences, privileges and restrictions pertaining to any wholly unissued
series.
The ability of the Board of Directors to authorize the issuance of Preferred
Stock without further shareholder approval provides it with flexibility to meet
changing market conditions and to take advantage of financial or business
opportunities that may arise. The issuance of the Preferred Stock may be used,
among
-50-
<PAGE>
other things, to raise capital or serve as consideration in order to finance a
merger with, or acquisition of, another company. The Company has no plans for
such expansion or financing at this time.
In the event the FGI Investors no longer beneficially own a majority of the
outstanding Common Stock, the Board of Directors would have the authority to
issue series of Preferred Stock that could preclude or discourage a tender offer
or other takeover attempt. Issuance of the Preferred Stock by the Board of
Directors, with appropriate voting rights, may also impact on the Board of
Directors' tenure, as holders of the Preferred Stock could utilize their voting
rights, if any, to keep the present Board of Directors and management in place.
Removal of directors members and/or management could become more difficult, for
example, by a large private placement of Preferred Stock with an entity aligned
with the Board of Directors. As a result, shareholders may have more limited
participation in certain transactions, including mergers or tender offers,
whether or not such transactions are favored by incumbent management. The Board
of Directors may be able to fend off a hostile takeover attempt, even though may
shareholders might wish to participate.
The provisions of a particular series of Preferred Stock, as designated by the
Board of Directors, may include restrictions on the Company's ability to pay
dividends on the Common Stock at a time when all dividends and other amounts
payable on, or in respect of, such series of Preferred Stock have not been paid.
Such provisions may also include restrictions on the ability of the Company to
repurchase shares of the Common Stock or to purchase or redeem shares of a
particular series of Preferred Stock if there exists an arrearage in dividends
or sinking fund installments with respect to any other series of Preferred
Stock. In addition, if Preferred Stock is issued as convertible securities
which are converted into Common Stock, the holders of Common Stock could
experience dilution.
SPECIAL WARRANTS
Each Special Warrant will represent the right to purchase one share of Common
Stock upon payment of an exercise price per Special Warrant of $0.01 at any time
prior to 5:00 p.m., Indianapolis time, on June 11, 1999. Each Special Warrant
will be evidenced by, and subject to the terms of, a warrant certificate
substantially similar (with appropriate modifications) to the certificate
evidencing the Warrants and will be subject to the provisions of the Warrant
Agreement, with certain exceptions. The Warrant Offering contemplates the
issuance of up to 149,607 Special Warrants to the Warrant Holder. See "The
Warrant Offering."
PLAN OF DISTRIBUTION
The Common Stock offered pursuant to the Subscription Offering is being
offered by the Company directly to Eligible Shareholders, and the Common Stock
or Special Warrants offered pursuant to the Warrant Offering is being offered by
the Company directly to the Warrant Holder. The Company has not employed any
brokers, dealers or underwriters in connection with the solicitation or exercise
of the Subscription Privilege by Eligible Shareholders or the opportunity being
offered to the Warrant Holder, and no commissions, fees or discounts will be
paid in connection with the Offerings. Certain officers and other employees of
the Company may solicit responses from Eligible Shareholders and the Warrant
Holder, but such officers and other employees will not receive any commissions
or compensation for such services other than their normal employment
compensation.
The Company will pay the fees and expenses of American Stock Transfer & Trust
Company, as Subscription Agent, and has also agreed to indemnify the
Subscription Agent from any liability which it may incur in connection with the
Subscription Offering.
-51-
<PAGE>
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Subscription Offering. The Subscription Agent's
address, which is the address to which Notices of Exercise and payment of
Subscription Price should be delivered, is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL STREET, 46TH FLOOR
NEW YORK, NEW YORK 10005
ATTENTION: REORGANIZATION DEPARTMENT
The Company will pay the fees and expenses of American Stock Transfer & Trust
Company, and has also agreed to indemnify American Stock Transfer & Trust
Company from any liability which it may incur in connection with the
Subscription Offering.
EXPERTS
The consolidated financial statements and financial schedules of the Company
for the three years ended March 31, 1993, included in the 1992 Form 10-K and
incorporated by reference herein, have been audited by KPMG Peat Marwick,
independent auditors. The consolidated financial statements and financial
statement schedules audited by KPMG Peat Marwick have been incorporated herein
by reference in reliance upon the report of KPMG Peat Marwick and on their
authority as experts in accounting and auditing.
LEGAL OPINION
The validity of the Common Stock and Special Warrants to which this Prospectus
relates has been passed upon by Jones, Day, Reavis & Pogue.
-52-
<PAGE>
===============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON
STOCK AND SPECIAL WARRANTS TO PURCHASE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK OR SPECIAL WARRANTS TO PURCHASE SHARES OF COMMON
STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
________________________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
Available Information................... 2
Information Incorporated by Reference... 2
Prospectus Summary...................... 3
Risk Factors............................ 11
The Company............................. 15
Refinancing and Other Loans............. 17
The FRP Recapitalization................ 23
Stock Purchase Agreements............... 24
Dividend Policy......................... 24
Use of Proceeds......................... 25
Capitalization.......................... 26
Pro Forma Financial Information......... 26
The Subscription Offering............... 32
The Warrant Offering.................... 34
Business and Properties of the Company.. 35
Capital Stock........................... 50
Special Warrants........................ 51
Plan of Distribution.................... 51
Subscription Agent...................... 52
Experts................................. 52
Legal Opinion........................... 52
</TABLE>
1,520,212 SHARES
OF COMMON STOCK, WITHOUT PAR VALUE
149,607 SPECIAL WARRANTS
TO PURCHASE SHARES OF
COMMON STOCK, WITHOUT PAR VALUE
FORUM GROUP, INC.
____________________
PROSPECTUS
____________________
MARCH __, 1994
===============================================================================
<PAGE>
PART II
=======
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses in connection with the issuance and distribution of the
securities being registered are as follows:
<TABLE>
<S> <C>
SEC registration fee............................................... $ 2,159
Blue Sky fees and expenses......................................... 10,000
Printing, mailing and distribution expenses........................ 20,000
Legal fees and expenses............................................ 150,000
Accounting fees and expenses....................................... 15,000
Subscription Agent's fees and expenses............................. 10,000
Miscellaneous...................................................... 16,841
--------
Total........................................................... $224,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Indiana Business Corporation Law (the "IBCL") authorizes a corporation to
indemnify its directors, officers, employees and agents against expenses in
certain proceedings provided the indemnified person (i) acted in good faith,
(ii) reasonably believes, if acting in an official capacity, that his conduct
was in the best interest of the corporation or, in all other cases, that his
conduct was at least not opposed to the best interest of the corporation, and
(iii) in the case of criminal proceedings, had reasonable cause to believe that
his conduct was lawful or had no reasonable cause to believe that his conduct
was unlawful. The IBCL provides that a corporation must indemnify its
directors, officers, employees and agents who are wholly successful, on the
merits or otherwise, against expenses in the defense of such proceedings. The
IBCL provides, however, that this indemnification is not exclusive of any other
indemnification rights provided by the articles of incorporation, by-laws,
resolution or other authorization adopted by a majority vote of the voting
shares then issued and outstanding.
Under the IBCL, a corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against the liability under the provisions of the IBCL.
The Restated Articles of Incorporation provide that the Company has the power
to indemnify any director or officer who was or is a party, or is threatened to
be made a party, to any proceeding (other than an action by or in the right of
the Company by reason of the fact that he is or was a member of the Board of
Directors or an officer) against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with such proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Company and, with respect to any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. The Company has
the power to indemnify any director or officer who was or is a party, or is
threatened to be made a party, to any proceeding by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he is or
was a member of the Board of Directors or an officer against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Company, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Company unless, and only to the extent, that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnify for such expenses which such court shall
deem proper. The indemnification provided by the Restated Articles of
Incorporation is not exclusive of any other rights to which those indemnified
may be entitled.
As authorized by the IBCL and the Restated Articles of Incorporation, the
Company has entered into indemnification agreements with each of its directors.
The indemnification agreements provide for, among other things, (i) the
indemnification
II-1
<PAGE>
by the Company of the indemnitees thereunder to the extent permitted by the IBCL
and the Restated Articles of Incorporation, (ii) the advancement of attorneys'
fees and other expenses, and (iii) the establishment, upon approval by the Board
of Directors, of trusts or other funding mechanisms to fund the Company's
indemnification obligations thereunder.
The Company has purchased insurance designed to protect and indemnify the
Company and its directors and officers in case they are required to pay any
amounts arising from certain civil claims, including claims under the Securities
Act which might be made against them by reason of any actual or alleged act,
error, omission, misstatement, misleading statement, neglect or breach of duty.
ITEM 16. EXHIBITS.
2(1) Debtors' Third Amended and Restated Joint Plan of Reorganization,
as modified (incorporated by reference to Exhibit 2(1) to the
Company's Current Report on Form 8-K dated January 23, 1992 (the
"January 1992 Form 8-K"), and Exhibits 2(2), 2(3), 2(4) and 2(5)
to the Company's Current Report on Form 8-K dated April 2, 1992
(the "April 1992 Form 8-K"))
2(2) First Modification of Debtors' Third Amended and Restated Joint
Plan of Reorganization, dated as of February 28, 1992; Second
Modification of Debtors' Third Amended and Restated Joint Plan of
Reorganization, dated as of February 28, 1992; Third Modification
of Debtors' Third Amended and Restated Joint Plan of
Reorganization, dated as of February 28, 1992; Fourth
Modification of Debtors' Third Amended and Restated Joint Plan of
Reorganization, dated as of March 24, 1992 (incorporated by
reference to Exhibits 2 (1-5) to the April 1992 Form 8-K)
2(3) Fifth Modification of Debtors' Third Amended and Restated Joint
Plan of Reorganization, dated as of May 20, 1992 (incorporated by
reference to Exhibit 2 to the Company's Current Report on Form
8-K dated September 10, 1992)
4(1) Warrant Agreement, dated as of June 10, 1993, by and between the
Company and Citicorp USA, Inc. (incorporated by reference to
Exhibit 4(3) to the 1992 Form 10-K)
5(1) Opinion of Jones, Day, Reavis & Pogue regarding legality of
securities being registered*
10(1) Recapitalization Agreement, dated as of October 6, 1993, between
the Company and FRP (incorporated by reference to Exhibit 10(1)
to the Company's Current Report on Form 8-K dated October 6, 1993
(the "October 1993 Form 8-K"))
10(2) Stock Purchase Agreement, dated October 6, 1992, by and among the
Company, Forum Holdings and AFG (incorporated by reference to
Exhibit 10(2) to the October 1993 Form 8-K)
10(3) Stock Purchase Agreement, dated November 16, 1993, by and between
the Company and Resources*
10(4) Refinancing Loan Agreement (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993 (the "1993 Third Quarter Form 10-Q")
10(5) Commitment Letter, dated October 21, 1993, from Nomura to the
Company relating to the Acquisition Loan*
10(6) Management Agreement, dated as of December 31, 1986, among FRP,
Forum Retirement Operations, L.P. ("Operations"), Forum Health
Partners I- A, L.P., Foulk Manor Associates, L.P. and the Company
(incorporated by reference to Exhibit 10(1) of FRP's Registration
Statement on Form S-2 filed with the Commission on November 10,
1993 (the "FRP Form S-2"))
II-2
<PAGE>
10(7) First Amendment to Management Agreement, dated as of June 29,
1989 (incorporated by reference to Exhibit 10(2) to the FRP
Form S-2)
10(8) Second Amendment to Management Agreement, dated as of September
29, 1989 (incorporated by reference to Exhibit 10(3) to the FRP
Form S-2)
10(9) Third Amendment to Management Agreement, dated as of May 27, 1992
(incorporated by reference to Exhibit 10(4) to the FRP Form S-2)
10(10) Fourth Amendment to Management Agreement, dated as of November 9,
1993 (incorporated by reference to Exhibit 10(5) to the FRP Form
S-2)
10(11) Forum Group, Inc., 1986 Stock Option Plan*
10(12) Option Agreement (MLP), dated as of December 29, 1986, among the
Company, FRP and Operations (incorporated by reference to Exhibit
2(1) to the FRP Form S-2)
10(13) Note Purchase Agreement among Japan Leasing (U.S.A.), Inc.,
Inter-Lease (U.S.A.) Corporation, FRCIILP, and Japan Leasing
(U.S.A.), Inc., as agent (incorporated by reference to Exhibit
10(1) to the Company's Current Report on Form 8-K dated May 15,
1989 (the "May 1989 Form 8-K"))
10(14) Guaranty Issuance Agreement among GATX Realty Corporation, GATX
Leasing Corporation and FRCIILP (incorporated by reference to
Exhibit 10(2) to the May 1989 Form 8-K)
10(15) Note Purchase Agreement among Mitsui Leasing (U.S.A.) Inc., BOT
Leasing America Inc., Redwood Properties, Inc., the Company,
FRCILP, and Mitsui Leasing (U.S.A.) Inc., as agent (incorporated
by reference to Exhibit 10(1) to the Company's Current Report on
Form 8-K dated April 24, 1990 (the "April 1990 Form 8-K"))
10(16) Guaranty Issuance Agreement among GATX Realty Corporation, GATX
Capital Corporation and FRCILP (incorporated by reference to
Exhibit 10(2) to the April 1990 Form 8-K)
10(17) Stock Purchase Agreement, between Forum Holdings and the Company,
dated February 1, 1993 (incorporated by reference to Exhibit 4(1)
to the Company's Current Report on Form 8-K dated February 1,
1993 (the "February 1993 Form 8-K"))
10(18) Agreement in Principle among Apollo Investment Fund, L.P.
("AIF"), Investors Genpar, Inc. ("Genpar"), Evergreen Healthcare,
Ltd. ("Evergreen"), and the Company, dated February 1, 1993
(incorporated by reference to Exhibit 28 to the February 1993
Form 8-K)
10(19) Agreement in Principle among AIF, Genpar, Evergreen, and the
Company, dated April 13, 1993 (incorporated by reference to
Exhibit 2(1) to the Company's Current Report on Form 8-K dated
April 13, 1993 (the "April 1993 Form 8-K"))
10(20) Acquisition Agreement among AIF, FL Advisors, on behalf of one or
more managed accounts, Lion Advisors, L.P. ("Lion Advisors") on
behalf of one or more managed accounts, Genpar, Inc., Evergreen,
and the Company, dated as of April 18, 1993 (incorporated by
reference to Exhibit 2(2) to the April 1993 Form 8-K)
10(21) Letter Agreement between Forum Holdings and the Company, dated as
of April 18, 1993 (incorporated by reference to Exhibit 2(3) to
the April 1993 Form 8-K)
10(22) Indenture, dated as of June 1, 1993, between the Company, as
Issuer, and First Trust National Association, as Trustee,
including form of Senior Subordinated Note (the "Indenture")
(incorporated by reference to Exhibit 4(1) to the 1992 Form 10-K)
II-3
<PAGE>
10(23) Amendment to the Indenture and Notes, dated as of January 31,
1994 (incorporated by reference to the 1993 Third Quarter Form
10-Q)
10(24) Credit Agreement dated as of June 10, 1993, among the Company,
the Lenders named therein, Citibank, N.A. as Issuing Bank and
Citicorp USA, Inc., as Agent (the "Credit Agreement")
(incorporated by reference to Exhibit 10(1) on the 1992 Form
10-K)
10(25) Waiver and Supplement to the Credit Agreement, dated as of
January 31, 1994 (incorporated by reference to the 1993 Third
Quarter Form 10-Q)
10(26) Note Purchase Agreement, dated as of June 14, 1993, among the
Company, and the purchasers parties thereto (incorporated by
reference to Exhibit 4(2) of the 1992 Form 10-K)
10(27) Agreement, dated as of June 6, 1993, among the Company, AIF, FL
Advisors, on behalf of one or more managed accounts, Lion
Advisors, Genpar, and Evergreen (incorporated by reference to
Exhibit 2.2 to the Company's Current Report on Form 8-K dated
June 14, 1993 (the "June 1993 Form 8-K"))
10(28) Agreement, dated as of June 14, 1993, among the Company, AIF, FL
Advisors, on behalf of one or more managed accounts, Lion
Advisors, Genpar, and Evergreen (incorporated by reference to
Exhibit 2.3 to the June 1993 Form 8-K)
13(1) Annual Report on Form 10-K for the year ended March 31, 1993
(filed with the Commission on June 29, 1993)*
13(2) Quarterly Report on Form 10-Q for the quarter ended September 30,
1993 (filed with the Commission on November 15, 1993)*
13(3) Quarterly Report on Form 10-Q for the quarter ended December 31,
1993, as amended (filed with the Commission on March 2, 1994)*
23(1) Consent of KPMG Peat Marwick*
23(2) Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5(1))
24(1) Powers of Attorney*
99(1) Form of Notice of Exercise of Subscription Privilege*
99(2) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees*
99(3) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees*
99(4) Form of Subscription Agent Agreement*
- ------------------
* Previously filed.
ITEM 17. UNDERTAKING
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that, in the opinion of the Commission, the indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against those liabilities (other than
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding)
II-4
<PAGE>
is asserted by a director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Securities
Act, and will be governed by the final adjudication of that issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-2 and has duly caused this Amendment No. 3 to Registration
Statement on Form S-2 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Indianapolis, State of Indiana, on the date
indicated on the cover page of this Registration Statement.
FORUM GROUP, INC.
By: /s/ JOHN H. SHARPE
-----------------------------------
John H. Sharpe,
Vice President, Secretary and
General Counsel
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to
Registration Statement on Form S-2 has been signed by the following persons in
the capacities indicated on the date indicated on the cover page of this
Amendment No. 3:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
ROBERT A. WHITMAN* Chairman of the Board, President
- --------------------------------- and Chief Executive Officer
Robert A. Whitman
PAUL A. SHIVELY* Senior Vice President, Treasurer and
- --------------------------------- Chief Financial Officer
Paul A. Shively
PETER P. COPSES* Director
- ---------------------------------
Peter P. Copses
DANIEL A. DECKER* Director
- ---------------------------------
Daniel A. Decker
JAMES A. EDEN* Director
- ---------------------------------
James A. Eden
ASHER O. PACHOLDER* Director
- ---------------------------------
Asher O. Pacholder
WILLIAM G. PETTY, JR.* Director
- ---------------------------------
William G. Petty, Jr.
ANTHONY P. RESSLER* Director
- ---------------------------------
Anthony P. Ressler
D. ELLEN SHUMAN* Director
- ---------------------------------
D. Ellen Shuman
ERIC P. SIEGEL* Director
- ---------------------------------
Eric P. Siegel
MERLIN C. SPENCER* Director
- ---------------------------------
Merlin C. Spencer
GEORGE D. WOODARD* Director
- ---------------------------------
George D. Woodard
</TABLE>
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-2 pursuant to powers of
attorney executed by the above-named officers and directors and filed herewith.
By: /s/ JOHN H. SHARPE
-----------------------------------
John H. Sharpe
Attorney-in-Fact
II-6
