<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Consent Solicitation Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant __X__
Filed by a Party other than the Registrant _____
Check the appropriate box:
__X__ Preliminary Consent Solicitation Statement
_____ Confidential, for Use of the Commission only (as permitted by
Rule 14a-6(e)(2))
_____ Definitive Consent Solicitation Statement
_____ Definitive Additional Materials
_____ Soliciting Material Pursuant to Section 240.14-11(c) or
Section 240.14a-12
FORUM RETIREMENT PARTNERS, L.P.
(Name of Registrant as Specified in Its Charter)
FORUM RETIREMENT PARTNERS, L.P.
FORUM RETIREMENT, INC.
(Name of Person(s) Filing Consent Solicitation Statement,
if Other Than The Registrant)
Payment of Filing Fee (Check the appropriate box):
_____ $125 per Exchange Act Rules O-11(c)(1)(ii). 14a-6(i)(1), 14a-6(i)(2) or
Item 22 (a)(2) of Schedule 14A
_____ $500 per each party to the controversy pursuant to Exchange Act
Rule 14(a)-6(i)(3)
__X__ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Partnership Preferred Depository Units
(2) Aggregate number of securities to which transaction applies:
1,070,938
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): This
amount assumes the purchase of 1,070,938 Units at $5.75. The amount
of the filing fee, calculated in accordance with Rule O-11 under the
Securities Exchange Act of 1934, as amended, equals 1/50 of one
percent of the value of the securities subject to the Merger.
(4) Proposed maximum aggregate value of transaction: $6,157,893
(5) Total fee paid: $1,232
__X__ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0- 11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $1,232
(2) Form, Schedule or Registration Statement No.: Schedule 13E-3
(3) Filing Party: Forum Retirement Partners, L.P.
(4) Date Filed: December 2, 1998
1
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[LETTERHEAD OF FORUM RETIREMENT PARTNERS, L.P.]
_______ __, 1999
Dear Unitholder:
The holders of preferred depository units ("Units") representing preferred
limited partner interests in Forum Retirement Partners, L.P., a Delaware limited
partnership (the "Partnership"), are being asked to consent to the merger (the
"Merger") of a newly formed subsidiary of Forum Group, Inc. ("FGI"), with and
into the Partnership pursuant to the terms of an Agreement and Plan of Merger
(the "Merger Agreement"). Under the terms of the Merger Agreement, the
Partnership will become wholly-owned by FGI and its affiliates, and the Units
held by persons other than FGI and its affiliates (the "Public Unitholders")
will be converted into the right to receive $5.75 per Unit in cash (the "Merger
Consideration").
An Advisory Committee comprised of the independent members of the Board of
Directors of Forum Retirement, Inc., the General Partner of the Partnership (the
"General Partner"), carefully considered the proposed Merger and unanimously
determined that the Merger is fair to and in the best interests of the
Partnership and the Public Unitholders and unanimously recommended that the
Board of Directors of the General Partner approve and adopt the Merger Agreement
and recommend that the Public Unitholders consent to the Merger.
In arriving at its recommendation, the Advisory Committee gave due
consideration and significant weight to the fact that its financial advisor,
Robert A. Innamorati & Co., Inc., delivered to the Advisory Committee its
written opinion that, based upon the assumptions made, limits on the review
undertaken and other factors deemed relevant, the Merger Consideration to be
received by the Public Unitholders in the Merger is fair to the Public
Unitholders from a financial point of view. Based upon the recommendation of
the Advisory Committee, the Board of Directors of the General Partner has
approved the Merger, has determined that the Merger is fair to, and advisable
for, the Partnership and the Unitholders, and recommends that the Unitholders
consent to the Merger Agreement and the Merger.
The Merger Agreement and the Merger must be approved by the holders of a
majority of the aggregate voting power of all limited partnership interests in
the Partnership, including those held by FGI and its affiliates. FGI and its
affiliates hold, in the aggregate, approximately 93% of the issued and
outstanding Units, representing 93% of the limited partnership interests of the
Partnership. FGI has agreed, pursuant to the terms of the Merger Agreement, to
cause the holders of all of such Units to approve the
<PAGE>
Merger Agreement and the Merger. As a consequence, approval of the Merger
Agreement and the Merger is assured, regardless of whether the Public
Unitholders consent to approve the Merger Agreement and the Merger. Although
neither Delaware law nor the Partnership Agreement requires that the Merger
Agreement provide the Public Unitholders with appraisal rights, such rights have
in fact been provided to the Public Unitholders pursuant to the terms of the
Merger Agreement. See "The Merger Agreement Appraisal Rights." Such appraisal
rights may be exercised by Public Unitholders as an alternative to consenting to
approve the Merger Agreement and the Merger and receiving the Merger
Consideration.
The accompanying Consent Solicitation describes in detail the reasons for
the Merger, the manner in which the transactions will take place, certain tax
consequences of the Merger and other matters. Unitholders are urged to read the
accompanying materials carefully. REGARDLESS OF THE NUMBER OF UNITS YOU OWN,
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT FORM AND MAIL IT AS SOON AS
POSSIBLE IN THE BUSINESS REPLY ENVELOPE PROVIDED.
Very truly yours,
By:______________________
Name: Larry Harvey
Title: President
Forum Retirement, Inc.,
General Partner of Forum Retirement Partners, L.P.
<PAGE>
Forum Retirement Partners, L.P.
10400 Fernwood Road
Bethesda, Maryland 20817
(240) 694-2000
NOTICE OF CONSENT SOLICITATION
To the Limited Partners of Forum Retirement Partners, L.P.:
Notice is hereby given to the limited partners (the "Limited Partners") of
Forum Retirement Partners, L.P., a Delaware limited partnership (together with
its consolidated subsidiaries, the "Partnership"), that Forum Retirement, Inc.,
general partner of the Partnership (the "General Partner"), hereby requests the
consent of the holders of Units representing Limited Partner interests in the
Partnership, to the approval of the Merger Agreement (defined below) and the
proposed merger (the "Merger") of Forum Merger Limited Partnership, a newly
formed Delaware limited partnership ("Forum MLP"), with and into the Partnership
pursuant to the terms of an Agreement and Plan of Merger dated as of October 5,
1998, by and among the Partnership, the General Partner, Forum MLP, and Forum
Group, Inc. (the "Merger Agreement").
By order of the Board of Directors (the "Board") of the General Partner,
the close of business on _______________, 1999, has been fixed as the record
date for determination of the Limited Partners entitled to consent to approval
of the Merger Agreement and the Merger.
Information regarding the Merger Agreement and the Merger is contained in
the accompanying Consent Solicitation Statement. The Merger Agreement sets
forth all of the terms and conditions of the Merger and is included as Annex A
to the Consent Solicitation Statement. The Board recommends that the Limited
Partners of the Partnership consent to the Merger Agreement and the Merger.
Regardless of the number of Units you own, you are urged to sign and date
the enclosed consent form and mail it as soon as possible in the stamped,
addressed return envelope provided, so that your Units will be represented in
connection with the consent solicitation.
By order of the Board of Directors of
Forum Retirement, Inc.,
General Partner
By:_________________
Corporate Secretary
<PAGE>
_____________ ___, 1999
FORUM RETIREMENT PARTNERS, L.P.
CONSENT SOLICITATION STATEMENT
This Consent Solicitation and the accompanying Notice of Consent
Solicitation (collectively, the "Consent Solicitation Statement") are being
furnished to the limited partners (the "Limited Partners") of Forum Retirement
Partners, L.P., a Delaware limited partnership (together with its consolidated
subsidiaries, the "Partnership"), in connection with the solicitation of
consents by Forum Retirement, Inc., general partner of the Partnership (the
"General Partner").
The Limited Partners are being asked to consider and consent to the merger
(the "Merger") of Forum Merger Limited Partnership, a newly formed Delaware
limited partnership ("Forum MLP") with and into the Partnership pursuant to an
Agreement and Plan of Merger, dated as of October 5, 1998 (the "Merger
Agreement"). At the effective time of the Merger (the "Effective Time"), (i)
each issued and outstanding Unit, other than those held by Forum Group, Inc.,
the parent of the General Partner ("FGI"), or any affiliate of FGI, shall be
cancelled, extinguished and retired and converted into the right to receive
$5.75 in cash, without interest (the "Merger Consideration"); (ii) each
outstanding Unit which is owned by FGI or any affiliate of FGI shall be and
remain a unit of limited partner interest in the Partnership; (iii) each
partnership interest, general or limited, of Forum MLP issued and outstanding
shall be cancelled, extinguished and retired, and no payment shall be made
thereon; and (iv) the General Partner's general partnership interest in the
Partnership shall be and remain a general partnership interest in the
Partnership. See "The Merger Agreement" for a description of the Merger and the
Merger Agreement. The Partnership and FGI currently anticipate that the
Effective Time will occur on March 1, 1999.
The General Partner is a direct wholly-owned subsidiary of FGI. FGI is a
direct wholly-owned subsidiary of Crestline Capital Corporation ("Crestline",
formerly HMC Senior Communities, Inc.). Crestline was formed in June 1997 to be
the parent company of the senior living communities owned by Host Marriott
Corporation, a Delaware corporation and an owner of lodging real estate ("Host
Marriott"), including those owned by the Partnership.
Prior to December 29, 1998, Crestline was a direct, wholly-owned subsidiary
of Host Marriott. On December 29, 1998 (the "Distribution Date"), Host Marriott
distributed the stock of Crestline to the stockholders of Host Marriott as a
taxable dividend (the "Distribution").
(i)
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FGI and its affiliates together own 14,214,310 Units, or approximately 93%, of
the outstanding Units. Holders of Units, other than FGI or its affiliates are
herein referred to as "Public Unitholders." The Public Unitholders, together
with the holders of all other Units, are herein sometimes referred to as the
"Unitholders."
A COPY OF THE MERGER AGREEMENT IS ATTACHED HERETO AS ANNEX A. UNITHOLDERS
ARE ENCOURAGED TO READ THE MERGER AGREEMENT CAREFULLY. The summary of the Merger
Agreement set forth in this Consent Solicitation Statement is qualified in its
entirety by reference to the full text of the Merger Agreement. Consummation of
the Merger is subject to several conditions. See "The Merger Agreement
Conditions to the Merger."
-------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS CONSENT SOLICITATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
-------------
Host Marriott and FGI proposed the Merger because they believe that the
recurring expenses associated with maintaining the Partnership as a reporting
company under the Securities Exchange Act of 1934 can be eliminated if the
Merger is consummated. In addition, consummation of the Merger will obviate the
need for management of Crestline, FGI and the General Partner to spend
significant time and resources on maintaining the Partnership as a public
entity. See "Special Factors Reasons for the Merger."
The General Partner, Crestline and FGI believe that the Merger is fair to
the Partnership and the Unitholders based upon, with respect to the Public
Unitholders, the recommendation of the Advisory Committee of the Board of
Directors of the General Partner (the "Advisory Committee"). The Advisory
Committee was established pursuant to resolutions of the Board of Directors of
the General Partner (the "Board") and the members of such committee are the
independent members of the Board.
The Advisory Committee and the Board have concluded that the transactions
contemplated by the Merger Agreement are fair to, and in the best interests of,
the Public Unitholders, and have approved the Merger Agreement. In arriving at
its conclusions, the Advisory Committee gave due consideration and significant
weight to the opinion (the "RAI&Co. Opinion") of Robert A. Innamorati & Co.,
Inc., an investment banking firm acting as the Advisory Committee's financial
advisor ("RAI&Co."), that, based upon the
(ii)
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assumptions made, limits on the review undertaken and other factors deemed
relevant, the consideration to be received by the Public Unitholders in the
Merger is fair to the Public Unitholders from a financial point of view. See
"Special Factors Opinion of Financial Advisor." A copy of the RAI&Co. Opinion is
attached hereto as Annex B. THE BOARD RECOMMENDS THAT UNITHOLDERS CONSENT TO THE
MERGER AGREEMENT AND THE MERGER. See "Special Factors Recommendation of the
Advisory Committee and Board."
This Consent Solicitation Statement and the accompanying consent form are
first being mailed to Limited Partners on or about ____________ ___, 1999.
Limited Partners are entitled to one consent right for each Unit held of record
at the close of business on _________ __, 1999 (the "Record Date"), with respect
to the Merger. Subsequent to submitting a Consent Form in accordance with the
instructions set forth therein, Unitholders may not revoke their consent or
otherwise change their vote.
On the Record Date, there were 15,285,248 Units outstanding. Pursuant to
the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act"),
approval of the Merger Agreement and the Merger requires the consent of the
holders of a majority of the aggregate voting power of all Limited Partners
entitled to vote thereon or consent thereto, including the Units held by FGI and
its affiliates. FGI is obligated under the terms of the Merger Agreement to
cause holders of the Units owned by FGI and its affiliates, representing
approximately 93% of the outstanding Units, to consent to the Merger. As a
result, approval of the Merger by the Limited Partners is assured, regardless of
whether the Public Unitholders consent to the Merger. Although neither Delaware
law nor the Partnership Agreement requires that the Merger Agreement provide the
Public Unitholders with appraisal rights, such rights have in fact been provided
to the Public Unitholders pursuant to the terms of the Merger Agreement. Such
appraisal rights may be exercised by Public Unitholders as an alternative to
consenting to the Merger and receiving the Merger Consideration. See "The
Merger Agreement Appraisal Rights."
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REGARDLESS OF THE NUMBER OF UNITS YOU OWN, PLEASE COMPLETE, SIGN AND DATE THE
ENCLOSED CONSENT FORM AND MAIL IT AS SOON AS POSSIBLE IN THE STAMPED, ADDRESSED
RETURN ENVELOPE PROVIDED. PUBLIC UNITHOLDERS SHOULD NOT SEND IN ANY DEPOSITORY
RECEIPTS REPRESENTING UNITS AT THIS TIME.
-------------
The date of this Consent Solicitation Statement is ___________, 1999
(iii)
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TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
AVAILABLE INFORMATION............................................................... (vii)
SUMMARY............................................................................. 1
Purpose of Consent Solicitation.................................................... 1
Timing of Consent Solicitation..................................................... 1
Record Date; Units Entitled to Consent............................................. 1
Consent Required................................................................... 2
Terms of the Merger................................................................ 2
Reasons for the Merger............................................................. 3
Fairness of the Transaction; Recommendations....................................... 3
Appraisal Rights................................................................... 4
The Advisory Committee............................................................. 5
Certain Relationships.............................................................. 5
Interests of Certain Persons in the Merger......................................... 6
Opinion of Financial Advisor....................................................... 7
Sources of Funds; Financing of the Merger.......................................... 7
Market Prices of the Units......................................................... 8
Summary of Federal Income Tax Consequences of the Merger........................... 8
Accounting Treatment of the Merger................................................. 8
Legal Proceedings.................................................................. 9
Summary Financial Data............................................................. 10
SPECIAL FACTORS..................................................................... 11
Background of and Reasons for the Merger........................................... 11
Relationship Between FGI and the Partnership...................................... 11
Merger Proposal; Appointment of Advisory Committee................................ 12
Members of Advisory Committee..................................................... 13
Consideration and Negotiation of Terms of the Merger.............................. 14
Recommendation of the Advisory Committee and the Board............................ 16
Fairness Opinion and Presentations of RAI&Co...................................... 17
Absence of Ability to Pursue Alternative Transaction.............................. 17
Recent Market Prices; Lack of Liquidity........................................... 17
Recent Prices Paid for the Units.................................................. 17
Book Value........................................................................ 18
Liquidation Value................................................................. 18
Negotiations Conducted by Advisory Committee on Behalf of the Public Unitholders.. 18
Appraisal Rights.................................................................. 18
Advantages to Crestline and its Affiliates........................................ 19
No Financing Condition............................................................ 19
Merger Agreement.................................................................. 19
RAI&Co. Comparable Company Analysis............................................... 19
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
Other 20
Procedural Fairness............................................................... 21
Weighing of Factors............................................................... 22
Position of the Related Persons With Respect to the Merger......................... 22
Opinion of Financial Advisor....................................................... 24
Discounted Cash Flow Analysis..................................................... 27
Capitalization of Net Operating Income Analysis................................... 27
Comparable Company Analysis....................................................... 28
Comparable Acquisition Premium Analysis........................................... 29
Structure of the Merger............................................................ 30
Interests of Certain Persons in the Merger; Conflicts of Interest.................. 30
Relationships Between the Parties.................................................. 31
Plans for the Partnership After the Merger......................................... 31
Certain Effects of the Merger...................................................... 32
Income Tax Consequences............................................................ 33
Gain or Loss....................................................................... 33
Effect of Passive Loss Rules....................................................... 34
Income Tax Consequences of the Merger on the Partnership and its Affiliates........ 34
Accounting Treatment of the Merger................................................. 34
Regulatory Approvals and Filings................................................... 35
THE CONSENT SOLICITATION............................................................ 39
Consent Procedures................................................................. 39
Solicitation of Consents........................................................... 39
Appraisal Rights................................................................... 39
THE MERGER AGREEMENT................................................................ 38
General............................................................................ 41
Expenses of the Merger............................................................. 41
Effective Time..................................................................... 42
Financing of the Merger............................................................ 42
Conditions to the Merger........................................................... 42
Termination........................................................................ 43
Payment for Units.................................................................. 43
Appraisal Rights................................................................... 43
THE PARTNERSHIP..................................................................... 47
Forward-Looking Statements......................................................... 44
Business........................................................................... 46
Properties......................................................................... 48
Mortgages.......................................................................... 49
Sources of Payment................................................................. 51
Regulation And other Factors....................................................... 51
Competition........................................................................ 52
Option Agreement................................................................... 52
Employees.......................................................................... 53
</TABLE>
(v)
<PAGE>
<TABLE>
<S> <C>
Legal Proceedings.................................................................. 54
Beneficial Ownership of Units and Transactions In Units By Certain Persons......... 57
Impact of Financial Accounting Standards........................................... 54
Inflation.......................................................................... 55
FORUM MERGER LIMITED PARTNERSHIP.................................................... 59
MARKET FOR PARTNERSHIP'S UNITS; DISTRIBUTIONS....................................... 59
DOCUMENTS INCORPORATED BY REFERENCE................................................. 60
SCHEDULE 1.......................................................................... S-1
SCHEDULE 2.......................................................................... S-6
</TABLE>
Annex A -- Agreement and Plan of Merger
Annex B -- Opinion of Robert A. Innamorati & Co., Inc.
Annex C -- Section 262 of Delaware General Corporate Law
Annex D -- Form 10-K - December 31, 1997
Annex E -- Form 10-Q - September 30, 1998
Annex F -- Consent Form
(vi)
<PAGE>
AVAILABLE INFORMATION
The Partnership is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the Commission's
office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the New York
Regional Office of the SEC, 7 World Trade Center, New York, New York 10048.
Copies of this material may also be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's principal offices at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the New York Regional Office
of the SEC, 7 World Trade Center, New York, New York 10048. The Commission also
maintains a Web site at http://www.sec.gov, which contains certain reports,
proxy statements and other information regarding the Partnership and other
registrants that file electronically with the Commission. The Partnership's
Units are listed on the American Stock Exchange. Copies of reports, proxy
statements and other information may therefore also be inspected at the offices
of the American Stock Exchange, at 80 Trinity Place, New York, New York 10006-
1881. Accompanying and forming a part of this Consent Solicitation Statement are
the Partnership's Annual Report on Form 10-K for the year ended December 31,
1997 and the Partnership's Quarterly Report on Form 10-Q for the period ended
September 30, 1998.
Forum MLP, Crestline and FGI (collectively, the "Related Persons") and the
Partnership and General Partner have jointly filed with the Commission a Rule
13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") pursuant to
the Exchange Act, furnishing certain information with respect to the Merger, in
addition to the information contained in this Consent Solicitation Statement,
and they may file further amendments to the Schedule 13E-3. As permitted by the
rules and regulations of the Commission, this Consent Solicitation Statement
omits certain information contained in the Schedule 13E-3. For further
information pertaining to the Related Persons, reference is made to the Schedule
13E-3 and the exhibits and amendments thereto. Statements contained herein
concerning such documents are not necessarily complete and, in each instance,
reference is made to the copy of such documents filed as an exhibit to the
Schedule 13E-3. Each such statement is qualified in its entirety by such
reference. The Schedule 13E-3 and any such further amendments, including
exhibits, may be inspected and copies may be obtained in the same manner as set
forth in the preceding paragraph, except that they will not be available at the
regional offices of the Commission.
As of the date of this filing, none of the Related Persons, other than
Crestline, is subject to the informational reporting requirements of the
Exchange Act. Forum MLP was formed by FGI solely for purposes of engaging in
the Merger and has not otherwise conducted any business operations.
(vii)
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Consent Solicitation Statement. This summary is qualified in its entirety
by the more detailed information contained, or incorporated by reference, in
this Consent Solicitation Statement and the Annexes hereto. Holders
("Unitholders") of preferred depository units ("Units") representing preferred
limited partner interests in Forum Retirement Partners, L.P., a Delaware limited
partnership (the "Partnership"), are urged to read this Consent Solicitation
Statement and the Annexes hereto in their entirety. The information in this
Consent Solicitation Statement concerning Host Marriott FGI, Forum MLP, the
Partnership, Crestline and the General Partner has been provided by Host
Marriott and/or Crestline.
PURPOSE OF CONSENT SOLICITATION
This Consent Solicitation Statement is being furnished to the Unitholders
of record as of the Record Date in connection with the solicitation of consents
by the General Partner. The Unitholders are being asked to consider and consent
to the Merger Agreement and the transactions contemplated thereby, including the
Merger. Pursuant to the terms of the Merger Agreement, Forum MLP will be merged
with and into the Partnership, with the Partnership being the entity surviving
the Merger. Pursuant to the terms of the Merger Agreement, each Unit held by
persons other than FGI and its affiliates ("Public Unitholders") will be
converted into the right to receive $5.75 in cash. Upon consummation of the
Merger, the Partnership will be wholly owned by FGI and its affiliates.
TIMING OF CONSENT SOLICITATION
Unitholders are required to return the Consent Form attached to this
Consent Solicitation Statement to American Stock Transfer & Trust Company, at 40
Wall Street, New York, New York 10005 by _______________, 1999.
RECORD DATE; UNITS ENTITLED TO CONSENT
Only Unitholders as of the close of business on ___________, the Record
Date, will be entitled to consent or withhold consent to the Merger Agreement
and the Merger with respect to the Units owned of record as of such date. At
January 20, 1999, there were 15,285,248 Units outstanding of which 1,070,938
Units are held by 248 Public Unitholders of record.
Each Unitholder of record on the Record Date is entitled to one consent
right per Unit with respect to the approval of the Merger Agreement and the
Merger.
1
<PAGE>
CONSENT REQUIRED
Pursuant to the Delaware Act and the Amended and Restated Agreement of
Limited Partnership of the Partnership dated as of December 29, 1986, as amended
(the "Partnership Agreement"), approval of the Merger Agreement and the Merger
will require the consent of a majority of the aggregate voting power of the
outstanding Units entitled to vote thereon or consent thereto (where each Unit
represents one consent right), including Units held by FGI and its affiliates
(the "Majority Consent Requirement"). FGI is obligated under the terms of the
Merger Agreement to cause FGI and its affiliates, who hold approximately 93% of
the outstanding Units, to consent to approval of the Merger Agreement and the
Merger. As a result, approval of the Merger Agreement and the Merger by the
Unitholders is assured, regardless of whether the Public Unitholders consent to
the Merger Agreement and the Merger. Although neither Delaware law nor the
Partnership Agreement requires that the Merger Agreement provide the Public
Unitholders with appraisal rights, such rights have in fact been provided to the
Public Unitholders pursuant to the terms of the Merger Agreement. See "The
Merger Agreement Appraisal Rights."
In order to exercise appraisal rights, Public Unitholders must deliver to
the Partnership a written demand for appraisal of any Units held by such Public
Unitholder as of the Record Date before ______ p.m. Eastern Standard Time on
__________, 1999 (twenty (20) calendar days after the mailing of this Consent
Solicitation Statement). The written demand for appraisal must be in addition
to and separate from the Consent Form pursuant to which the Public Unitholder
abstains from or indicates that it does not consent to the Merger Agreement and
the Merger. Withholding consent to or failing to consent to the Merger
Agreement and the Merger by itself does not constitute a written demand for
appraisal
REGARDLESS OF THE NUMBER OF UNITS YOU OWN, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED CONSENT FORM AND MAIL IT AS SOON AS POSSIBLE IN THE STAMPED,
ADDRESSED RETURN ENVELOPE PROVIDED. UNITHOLDERS SHOULD NOT SEND IN ANY
DEPOSITORY RECEIPTS REPRESENTING UNITS AT THIS TIME.
TERMS OF THE MERGER
The Merger will be effected pursuant to the terms of the Merger Agreement.
Public Unitholders are urged to read the text of the Merger Agreement, a copy of
which is attached as Annex A to this Consent Solicitation Statement. Upon
consummation of the Merger and by virtue thereof, (i) each issued and
outstanding Unit, other than those held by FGI, or any of its affiliates, will
be cancelled, extinguished and retired and will be converted into the right to
receive $5.75 in cash, without interest, (ii) each outstanding Unit which is
owned by FGI or any of its affiliates will be and remain a unit of limited
partner interest in the Partnership, (iii) each outstanding partnership
interest, general or limited, of Forum MLP will be cancelled, extinguished and
retired, and no payment will be made thereon, and (iv) the General Partner's
general partnership interest in the
2
<PAGE>
Partnership will be and remain a general partnership interest in the
Partnership. As a result of the Merger, the Partnership will become wholly owned
by FGI and its affiliates and the Public Unitholders will cease to have any
interest in the Partnership. Because no Units will be publicly held after the
Merger, the Units will be delisted and will no longer trade on the American
Stock Exchange, and the Partnership will cease to be a separate reporting entity
under the Exchange Act.
Closing of the Merger is subject, among other things, to: (i) the Majority
Consent Requirement having been met (this requirement will be satisfied
regardless of whether the Public Unitholders consent to the Merger Agreement and
the Merger since FGI is obligated under the terms of the Merger Agreement to
cause FGI and its affiliates (holding approximately 93% of all outstanding
Units) to consent to the Merger); (ii) all consents and approvals prescribed by
law which are necessary to the consummation of the transactions contemplated in
the Merger Agreement shall have been obtained, and all statutory waiting periods
in respect thereof shall have expired, (iii) expiration or termination of all
applicable waiting periods (and extensions thereof) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended and (iv) no statute, rule,
regulation, executive order, decree or injunction having been enacted, entered,
promulgated or enforced by any court or governmental authority which prevents
consummation of the Merger or makes consummation of the Merger illegal. See
"The Merger Agreement." Under the Merger Agreement, the Merger will become
effective on the date (the "Effective Date") and at the time (the "Effective
Time") that a Certificate of Merger is filed pursuant to Delaware law. It is
anticipated that the Effective Date will occur on or about March 1, 1999,
although there can be no assurance in this regard. In addition, the parties to
the Merger Agreement have certain rights to terminate the Merger Agreement.
REASONS FOR THE MERGER
Host Marriott (prior to the Distribution Date) and Crestline (after the
Distribution Date) are the parties that primarily initiated, supported,
structured and negotiated the terms of the Merger. Crestline supports the
Merger because it believes that maintaining the Partnership as a public entity
is expensive both in terms of the actual costs of reporting and providing
information to Unitholders and the time and attention required of management,
whose energies might be better spent on other matters. Crestline also believes
that potential conflict of interest situations between the Partnership and FGI,
as the majority owner, can be eliminated through the Merger. Crestline, FGI,
the General Partner and Forum A/H, Inc. believe that the Merger is fair to the
Partnership and the Public Unitholders, based primarily on the determinations of
the Advisory Committee and the RAI&Co. Opinion. See "Special Factors
Background of and Reasons for the Merger" and " Recommendation of the Advisory
Committee and Position of the Board."
FAIRNESS OF THE TRANSACTION; RECOMMENDATIONS
3
<PAGE>
In developing its initial merger proposal, pursuant to which the Public
Unitholders would receive $4.50 per Unit in cash, Host Marriott and FGI
determined that such initial proposal might reasonably be expected to be found
by an independent committee, and its independent financial advisor, to be fair,
from a financial point of view, to the Public Unitholders and, therefore, that
such an offer might reasonably be expected to lead to a successful acquisition
by FGI of the publicly held Units. Host Marriott and FGI did not determine at
that time whether or not such proposal was, in fact, fair to the Public
Unitholders. Both FGI and the General Partner have interests in the proposed
Merger which conflict with the interests of the Public Unitholders. See
"Special Factors Interests of Certain Persons in the Merger; Conflicts of
Interests." Accordingly, the Advisory Committee was appointed by the Board to
make a determination with respect to the fairness of the transaction to the
Public Unitholders. See "Special Factors Opinion of Financial Advisor."
After the initial merger proposal of $4.50 per Unit, the Advisory Committee
consulted with its independent legal counsel and RAI&Co. The Advisory Committee
(in consultation with RAI&Co. and the Advisory Committee's independent legal
counsel) then negotiated the merger proposal with FGI for several weeks and the
members of the Advisory Committee indicated to representatives of FGI that they
believed that the consideration of $4.50 per Unit initially proposed by FGI was
inadequate. After further negotiations, FGI determined that it would increase
its offer to $5.75 per Unit. The Advisory Committee, after reviewing many
factors and determining that the Merger, at $5.75 per Unit, would be in the best
interests of the Public Unitholders, indicated that it would be prepared to
recommend a price of $5.75 for each Unit held by the Public Unitholders (the
"Revised Proposal"), subject to satisfactory resolution of a number of items,
including final negotiation of the Merger Agreement. FGI agreed that it also
would be prepared to proceed with a transaction on the basis of such terms. See
"Special Factors Consideration and Negotiation of Terms of the Merger."
After analyzing the RAI&Co. Opinion and other factors set forth below, the
Advisory Committee concluded that the Merger contemplated by the Merger
Agreement is fair to, and in the best interests of, the Public Unitholders, and
unanimously recommended approval of the Merger Agreement and the Merger to the
Board of Directors of the General Partner. In arriving at its conclusions, the
Advisory Committee gave due consideration and significant weight to the RAI&Co.
Opinion, which was delivered orally on October 5, 1998 and later confirmed in
writing as of that date, and the presentations made by RAI&Co. to the Advisory
Committee in connection with the RAI&Co. Opinion (the RAI&Co. Opinion along with
the such presentations are hereinafter referred to as the "RAI&Co. Analysis").
APPRAISAL RIGHTS
Under the Delaware Act, the only appraisal rights available to limited
partners of a Delaware limited partnership are those provided pursuant to the
terms of the applicable partnership agreement or an agreement of merger or
consolidation. The Partnership Agreement does not provide appraisal rights to
the Public Unitholders. The Merger Agreement, however, provides that the Public
Unitholders shall have, in respect of the
4
<PAGE>
Units held by such Public Unitholders, the appraisal rights contemplated in
Section 17-212 of the Delaware Act to the same extent as would be available to a
stockholder of a corporation organized under the laws of the State of Delaware.
See "The Merger Agreement Appraisal Rights."
THE ADVISORY COMMITTEE
The Board appointed the Advisory Committee, pursuant to resolutions adopted on
June 18, 1998, to consider the fairness of the proposed Merger to the Public
Unitholders. The Advisory Committee consists of James C. Leslie and John F.
Sexton, each of whom is an independent member of the Board and neither of whom
was, at the time of the approval of the Merger, an employee of Host Marriott or
Crestline or otherwise affiliated with Host Marriott, Crestline or their
respective affiliates. See "Special Factors Background of the Merger."
CERTAIN RELATIONSHIPS
FGI is the direct owner of 7,566,704 Units. In addition, FGI indirectly
owns 4,505,811 Units through Forum A/H, Inc., a wholly-owned subsidiary of FGI
("Forum A/H"), and 2,141,795 Units through the General Partner, a wholly-owned
subsidiary of FGI. FGI owns 14,214,310 Units directly and indirectly,
representing in the aggregate approximately 93% of the outstanding Units.
FGI is a direct wholly-owned subsidiary of Crestline, which, prior to the
Distribution Date, was a direct wholly-owned subsidiary of Host Marriott. At
the time the Merger Agreement was negotiated, all of the interests in each of
FGI, Forum A/H, Crestline and the General Partner were owned, directly or
indirectly, by Host Marriott. Upon consummation of the Distribution on the
Distribution Date, Crestline's affiliation with Host Marriott terminated, and
all of the interests in each of FGI, Forum A/H and the General Partner are now
owned, directly or indirectly, by Crestline.
On April 16, 1998, the Board of Directors of Host Marriott approved a plan to
reorganize Host Marriott's business by spinning off its senior living business
by distributing the stock of Crestline to the Host Marriott stockholders as a
taxable dividend. The Distribution is part of a series of transactions pursuant
to which Host Marriott converted into a real estate investment trust for federal
income tax purposes (the "REIT Conversion"). As part of the REIT Conversion,
Host Marriott contributed its hotels and certain other assets and all of its
liabilities to a newly formed Delaware limited partnership, Host Marriott, L.P.,
whose sole general partner is HMC Merger Corporation, a newly formed corporation
into which Host Marriott has merged and which intends to qualify as a Maryland
real estate investment trust, (collectively, the "REIT"). After the
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<PAGE>
REIT Conversion, in addition to its other lines of business, Crestline will
lease and sublease hotels from the REIT.
Crestline and its subsidiaries are engaged in the business of owning senior
living communities, leasing and subleasing hotels from the REIT and asset
management of hotels. The Distribution occurred on December 29, 1998 (the
"Distribution Date"). As a result, effective on the Distribution Date, Crestline
became a separate publicly traded corporation listed on the New York Stock
Exchange. Crestline (instead of Host Marriott) now owns, directly or indirectly,
all of the interests in each of FGI, Forum A/H, and the General Partner.
The principal executive offices of the Partnership, the General Partner,
FGI, Forum A/H and Crestline are located at 10400 Fernwood Road, Bethesda,
Maryland 20817, telephone (240) 694-2000.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Crestline is interested in the outcome of the Merger in that, following
consummation of the Merger, Crestline and its affiliates would be the sole
owners of the Partnership. As sole owners, Crestline and its affiliates would
bear the total risk of the Partnership's operations but would also receive the
entire benefit of such operations. Crestline also would be able to integrate the
Partnership's operations more fully with those of other properties owned by
Crestline and its affiliates without introducing issues with respect to
potential conflicts of interest, and to realize potential operating synergies
therefrom. See "Special Factors Interests of Certain Persons in the Merger;
Conflicts of Interest."
In proposing and structuring the terms of the Merger, Host Marriott
recognized that the terms and structure of the Merger transaction would be
reviewed by the Board of Directors and the Advisory Committee, and that FGI
would not proceed with the Merger absent a favorable recommendation by the
Advisory Committee with respect thereto. None of Host Marriott, its affiliates
or the Advisory Committee approached any unaffiliated persons or entities with
respect to the acquisition of the Partnership or any of its assets. See
"Special Factors Background of the Merger."
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<PAGE>
The General Partner and the Partnership have certain interests that may
present them with actual or potential conflicts of interest. Among these are
that (i) the General Partner is controlled by Crestline, an affiliate of FGI,
(ii) the current General Partner is expected to remain in its current role
subsequent to the Merger and (iii) the General Partner and FGI have the same
senior management. See "Special Factors Interests of Certain Persons in the
Merger; Conflicts of Interest." The Advisory Committee was advised by separate
legal counsel from that of FGI and Forum MLP in connection with the Merger.
Under the terms of the Merger Agreement, all rights of the members of the
Board, including all of the members of the Advisory Committee, to exculpation
and indemnification in existence as of the date of the Merger Agreement shall
survive the Merger and shall continue in full force and effect in accordance
with their terms. In addition, for three years from and after the Effective
Time, FGI is obligated to use commercially reasonable efforts to maintain
directors' and officers' liability insurance covering the members of the Board
on terms no less favorable than those of the policy in effect prior to the
Effective Time.
In addition, members of the Advisory Committee received compensation from
the General Partner in accordance with preexisting policies for time spent by
such persons in Advisory Committee meetings and discussions pertaining to the
Merger and the Merger Agreement.
OPINION OF FINANCIAL ADVISOR
RAI&Co. delivered a written opinion to the Advisory Committee dated October
5, 1998, to the effect that, as of such date and based upon the assumptions
made, limits on the review undertaken and other factors deemed relevant, the
proposed cash consideration of $5.75 per Unit to be received by the Public
Unitholders pursuant to the Merger is fair to such Public Unitholders, from a
financial point of view. The full text of the RAI&Co. Opinion is attached as
Annex B to this Consent Solicitation Statement. The summary of the RAI&Co.
Opinion set forth in this Consent Solicitation Statement is qualified in its
entirety by reference to the full text of the RAI&Co. Opinion. Public
Unitholders are urged to read the RAI&Co. Opinion carefully and in its entirety
in conjunction with this Consent Solicitation Statement to understand fully
certain of the assumptions made, the matters considered and the limits of the
review of RAI&Co. See "Special Factors Opinion of Financial Advisor."
SOURCES OF FUNDS; FINANCING OF THE MERGER
Approximately $7,100,000 will be required to consummate the Merger and to
pay related fees and expenses. The necessary funds will be provided by
Crestline
7
<PAGE>
from cash on hand. See "The Merger Agreement Expenses of the Merger" and
"Financing of the Merger."
MARKET PRICES OF THE UNITS
As reported by the American Stock Exchange, during the third quarter of
1998, the closing price of the Units on the American Stock Exchange ranged from
$4.25 to $4.625 per Unit, and the average daily trading volume for such period
was approximately 577 Units. The initial merger proposal was submitted by Host
Marriott to the Advisory Committee on July 20, 1998 and was publicly announced
on July 21, 1998. The closing price of the Units on the American Stock Exchange
on July 17, 1998 was $4.50, with daily trading volume on such date of 1,000
Units. The Units did not trade again until July 24, 1998, on which date the
closing price of the Units was $4.38 on trading volume of 500 Units. The
closing price of the Units on the American Stock Exchange on September 29, 1998,
the last date on which the Units traded prior to the October 7, 1998
announcement of the execution of the Merger Agreement, was $4.38. On October 7,
1998, the day the execution of the Merger Agreement was announced, daily trading
volume in the Units was 1,000 Units and the closing price per Unit on the
American Stock Exchange was $5.50. See "Market for Partnership's Units;
Distributions."
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt of cash in exchange for Units pursuant to the Merger will be a
taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local and foreign tax laws. Accordingly, a
Public Unitholder will recognize a gain or loss on the conversion of Units in
the Merger to the extent of the difference between the amount realized and his
or her adjusted tax basis in the Units sold. In addition, upon the conversion
by a Public Unitholder of its Units in the Merger, any net losses of the
Partnership that were suspended under the passive loss rules of the Internal
Revenue Code may be used to offset income and gain on such conversion.
The foregoing summary is for general information of the Public Unitholders
only as to their tax consequences and does not purport to be complete. For a
more extensive discussion of the Federal income tax consequences of the Merger,
See "Special Factors Income Tax Consequences" below. The consequences to any
particular Public Unitholder may differ depending upon that Unitholder's own
circumstances and tax position. Certain types of Public Unitholders (including,
but not necessarily limited to, financial institutions, tax-exempt organizations
and foreign persons) may be subject to special rules. This discussion does not
consider the effect of any applicable foreign, state or local tax laws. Each
Public Unitholder is urged to consult his, her or its tax advisor as to the
particular tax consequences of the Merger to such Public Unitholder, including
the application of state, local and foreign tax laws.
ACCOUNTING TREATMENT OF THE MERGER
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The acquisition by FGI of the Units will be accounted for as an acquisition
of minority ownership interests of a subsidiary in accordance with the purchase
method of accounting.
LEGAL PROCEEDINGS
On July 22, 1998, Harbor Finance Partners, Ltd., a Public Unitholder, filed
a purported class action suit relating to the merger proposal in the Court of
Chancery of the State of Delaware against Host Marriott, the General Partner,
FGI, HMC Senior Communities, Inc. (predecessor entity to Crestline), the
Partnership, and members of the Board apparently alleging breach of fiduciary
duties to the Unitholders by offering an inadequate price for the Units,
attempting to improperly influence the market price of the Units, and failing to
provide for a mechanism that would establish a fair price for the Units (the
"Delaware Lawsuit"). In the Delaware Lawsuit, Harbor Finance Partners, Ltd. is
seeking certification of a class, an injunction to prevent completion of the
proposed transaction or, in the alternative, rescission of the transaction and
compensatory damages. Crestline believes the Delaware Lawsuit is without merit
and plans to vigorously defend the Delaware Lawsuit.
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<PAGE>
SUMMARY FINANCIAL DATA
Set forth below is a summary of certain consolidated financial information
with respect to the Partnership, excerpted from the information in (i) the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1997, a
copy of which is attached hereto as Annex D, and (ii) the Partnership's
Quarterly Report on Form 10-Q for the nine months ended September 30, 1998, a
copy of which is attached hereto as Annex E. These reports and other documents
are available for inspection or copying as discussed above under "Available
Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 FISCAL YEAR/1/
--------------------------------------------------------------------------------
1998/4/ 1997 1997 1996 1995 1994 1993/3/
------------ ------------ --------- -------- -------- -------- ---------
(unaudited) (in thousands, except ratio and per Unit amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues/2/ $ 14,856 $ 13,915 $ 17,614 $ 16,283 $ 15,135 $15,093 $ 13,046
Income (loss) before
extraordinary item 898 1,950 2,579 699 297 317 (1,762)
Net income (loss) 898 1,950 2,579 699 297 317 (4,679)
General Partner's interest in
net income (loss) 9 20 26 7 3 3 (47)
Limited Partners' interest in
net income (loss) $ 889 $ 1,930 $ 2,553 $ 692 $ 294 $ 314 $ (4,632)
Average number of Units
outstanding 15,285 15,285 15,285 15,285 15,285 15,285 10,317
Basic and diluted earnings
(loss) per Unit:
Income (loss) before
extraordinary item $ .06 $ .13 $ .17 $ .05 $ .02 $ .02 $ (.17)
Extraordinary item -- -- -- -- -- -- (.28)
Net income (loss) $ .06 $ .13 $ .17 $ .05 $ .02 $ .02 $ (.45)
BALANCE SHEET DATA:
Total assets $108,637 $107,918 $109,670 $106,510 $106,364 $107,336 $107,023
Debt 45,931 47,147 46,854 47,984 49,007 49,934 50,707
Partners' equity
General Partner 537 522 528 502 495 492 490
Limited Partners 42,548 41,036 41,659 39,106 38,414 38,120 37,896
OTHER DATA:
Ratio of earnings to fixed
charges/5/ 2.0x 1.5x 1.5x 1.1x 1.0x 1.1x --
Deficiency of earnings to
fixed charges/5/ -- -- -- -- -- -- (1,771)
Book value per Unit/6/ $ 2.82 $ 2.72 $ 2.76 $ 2.59 $ 2.55 $ 2.53 $ 2.51
</TABLE>
1 Certain amounts in the financial data have been reclassified to conform with
the 1998 presentation.
2 Revenues represent house profit from the Partnership's senior living
communities. House profit reflects the net revenues flowing to the
Partnership as property owner and represents gross community operating sales
less property-level expenses excluding depreciation and amortization,
property taxes, insurance, management fees and certain other costs which are
classified as operating costs and expenses.
3 In 1993, the Partnership recorded an extraordinary charge for the early
extinguishment of debt of $2,917,000.
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<PAGE>
4 The Omnibus Budget Reconciliation Act of 1987, as amended by the Taxpayer
Relief Act of 1997 (the "Act"), provided that certain publicly traded
partnerships should be treated as corporations for federal income tax
purposes. A provision of the Act allows certain publicly traded partnerships
which would otherwise become subject to tax as a corporation beginning in
1998 to elect to be subject to a special tax on gross income from its active
conduct of a trade or business, and continue to avoid being treated as a
corporation for federal income tax purposes. The tax generally applies to a
partnership's gross income at the rate of three and one half percent,
effective for taxable years beginning after December 31, 1997. The
Partnership has elected not to pay the special tax on gross income and began
being treated as a corporation for federal income tax purposes effective
January 1, 1998. Included in the Partnership's net income for the nine months
ended September 30, 1998 is a provision for income taxes for current
operations of $1,446,000 and a one time charge of $1,271,000 to record a net
deferred tax liability related to the change in tax status. The net deferred
tax liability represents the tax effect of the excess of the net assets
reported in the Partnership's financial statements over the Partnership's tax
basis in the net assets. This difference is due primarily to the use, for
income tax purposes, of accelerated depreciation methods and shorter
depreciable lives for fixed assets and deferred management fees which have
been expensed under generally accepted accounting principles but are
generally not deductible for tax purposes until paid.
5 The ratio of earnings to fixed charges is computed by dividing income before
taxes, interest expense and other fixed charges by total fixed charges,
including interest expense, amortization of debt issuance costs, capitalized
interest and the portion of rent expense that is deemed to represent
interest. The deficiency of earnings to fixed charges is largely the result
of depreciation and amortization of $3,516,000 in 1993. The computation of
the ratio of earnings to fixed charges is attached to this Consent
Solicitation Statement as Schedule 2.
6 Book value per Unit is computed by dividing the limited partners' equity by
the number of Units outstanding.
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<PAGE>
SPECIAL FACTORS
Background of and Reasons for the Merger
Relationship Between FGI and the Partnership
The Partnership was formed in 1986 to own senior living retirement communities
originally developed or acquired by FGI. The Partnership owns nine upscale
senior living retirement properties containing approximately 1,724 units. The
General Partner owns a one percent general partnership interest in the
Partnership and a one percent general partnership interest in a subsidiary
operating partnership in which the Partnership owns a 99% limited partnership
interest. The General Partner's interest in the subsidiary operating
partnership is reflected in the statements of operations as a reduction of the
income or loss of the Partnership.
On June 21, 1997, Crestline Capital Corporation ("Crestline", formerly HMC
Senior Communities, Inc.), acquired all of the outstanding stock of FGI from
Marriott Senior Living Services, Inc. ("MSLS"), a subsidiary of Marriott
International, Inc. ("MI"). In connection with the acquisition, FGI assigned to
MSLS its interest as manager under a long term management agreement for the nine
communities owned by the Partnership. At the time of the acquisition of FGI
stock by Crestline, Crestline was a wholly-owned subsidiary of Host Marriott.
Subsequent to the above mentioned acquisition, Crestline acquired additional
Units at various times. On March 25, 1998, 1,000,894 Units were acquired for
$4,504,023. In the second quarter of 1998 an additional 1,140,901 Units were
acquired for $5,134,055. As a result of these purchases, Crestline's current
ownership interest in the Partnership, both directly and indirectly through
affiliates, approximates 93%.
On March 25, 1998, the General Partner acquired 1,000,894 Units from The
Russell F. Knapp Revocable Trust and related parties (the "Knapp Trust") for
$4,504,023 pursuant to the terms of a Settlement and Release Agreement (the
"Settlement Agreement") executed to resolve outstanding litigation between the
Knapp Trust, the General Partner and FGI. The Settlement Agreement was executed
on February 4, 1998 (the "Settlement Date") by the Knapp Trust, MSLS, the
General Partner, FGI, and Host Marriott. On February 5, 1998, the United States
District Court for the Southern District of Indiana entered an order approving
dismissal of the Knapp Trust litigation. Under the terms of the Settlement
Agreement, Host Marriott agreed to pay each Unitholder electing to join the
Settlement Agreement (including the Knapp Trust) $4.50 per Unit in exchange for
(i) the transfer of all Units owned by the settling Unitholders, (ii) an
agreement by such settling Unitholders not to purchase additional Units and
(iii) release of all claims asserted in the litigation. The Settlement
Agreement also provides for the payment of additional consideration (the
"Additional Consideration") to the settling Unitholders, in the event that,
within three years after the date of the Settlement Agreement, Crestline (as
successor in interest to
12
<PAGE>
Host Marriott) pays more than $4.50 per Unit for the publicly held Units
pursuant to a tender offer. The Additional Consideration would be equal to fifty
percent (50%) of the amount by which the tender offer price exceeds $4.50 per
Unit, or the base price ("Base Price"); provided, that, (1) the Additional
Consideration shall not exceed $1.25 per Unit and (2) in calculating the
Additional Consideration, the Base Price shall be increased by fifteen percent
per annum calculated pro rata from the Settlement Date to the date on which the
Additional Consideration is due. Accordingly, the amount of the Additional
Consideration will decrease over time, amounting to approximately $566,000 if,
for example, the Merger is consummated on March 1, 1999 and decreasing to
approximately $491,000 if the Merger is consummated on March 31, 1999.
Because of the derivative nature of the allegations contained in the Knapp
Trust litigation and in accordance with the terms of the Settlement Agreement,
Host Marriott invited all holders of Units, in their sole discretion, to
participate in the Settlement Agreement and detailed the requirements for
participation in two notices to Unitholders dated March 27, 1998 and May 6,
1998. Initially, the period within which Unitholders could elect to participate
in the Settlement Agreement was scheduled to expire on April 27, 1998 but was
extended to May 22, 1998. As a result of elections to participate in the
settlement by Unitholders, the General Partner purchased an additional 1,140,901
Units from Unitholders prior to the end of May 1998 for an aggregate
consideration of $5,134,055. These purchases, together with the acquisition
from the Knapp Trust and related entities, resulted in Crestline's beneficial
ownership increasing to 14,214,310 Units, or approximately 93% of the 15,285,248
Units outstanding.
Merger Proposal; Appointment of Advisory Committee
Host Marriott, Crestline and FGI proposed the Merger because they believe
that the recurring expenses associated with maintaining the Partnership as a
reporting company under the Exchange Act can be eliminated if the Merger is
consummated. In addition, consummation of the Merger will obviate the need for
management of Crestline, FGI and the General Partner to continue to spend
significant time and resources on maintaining the Partnership as a public
entity. See "Special Factors Reasons for the Merger."
In view of the above factors, Host Marriott and Crestline determined that
the most practical means of (i) protecting their investment in the Partnership
and furthering the business objectives and plans of the Partnership without the
attention required by management as a result of having Public Unitholders and
(ii) providing Public Unitholders with fair value for their Units was to engage
in a transaction in which the Public Unitholders would be paid cash for their
Units and the Partnership would become wholly owned by FGI and its affiliates.
On June 18, 1998 the Board established an advisory committee consisting of
independent board members James C. Leslie and John F. Sexton (the "Advisory
Committee") to (i) review and evaluate the terms of any proposed transaction,
(ii) if deemed appropriate by the Advisory Committee, negotiate the terms of any
proposed
13
<PAGE>
transaction and take such actions on behalf of the Partnership and its
affiliated operating partnerships as deemed necessary or desirable, (iii) report
to the entire Board the results of the Advisory Committee's actions and
conclusions, including its recommendation as to the fairness of the terms, from
a financial point of view, of any proposed transaction and (iv) select and
retain legal counsel and financial advisors.
By a letter dated July 15, 1998, Host Marriott submitted a written proposal
to the Board providing for the acquisition of all of the outstanding Units held
by the Public Unitholders for $4.50 in cash per Unit pursuant to a merger
transaction, subject to, among other conditions, approval by the Board, approval
by the Advisory Committee that would consider the proposed transaction from the
point of view of the Public Unitholders and receipt of a fairness opinion with
respect to the proposed transaction by the financial advisor selected by the
Advisory Committee. During the week of July 13, 1998, members of the Board
conferred with representatives of the Advisory Committee and their legal
counsel. On July 21, 1998, the Partnership issued a press release advising of
its receipt of the Host Marriott offer and appointment of the Advisory
Committee.
Members of Advisory Committee
The members of the Advisory Committee are John F. Sexton and James C.
Leslie, both of whom are independent members of the Board. Both Mr. Sexton and
Mr. Leslie have served as Board members since 1993.
Mr. Sexton is Chairman of the Board of Directors of Evan-McKinsey Company,
a financial consulting firm, a position he has held since 1993. From 1960 to
1993, Mr. Sexton held various positions with Lomas Financial Corporation,
serving as Chief Financial Officer from 1989 to 1993. Mr. Sexton has previously
served as a director of Americana Hotels and Realty Corp. and as Chairman and
Director of Mutual Equity Mortgage.
Mr. Leslie is President, Chief Operating Officer and a director of the
Staubach Company, a national real estate brokerage company. He has been
President and Chief Operating Officer of the Staubach Company since January 1996
and has been a director since September 1984. Mr. Leslie served as Chief
Financial Officer of the Staubach Company from 1982 to January 1992 when he
formed and headed Staubach Financial Services, from January 1992 until February
1996. Mr. Leslie is also President and a board member of Wolverine Holding
Company and its affiliated companies. Mr. Leslie serves on the boards of
Stratus Properties, Inc., Amresco Capital Trust, and Wyndham International, Inc.
Mr. Leslie is a certified public accountant.
Apart from serving as members of the Board and as members of the Advisory
Committee, neither Mr. Sexton nor Mr. Leslie has been employed in any capacity
with, or has ever otherwise been affiliated with, Host Marriott, Crestline, FGI,
the General Partner, the Partnership or their respective affiliates.
14
<PAGE>
Consideration and Negotiation of Terms of the Merger
When the Board established the Advisory Committee, it authorized the
Advisory Committee to select and retain, at the expense of the General Partner,
an independent investment banking firm to act as its financial advisor to advise
and assist the Advisory Committee in connection with its evaluation, negotiation
and recommendation concerning any transaction with Host Marriott, Crestline and
their affiliates.
After interviewing several investment banking firms, the Advisory
Committee, on July 27, 1998, unanimously decided to retain RAI&Co. to act as the
Advisory Committee's financial advisor in considering the proposed transaction
with Host Marriott, and a formal engagement letter with RAI&Co. was executed on
August 21, 1998. The Advisory Committee selected RAI&Co. for several reasons,
including primarily the reputation of the firm and its experience in providing
financial advisory services in connection with mergers and acquisitions,
leveraged buyouts, business valuations, recapitalizations and private
placements. Moreover, as a result of a prior engagement by a special committee
of the Board, members of the Advisory Committee believe that RAI&Co. had a
unique experience with and knowledge of the Partnership and its business. The
Advisory Committee also retained Vinson & Elkins L.L.P. as its independent legal
counsel based on the firm's reputation and experience in transactions involving
public companies.
During the weeks following its decision to retain RAI&Co., the Advisory
Committee and its financial advisor requested and received certain information
from FGI and the General Partner, including projections prepared with respect to
the financial condition, results of operations and cash flows of the properties
owned by the Partnership.
On August 13, 1998, the Advisory Committee and its financial and legal
advisors met with members of management of Host Marriott to discuss the merger
proposal, the background of the merger proposal and the financial and other
information previously provided to the Advisory Committee and its financial
advisor relating to the Partnership, the operations and prospects of the
Partnership and other relevant information. During this meeting, the members of
management of Host Marriott discussed the reasons that Host Marriott initiated
the merger proposal and answered questions from the members of the Advisory
Committee and its financial advisor regarding industry trends, regulatory
changes and prospects for the Partnership's retirement communities, including
the assumptions underlying the projections previously provided to the Advisory
Committee, the capital expenditure requirements of the Partnership's retirement
communities, and operating results and prospects for the Partnership.
During the last two weeks of August 1998, the Advisory Committee's
financial advisor requested certain additional information from the General
Partner and reviewed
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and discussed with representatives of Host Marriott and the General Partner such
financial and other information.
On September 2, 1998, the Advisory Committee met and the members of the
Advisory Committee discussed the merger proposal and received a preliminary
presentation of the analysis of RAI&Co. After receiving the presentation and
discussing the terms of the merger proposal and related matters, the members of
the Advisory Committee determined that prior to deciding upon its recommendation
to the Board, Mr. Sexton should contact a representative of Host Marriott in an
effort to negotiate a higher price than Host Marriott's initial offer to pay
$4.50 in cash per Unit and report back to the Advisory Committee with the
results of his negotiations.
During the weeks of September 7 and September 14, 1998, Mr. Sexton and Mr.
Robert E. Parsons, Jr., a member of the Board and a senior executive of Host
Marriott, held several discussions with respect to the terms of the proposed
Merger transaction. In the course of those discussions, Mr. Sexton expressed the
view of the Advisory Committee that a significantly higher price per unit was
warranted. In telephonic discussions with Mr. Sexton on September 15, 1998, Host
Marriott indicated that, subject to the results of the negotiations of the terms
of the Merger Agreement, in order to consummate the transaction, FGI would raise
its price to $5.75 per Unit, despite its view that $5.75 exceeded the fair value
of each Unit.
On September 10, 1998, FGI delivered to the Advisory Committee, its legal
counsel and its financial advisor a draft of the Merger Agreement, which
contemplated that an affiliate of the General Partner would be merged with and
into the Partnership pursuant to which all outstanding units held by Public
Unitholders would be converted into the right to receive cash.
On September 17, 1998, the General Partner provided the Advisory Committee
and its financial advisor with revised projections with respect to the financial
condition, results of operations and cash flows of the Partnership. The
revisions were made to incorporate newly available data reflecting less
favorable operating results for the Partnership for fiscal year 1998.
On September 23, 1998, the Advisory Committee met telephonically and
discussed with its legal counsel the terms of the draft Merger Agreement. At
that meeting, Mr. Sexton reported the results of his negotiations with
representatives of Host Marriott with respect to the terms of the Merger and the
proposed Merger Consideration. Mr. Sexton informed the Advisory Committee that
following several discussions with representatives of Host Marriott, Host
Marriott had indicated that it would consider an increase in its offer, assuming
the other open issues in the terms of the Merger and the Merger Agreement could
be satisfactorily concluded. The Advisory Committee discussed the status of the
negotiations with respect to the Merger Agreement with its legal counsel and
instructed its legal counsel to continue negotiations with respect to the Merger
Agreement in an effort to resolve all open points prior to the Advisory
Committee's next meeting.
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During the period between September 23 and September 27, 1998, legal
counsel for the Advisory Committee negotiated the provisions of the draft Merger
Agreement with legal counsel for FGI. On September 27, 1998, counsel for FGI
delivered to the Advisory Committee, its counsel and its financial advisor a
revised draft of the Merger Agreement reflecting the result of the negotiations.
On September 30, 1998, the Advisory Committee met and reviewed and
discussed the revised draft Merger Agreement with its legal counsel. At that
meeting, RAI&Co. also made a presentation of its valuation analysis and
indicated preliminarily that it believed it would be able to opine that the
$5.75 cash consideration to be received by Public Unitholders is fair to such
unitholders from a financial point of view. After the meeting, Mr. Sexton
contacted Mr. Parsons to indicate that the Advisory Committee was prepared to
make its recommendation to the Board.
On October 5, 1998, a meeting of the Board was held to consider the merger
proposal. The Board adjourned the meeting to permit the Advisory Committee to
confer with RAI & Co. and to consider the final Merger Agreement. A meeting of
the Advisory Committee was then held to consider the terms of the proposed
Merger Agreement and the Merger. RAI&Co. opined orally to the Advisory
Committee that, based on certain assumptions and limits on the review
undertaken, which were described to the Advisory Committee, and such other
factors deemed relevant, the proposed cash consideration to be received by the
Public Unitholders pursuant to the Merger is fair to such Public Unitholders,
from a financial point of view. RAI&Co. subsequently delivered its written
opinion, dated as of October 5, 1998, to the Advisory Committee confirming the
oral opinion previously delivered. Based on the RAI&Co. Opinion and the other
factors described below, the Advisory Committee then unanimously determined that
the Merger Agreement and the Merger are fair to the Public Unitholders and
recommended to the Board that the General Partner approve the Merger Agreement
and the Merger and recommend that the Public Unitholders approve the Merger
Agreement and the Merger.
Immediately following the October 5, 1998 meeting of the Advisory
Committee, the Board held a meeting to consider the recommendation of the
Advisory Committee with respect to the proposed Merger and Merger Agreement.
Based on the RAI&Co. Opinion and the recommendation of the Advisory Committee,
the Board (with Mr. Parsons abstaining) approved the execution and delivery of
the Merger Agreement, determined that the Merger Agreement, including the
Merger, is fair to, and advisable for, the Partnership and the Unitholders and
resolved to recommend that the Unitholders approve the Merger and the Merger
Agreement.
The Merger Agreement was executed by FGI, Forum MLP, the General Partner,
and the Partnership as of October 5, 1998.
RECOMMENDATION OF THE ADVISORY COMMITTEE AND THE BOARD
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Upon the unanimous recommendation of the Advisory Committee, the Board
unanimously approved the Merger and the Merger Agreement (with the director
affiliated with Host Marriott and Crestline abstaining) and determined that the
Merger is fair to, and advisable for, the Partnership and the Unitholders and
recommended that the Unitholders approve the Merger and the Merger Agreement.
In making the determination and recommendation set forth above, the
Advisory Committee of the Board, with the assistance of its legal counsel and in
consultation with its financial advisor on certain factors, considered a number
of factors, including the factors set forth below:
Fairness Opinion and Presentations of RAI&Co.
The Advisory Committee placed significant weight on the RAI&Co. Opinion,
delivered orally to the Advisory Committee on October 5, 1998, and subsequently
confirmed in writing as of that date, which concluded that the consideration to
be received by Public Unitholders in connection with the Merger is fair, from a
financial point of view, to such Unitholders. In connection with its reliance on
the RAI&Co. Opinion, the Advisory Committee reviewed the projections prepared by
the General Partner with respect to the financial condition, results of
operations and cash flows of the properties owned by the Partnership and
questioned members of management of Host Marriott in order to investigate the
reasonableness of the assumptions underlying the projections. Based on this
investigation and the representation made by FGI in the Merger Agreement that
the projections were based upon the reasonable, good faith assumptions of the
General Partner at the time such assumptions were made, the Advisory Committee
concluded that reliance upon the projections was reasonable.
A copy of the RAI&Co. Opinion setting forth certain of the assumptions
made, matters considered, and limitations on the review undertaken, is attached
to this Consent Solicitation Statement as Annex B and the Public Unitholders are
urged to read the RAI&Co. Opinion in its entirety. See " Opinion of Financial
Advisor."
Absence of Ability to Pursue Alternative Transactions
In light of the ownership at such time by Host Marriott and its affiliates
of approximately 93% of the Units, and in light of Host Marriott's stated
position to the Advisory Committee at such time that it was not interested in
considering alternative transactions such as the potential sale of part or all
of the Partnership's assets or securities to a third party, the Advisory
Committee concluded that pursuing such alternative transactions was not
justified. The Advisory Committee considered the alternative of rejecting the
Merger, and continuing the Partnership's business with the current ownership
structure, but given the ownership position of Host Marriott, the Advisory
Committee believed that it would be highly unlikely that the Public Unitholders
would be able to identify an alternative transaction, such as the sale of Units
to a third party purchaser, on terms more favorable than the terms of the Merger
Agreement. Based on the other factors described below, the Advisory Committee
concluded that the Merger was fair to the Partnership and the Public Unitholders
and was preferable to the status quo.
Recent Market Prices; Lack of Liquidity
The Advisory Committee noted the relationship between the cash price to be
paid to the Public Unitholders pursuant to the Merger Agreement and the
historical market
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prices and recent trading history of the Units on the American Stock Exchange
("AMEX"), including the fact that the Merger Consideration of $5.75 per Unit in
cash represents a premium of 27.8% over the market price of $4.50 per Unit one
day prior to the date of announcement of the initial proposal submitted by Host
Marriott and a premium of 31.3% over the market price of $4.38 one day prior to
the date of announcement of the revised Merger proposal.
Recent Prices Paid for the Units
Under the terms of the Settlement Agreement with respect to the Knapp Trust
litigation, Host Marriott agreed to pay each Unitholder electing to join the
Settlement Agreement (including the Knapp Trust) $4.50 per Unit in exchange for
(i) the transfer of all Units owned by the settling Unitholders, (ii) an
agreement by such settling Unitholders not to purchase additional Units and
(iii) release of all claims asserted in the litigation. The Advisory Committee
noted that the Merger Consideration of $5.75 per Unit represents a premium of
approximately 28% over the price payable in connection with the Settlement
Agreement.
Book Value
The Advisory Committee noted that the Partnership's June 30, 1998 book
value of $2.73 per Unit, based upon the Unitholders' capital at that date, but
believed that such amount was not representative of a fair price for the Units
because of the nature of the Partnership's business. The low book value per Unit
compared to the $5.75 per Unit Merger Consideration suggests that the Merger
Consideration is fair to the Public Unitholders. However, the Advisory
Committee did not give substantial weight to this factor due to the fact that
retirement community properties, which are depreciated for accounting purposes,
frequently have a fair market value in excess of book value.
Liquidation Value
Based on the RAI&Co. Analysis, the Advisory Committee noted that, because
of the relatively large debt burden of the Partnership, the management fees and
the discounts that would likely apply in the event of the liquidation of the
Partnership's assets, the residual value of the Units, after satisfying all
obligations of the Partnership, would yield a dollar value per Unit lower than
the Merger Consideration of $5.75 in cash per Unit. Because the Advisory
Committee believes that the liquidation value is therefore not a reliable
measure of the fair value of the Units, the Advisory Committee did not undertake
to quantify the liquidation value of the Units for purposes of determining the
fairness of the Merger Consideration.
Negotiations Conducted by Advisory Committee on Behalf of the Public Unitholders
The Advisory Committee noted that terms of the Merger Agreement, including
the price to be paid for the Units held by Public Unitholders, were
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negotiated by Host Marriott and the Advisory Committee. The Advisory Committee
represented the interests of the Public Unitholders in such negotiations and
such negotiations were conducted with the assistance of the Advisory Committee's
legal counsel and in consultation with its financial advisor.
Appraisal Rights
The Advisory Committee recognized that, although neither Delaware law nor
the Partnership Agreement requires that the Merger Agreement provide the Public
Unitholders with appraisal rights, such rights have in fact been provided to the
Public Unitholders pursuant to the terms of the Merger Agreement. See "The
Merger Agreement Appraisal Rights."
Advantages to Crestline and its Affiliates
The Advisory Committee recognized that the Merger would be advantageous to
Crestline and its affiliates, which would collectively own all of the Units
following the Merger. The Partnership likely will be able to achieve
significant benefits as a result of the Merger, including elimination of the
need to recognize fiduciary obligations to the Public Unitholders and the
potential liabilities associated therewith. After consummation of the Merger,
the Partnership will no longer incur the costs of maintaining the Partnership's
status as a reporting entity under the Exchange Act or the costs associated
devoting significant management and related resources to maintaining the
Partnership as a public entity. In addition, following consummation of the
Merger, because the Partnership will no longer have any obligation to make
payments to the Public Unitholders on account of unreturned capital
contributions or the 12% cumulative annual return thereon, FGI will be in an
improved position to collect accrued but unpaid management fees payable to it by
the Partnership. The Advisory Committee concluded that these benefits to
Crestline and its affiliates are not inconsistent with the Advisory Committee's
assessment, weighing all of the factors, that the Merger is fair to the Public
Unitholders.
No Financing Condition
The Advisory Committee noted that in the Merger Agreement, FGI and Forum
MLP made representations and warranties relating to the adequacy of its
financing, and that financing is not a condition to consummation of the Merger.
The Advisory Committee concluded that the Merger would be adequately financed
with little risk that the Merger would not be consummated by FGI in an
expeditious manner.
Merger Agreement
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The Advisory Committee considered the specific terms of the Merger
Agreement, including changes that had been made in response to the Advisory
Committee's requests during the negotiations. The Advisory Committee also noted
other terms and conditions of the Merger Agreement, which increased the
likelihood that the Merger would be consummated, including FGI's commitment to
consent to approval of the Merger Agreement and the Merger and the fact that the
Merger is only conditioned upon (i) receiving approval of a majority of the
Unitholders (which is assured because FGI has agreed to cause holders of the
Units owned by FGI and its affiliates to consent to the Merger), (ii) expiration
of all applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and (iii) the absence of any judgment,
order or injunction prohibiting or enjoining the Merger. See "Background of and
Reasons for the Merger Consideration and Negotiation of Terms of the Merger."
RAI&Co. Comparable Company Analysis
The Advisory Committee noted that only one of the valuation methods
employed by RAI&Co. indicated the possibility that the Units could have a value
in excess of the Merger Consideration of $5.75 per Unit. RAI&Co.'s comparable
company valuation method indicated a possible range of values from $5.63 to
$7.02. However, because RAI&Co. indicated that the data used in that analysis
are less reliable than the data used in the other types of analysis performed by
RAI&Co., the Advisory Committee gave less weight to the results of the
comparable company analysis as compared to the other valuation methods employed
by RAI&Co. See "Opinion of Financial Advisor."
Other
The Advisory Committee also reviewed a number of other factors related to
the Merger and the Merger Agreement including factors weighing in favor of
recommending the Merger to the Public Unitholders, such as: (i) the fact that
the $5.75 per Unit to be paid pursuant to the Merger is approximately 28% above
the price paid for Units pursuant to the Settlement Agreement offered to all
Unitholders; (ii) the lack of cash distributions to Public Unitholders since the
Partnership's inception, and the probability that Public Unitholders may not
receive any distributions of operating cash flow in the near future; (iii) the
opportunity for Public Unitholders to sell Units without the commissions and
other costs normally associated with a sale; and (iv) the protection that has
been given to the Public Unitholders by offering the Public Unitholders
appraisal rights that are equivalent to those rights that would be available to
a stockholder of a corporation organized under the laws of the State of Delaware
in the event of the merger of the corporation in which such stockholder owns
stock.
The Advisory Committee also reviewed factors weighing against
recommending the Merger to Public Unitholders, such as: (i) the benefits that
Crestline and its affiliates will receive as a result of the Merger that may not
accrue to the Public Unitholders,
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including (a) the fact that the Public Unitholders will not, after consummation
of the Merger, have any right to receive any unrecovered capital contributions
or 12% cumulative annual return, to the extent not previously paid (b) the
possibility that the Partnership's income and cash flow could increase in future
periods if the management agreement between the Partnership and MSLS is revised
as proposed and (c) the possibility that the Partnership's recent investments
will result in a higher value for the Units in the future (See "The Partnership
Business"), (ii) the fact that one valuation method employed by RAI&Co.
indicated a range of values for the Units that, at the upper end of the range,
exceeded the value of the Merger Consideration and (iii) the fact that the
Merger has been structured so that the Merger will be consummated regardless
of whether the Public Unitholders consent to the Merger.
The Advisory Committee recognized that no unaffiliated representative was
retained to act solely on behalf of the Public Unitholders, although neither the
Board nor the Advisory Committee considered it necessary to retain such a
representative in view of the appointment of the Advisory Committee, the
retention of an independent financial advisor and special legal counsel and the
fact that neither of the members of the Advisory Committee was affiliated with
Host Marriott, Crestline or any of their affiliates.
Procedural Fairness
The Advisory Committee and the Related Persons noted that the Merger has
been structured so that the Merger will be consummated regardless of whether the
Public Unitholders consent to the Merger, since FGI is obligated under the terms
of the Merger Agreement to cause the holders of outstanding Units owned by FGI
and its affiliates (representing approximately 93% of all outstanding Units) to
consent to the Merger. The Advisory Committee and the Related Persons also
recognized that no unaffiliated representative was retained to act solely on
behalf of the Public Unitholders.
The Advisory Committee and the Related Persons determined that, because of
the procedural protections set forth below, it was not necessary to include a
majority-of-the-minority voting provision or to retain an unaffiliated
representative to act solely on behalf of the Public Unitholders:
(1) the Advisory Committee was composed of the independent members of the
Board, both of whom are knowledgeable and experienced with respect to senior
living community properties;
(2) the terms of the Merger Agreement, including the amount of the Merger
Consideration, were negotiated by the Advisory Committee on behalf of the Public
Unitholders;
(3) the Related Persons and the Advisory Committee also recognized that,
pursuant to the terms of the Merger Agreement, the Public Unitholders have the
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right to exercise appraisal rights in accordance with Section 262 of the
Delaware General Corporate Law (the "DGCL") if the Merger is consummated and
such holder complies with the procedures pursuant to Section 262. A copy of
Section 262 is attached to this Consent Solicitation Statement as Annex C;
(4) the Advisory Committee retained an independent financial advisor and
independent legal counsel to assist it in its consideration and negotiation of
the terms of the Merger;
(5) the Advisory Committee was aware of its fiduciary obligations to the
Public Unitholders in connection with its role in negotiating the Merger
Consideration and the terms of the Merger Agreement;
(6) the Board provided to the Advisory Committee all information requested
by the Advisory Committee, and the Advisory Committee (in consultation with its
legal counsel and RAI&Co.) played an active role in analyzing and negotiating
the terms of the Merger, including the availability of appraisal rights; and
(7) the Advisory Committee received advice that it was not legally required
to include a majority-of-the-minority voting requirement, and noted that
transactions involving mergers with controlling equity owners often take place
without such voting provisions
Weighing of Factors
In view of the wide variety of factors considered in their evaluation of
the Merger, the Advisory Committee and the Board did not find it practicable to,
and did not, quantify or otherwise assign precise relative weights to the
individual items described above. Rather, their respective determinations were
based on the totality of information available, and the judgments of the
individual directors may have been influenced to a greater or lesser degree by
different factors.
POSITION OF THE RELATED PERSONS WITH RESPECT TO THE MERGER
Forum MLP, FGI and Crestline (the "Related Persons") believe that the
Merger Agreement and the Merger are fair to the Public Unitholders. In reaching
their determination to engage in the Merger and in determining that the Merger
is fair to the Public Unitholders, the Related Persons considered a number of
factors, including the following:
(i) the fact that RAI&Co., an independent financial advisor, determined
that the Merger Consideration of $5.75 in cash per Unit to be
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received by the Public Unitholders in the Merger is fair to the Public
Unitholders from a financial point of view. RAI&Co. had unrestricted access to
the Partnership's financial information in connection with its analysis. The
full text of the RAI&Co. Opinion is attached as Annex B to this Consent
Solicitation Statement. Public Unitholders are urged to, and should, read the
RAI&Co. Opinion carefully and in its entirety in conjunction with this Consent
Solicitation Statement for the assumptions made, the matters considered and the
limits of the review of RAI&Co. See " Opinion of Financial Advisor";
(ii) the fact that procedural protections were instituted to ensure that
the Public Unitholders would receive a fair price for their Units,
notwithstanding the fact that no unaffiliated representative was retained to act
solely on behalf of the Public Unitholders and the fact that approval of the
Merger Agreement and the Merger is assured, regardless of whether the Public
Unitholders consent to approve the Merger Agreement and the Merger. Such
procedural protections include (1) the selection of an Advisory Committee
composed of the independent members of the Board, (2) the fact that the terms of
the Merger Agreement, including the amount of the Merger Consideration, were
negotiated by the Advisory Committee on behalf of the Public Unitholders, (3)
the grant of appraisal rights to the Public Unitholders pursuant to the terms of
the Merger Agreement, (4) the retention by the Advisory Committee of an
independent financial advisor and independent legal counsel and (5) the
continuing existence of fiduciary obligations of the Advisory Committee to the
Public Unitholders;
(iii) the fact that the Merger Consideration represents a premium over the
trading price of Units on July 20, 1998 (the business day immediately preceding
the announcement of the Proposal) and October 6, 1998 (the business day
immediately preceding the announcement of the Merger Agreement). The Related
Persons believe that the premium over such trading prices is a significant
objective indication that the Merger Consideration is fair to the Public
Unitholders. In addition, the Related Persons noted that the $5.75 per Unit
Merger Consideration represents a 28% premium to the $4.50 per Unit price paid
to Public Unitholders pursuant to the Settlement Agreement entered into in
connection with the Knapp Litigation;
(iv) the Related Persons considered the direct economic benefits to the
Partnership (and the Related Persons) of the Merger, such as the elimination of
the costs to the Partnership of being a publicly owned entity, including (A) the
distractions to and time demands on management as a consequence of operating a
public entity, and (B) the Partnership's reporting obligations as a reporting
entity under the Exchange Act and the costs and potential liabilities associated
therewith. The Related Persons determined that the foregoing costs are not
justified by the benefits to the Partnership
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or the Public Unitholders and that therefore consummation of the Merger is
preferable to continuing the Partnership in its present form. The Related
Persons also determined that, if the Merger is not consummated and the
Partnership continues to operate in its current form, the value of the Units
held by the Public Unitholders could be lower in the future due to the costs and
commissions normally associated with a sale, business risks associated with the
Partnership's business and the continuing adverse economic effect on the value
of the Units of maintaining the Partnership as a public entity;
(v) the Related Persons considered the fact that the Public Unitholders
will no longer participate in the Partnership's possible future earnings and
that the Merger will result in certain benefits to FGI and its affiliates, such
as the elimination of the costs of maintaining the Partnership as a public
entity and increased flexibility to enter into related party transactions due to
elimination of conflicts of interest. The Related Persons determined that the
Merger Consideration, which is payable in cash, adequately compensates the
Public Unitholders for any potential future earnings, particularly in light of
the continuing business risks associated with the Partnership's business;
(vi) the fact that, absent the Merger, a sale of Units by Public
Unitholders could result in a substantially lower net sale price for the Units
than the Merger Consideration due to the historically low level of trading in
the Units and the limited liquidity in the Units. The Related Persons believe
that the Merger offers the Public Unitholders an opportunity to liquidate their
holdings in the Partnership at a price that represents a premium over the price
at which the Public Unitholders would
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have been able to obtain on the open market as of the date of the Merger
Agreement;
(vii) the fact that the Public Unitholders will receive cash for their
Units if the Merger is consummated, but have not received cash distributions
since the Partnership's inception, and are unlikely to receive regular cash
distributions in the near future if the Partnership continues in existence;
(viii) the protection that has been given to the Public Unitholders by
offering the Public Unitholders appraisal rights that are equivalent to those
rights that would be granted if the Public Unitholders were corporate
stockholders under Section 262 of the DGCL, and the fact that such rights are
protective of the Public Unitholders and will help to further ensure that the
Public Unitholders receive a fair price for their Units; and
(ix) the terms and conditions of the Merger Agreement, taken as a whole,
and the fact that such terms had been established through negotiations with an
independent Advisory Committee, advised by an independent financial advisor and
legal counsel.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Related Persons found that it was not practicable
to, and did not, quantify or otherwise attempt to assign relative weights to the
specific factors they considered in reaching their determinations, although the
Related Persons did place special emphasis on the findings and recommendations
of the Advisory Committee and the RAI&Co. Analysis. The Related Persons believe
that the factors described above are favorable to their determination of
fairness.
In view of the establishment of the Advisory Committee, the retention of
RAI&Co., the factors considered by the Advisory Committee and the RAI&Co.
Analysis as described above, the Related Persons did not consider it necessary
to, and did not, undertake a separate valuation analysis in connection with the
Merger.
OPINION OF FINANCIAL ADVISOR
RAI&Co. delivered an oral opinion to the Advisory Committee on October 5,
1998 (subsequently confirmed in writing as of that date), to the effect that, as
of such date, and based upon the assumptions made, limits on the review
undertaken and other factors deemed relevant, the Merger Consideration of $5.75
per Unit in cash to be received by the Public Unitholders pursuant to the Merger
Agreement is fair to such Public Unitholders from a financial point of view.
THE FULL TEXT OF THE RAI&CO. OPINION IS ATTACHED AS ANNEX B TO THIS CONSENT
SOLICITATION STATEMENT. THE SUMMARY OF THE RAI&CO. OPINION SET FORTH IN THIS
CONSENT SOLICITATION STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE RAI&CO. OPINION. PUBLIC UNITHOLDERS ARE URGED TO,
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AND SHOULD, READ THE RAI&CO. OPINION CAREFULLY AND IN ITS ENTIRETY IN
CONJUNCTION WITH THIS CONSENT SOLICITATION STATEMENT FOR THE ASSUMPTIONS MADE,
THE MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW CONDUCTED BY RAI&CO.
Pursuant to an engagement letter dated August 21, 1998 by and among the
General Partner on behalf of the Advisory Committee, the Partnership, Host
Marriott and RAI&Co., RAI&Co. was engaged to act as financial advisor to the
Advisory Committee and to render an opinion as to the fairness, from a financial
point of view, to the Public Unitholders of the Merger Consideration to be
received by such Public Unitholders in connection with the Merger. RAI&Co. is a
respected firm that provides financial advisory services in connection with
mergers and acquisitions, leveraged buyouts, business valuations,
recapitalizations, financial restructurings, and private placements of debt and
equity securities. Prior to being engaged in this matter, RAI&Co. has not had
any material relationship with the Partnership, the General Partner, or their
respective officers or directors, except that in October 1995 RAI&Co. served as
financial advisor to a special committee of the Board in connection with a
tender offer by FGI to purchase outstanding Units of the Partnership. RAI&Co.
received fees totaling $125,000 for its services in connection with that
transaction.
As compensation to RAI&Co. for its services, the General Partner, on behalf
of the Advisory Committee, agreed to pay RAI&Co. a fee of $75,000 plus
reasonable and accountable out-of-pocket expenses not to exceed $7,500 in the
aggregate without the consent of the General Partner. No portion of RAI&Co.'s
fees is contingent upon the successful completion of the Merger. The General
Partner has also agreed to indemnify RAI&Co. and related persons against certain
liabilities arising out of the engagement of RAI&Co., including liabilities
under Federal securities laws.
The full text of the RAI&Co. Opinion, which sets forth certain of the
assumptions made, general procedures followed, factors considered and
limitations on the review undertaken by RAI&Co. in rendering the RAI&Co.
Opinion, is attached as Annex B to this Consent Solicitation Statement and is
incorporated herein by reference. RAI&Co. has consented to the use of the
RAI&Co. Opinion in connection with this Consent Solicitation Statement. The
RAI&Co. Opinion is directed to the Advisory Committee, relates only to the
fairness from a financial point of view of the Merger Consideration to be
received by the Public Unitholders pursuant to the Merger Agreement and does not
constitute a recommendation to any Public Unitholder as to whether such Public
Unitholder should consent to the Merger Agreement and the Merger.
In connection with the RAI&Co. Analysis, RAI&Co. reviewed such materials
and made such analyses and inquiries as it deemed necessary and appropriate
under the circumstances. Among other things, RAI&Co. reviewed drafts of the
Merger Agreement and held discussions with certain members of management of Host
Marriott and the General Partner concerning the business, operations and
prospects of the Partnership. RAI&Co. examined certain publicly available
business and financial information relating to the Partnership as well as the
Projections (defined below). RAI&Co. did not make or
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obtain any independent appraisal of the assets of the Partnership or conduct any
physical inspection of the properties and facilities of the Partnership.
For purposes of its opinion, RAI&Co. assumed and relied upon, without
independent verification, the accuracy and completeness of the financial and
other information obtained by RAI&Co. from public sources and from the
Partnership, the General Partner or their affiliates and their advisors,
including certain financial projections of the results of operations and cash
flows of the properties owned by the Partnership (the "Projections"). With
respect to the Projections, RAI&Co. was advised by management of the General
Partner that such Projections were prepared by the General Partner based on
information provided by MSLS based upon the reasonable, good faith assumptions
of the General Partner at the time such assumptions were made. With respect to
the Projections, RAI&Co. assumed that they were prepared on the basis of the
best currently available estimates and judgments of the management of the
General Partner and its affiliates, and with reasonable assumptions as to the
future operating and financial performance of the Partnership. RAI&Co. was
informed that the Projections were prepared based on the assumption that the
existing management agreement between the Partnership and MSLS would be revised
to reduce prospectively the annual base management fees payable by the
Partnership to MSLS, resulting in a corresponding increase in the Partnership's
income and cash flow. There is no assurance that the current management
agreement will be revised or, if revised, when such revisions will become
effective. Nevertheless, RAI&Co.'s valuation of the Units was based on the
assumption that the revised management agreement would become effective as of
January 1, 1999. See "Special Factors Plans for the Partnership After the
Merger."
RAI&Co. did not and was not engaged or requested to initiate any
discussions with third parties or to solicit any third-party indications with
respect to a possible acquisition of the Partnership or all or a portion of the
Units. Furthermore, RAI&Co. did not and was not requested to negotiate the
terms of the Merger Agreement or to advise the General Partner or the
Partnership with respect to alternatives with respect to the Merger. The terms
of the Merger Agreement, including the form and amount of consideration, were
determined on the basis of negotiations between Host Marriott and the Advisory
Committee. In such negotiations, the Advisory Committee represented the
interests of the Public Unitholders and conducted the negotiations with the
assistance of its legal counsel and in consultation with its financial advisor.
In the RAI&Co. Analysis, RAI&Co. made its determination as to the fairness,
from a financial point of view, of the Merger Consideration on the basis of the
analyses described below. No restrictions or limitations were imposed by the
General Partner or any of its affiliates upon RAI&Co. with respect to the
investigation made or the procedures followed in rendering its opinion.
In preparing the RAI&Co. Analysis, RAI&Co. performed a variety of financial
and comparative analyses, including those described below. The summary of such
analyses does not purport to be a complete description of the analyses
underlying the RAI
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& Co. Opinion. The preparation of a fairness opinion is a complex analytical
process involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances. RAI&Co. believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying such analyses and opinion.
The estimates contained in the analyses performed by RAI&Co. and the
valuation ranges resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by such analyses.
In addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities may be sold. In its analyses, RAI&Co. made numerous assumptions with
respect to the Partnership, industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of the Partnership. In addition, RAI&Co.'s analyses are necessarily
based on business, economic, market and other conditions as they existed and
could be evaluated by RAI&Co. at the date of such analyses. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
The following is a summary of certain of the analyses performed by RAI&Co.
in arriving at the RAI&Co. Opinion:
Discounted Cash Flow Analysis
RAI&Co. performed a discounted cash flow analysis for the purpose of
determining the equity value per Unit of the Partnership based upon the
Projections. A sensitivity analysis was performed by applying various discount
and terminal value capitalization rate assumptions to the Projections through
December 31, 2003, 2005 and 2008. Discount rates of 12.0%, 14.0% 16.0% and
18.0% and terminal value capitalization rates of 10.5%, 11.5% and 12.5% were
used. RAI&Co. elected to use the 10.5%, 11.5% and 12.5% capitalization rates in
the terminal years in order to take into consideration the lack of certainty
associated with projected financial performance five, seven and ten years in the
future. Additionally, the average age of the Partnership's properties was
calculated to be 23 years in 2003, 25 years in 2005 and 28 years in 2008. The
discount and capitalization rates used by RAI&Co. were selected based on
consultations with industry experts as well as consideration of the
Partnership's prospects and other market-related factors. RAI&Co.'s discounted
cash flow analysis further assumed, based on the Projections, the following: the
Unitholders would receive cash distributions of $483,643 in 2005, $6,475,030 in
2006, $7,345,107 in 2007 and $7,577,766 in 2008; that the cash balances would be
$28,599,023 at December 31, 2003, $42,089,478 at December 31, 2005 and
$42,992,698 at December 31, 2008; and that the debt outstanding would be
$39,929,639 on December 31, 2003, $37,640,784 on December 31, 2005 and
$33,391,454 on December 31, 2008. The Projections for the fiscal year ended
December 31, 2003 reflect projected revenues of $24.7 million and earnings
before interest, taxes, depreciation, amortization and rent expense ("EBITDAR")
of $17.6 million. The resulting value of the Units found by using the
Projections through December 31, 2003 ranged from $3.46 to $5.52 per Unit. The
Projections for the fiscal year ended 2005 reflect projected revenues of $26.1
million and EBITDAR of $18.6 million. The resulting value of the Units using the
Projections
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through December 31, 2005 ranged from $2.95 to $5.13 per Unit. The Projections
for the fiscal year ended 2008 reflect projected revenues of $28.4 million and
EBITDAR of $20.1 million. The resulting value of the Units using the Projections
through the fiscal year ended 2008 ranged from $2.31 to $4.54 per Unit. Thus,
the above calculations produced a valuation range for the Units of $2.31 to
$5.52 per Unit.
Capitalization of Net Operating Income Analysis
In its capitalization of earnings analysis, RAI&Co. performed its analysis
based on actual reported net operating income for the Partnership for the 12
month period ended June 30, 1998. In calculating the total value of the
Partnership, RAI&Co. applied a capitalization rate of 10.5% to the net operating
income, which, after taking into account the Partnership's indebtedness and cash
on hand as of June 30, 1998, resulted in a per Unit value of $5.29; an 11.5%
capitalization rate resulted in a per Unit value of $4.62; and a 12.5%
capitalization rate resulted in a per Unit value of $4.06.
Comparable Company Analysis
Using publicly available information, RAI&Co. compared selected financial
data of the Partnership with similar data of selected companies engaged in
businesses considered by RAI&Co. to be comparable to that of the Partnership.
The selection of the comparable companies and certain elements of the comparison
model incorporate subjective elements and involve input from management and an
evaluation of changing trends in the public markets. In addition, the
Partnership values implied by the peer comparison are derived from public
trading data which is subject to significant change over a short period of time,
and do not represent a complete and thorough valuation of the Partnership.
Therefore, the results of the peer comparison should be viewed as a less
meaningful representation of the value of the Units than the discounted cash
flow analysis or the capitalization of net operating income analysis. Comparable
companies were used in this section of the RAI&Co. Analysis to generate
multiples used in calculating the per Unit value of the Partnership. The
universe of comparable companies considered included those public companies that
are skilled nursing care facilities; nursing, personal care facilities; and
intermediate care facilities as well as those health care REITs identified by
Host Marriott as being potentially comparable to the Partnership. This search
resulted in 17 companies. These 17 comparable companies were reduced to six
comparable public companies after taking into consideration the following
factors:
(i) current yield generated by real estate investment trusts versus no
current yield for the Partnership,
(ii) real estate investment trust structure versus limited partnership
structure of the Partnership,
(iii) disparity in composition of types of care offered by providers of
long-term care services,
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(iv) geographic differences and accompanying regulatory differences, and
(v) large capitalization/large revenue/broadly traded organizations versus
the small capitalization/small revenue/thinly traded Partnership.
RAI&Co. noted that it was difficult to select publicly-traded companies
that could be used to establish a close relationship to the Partnership. The
following six companies were selected on one or both of the following bases: (i)
having operations most closely related to those of the Partnership and (ii) the
size of the company in relation to the Partnership: Advocat Inc., Brookdale
Living Communities, Inc., Capital Senior Living Corporation, Health Care REIT,
Inc., LTC Properties, Inc. and NewCare Health Corporation. RAI&Co. calculated
the enterprise value (defined as market capitalization plus long term debt less
cash and equivalents) of the six comparable companies. Two market
capitalizations for each comparable company were calculated: current market
capitalization (defined as the number of shares outstanding at the end of the
latest interim period available multiplied by the closing market price per share
as of September 25, 1998) and 12-month average market capitalization (defined as
the number of shares outstanding at the last fiscal year end multiplied by the
average closing price per share for the period September 26, 1997 through
September 25, 1998). The two enterprise values for each comparable company were
converted to multiples of revenues; of EBITDAR; of earnings before interest,
taxes and rent expense ("EBITR"); of net income and of the number of units based
on both historical and projected financial data. An adjusted peer average for
each data set was determined by eliminating the high, low and negative
observations. Valuations were then calculated by applying the Partnership's
results for the year ended December 31, 1997, the twelve months ended June 30,
1998 and the projected period ending December 31, 1998 (based on the
Projections) to arrive at implied values of the Partnership based on a weighted
consideration of each data set. The Projections for fiscal year ended December
31, 1998 reflected revenues of $19,940,345. EBITDAR of $13,601,550, EBITR of
$9,463,217 and net income of $2,862,172. Based on this analysis, RAI&Co. arrived
at a value per Unit ranging from $5.63 to $7.02.
Comparable Acquisition Premium Analysis
RAI&Co. analyzed premiums paid in selected tender offers for cash of the
equity interest in 30 public companies completed or pending between January 1,
1997 and July 31, 1998. RAI&Co. noted that it was difficult to select
transactions that could be used to establish meaningful comparisons. Five of the
30 transactions involved companies in the retirement center, nursing home or
health care REIT industries. The total value of the transactions analyzed ranged
from $1.3 million to $1.2 billion, of which only nine were in the $5 million to
$10 million total value range and none were considered by RAI&Co. to be directly
comparable to the Partnership. RAI&Co. further observed that the range of values
for the various financial measurements had no concentrations, but rather, were
vastly divergent. The offer price per share to book value per share for all
transactions analyzed ranged from .7x to 1,000x. The $5.75 per Unit cash price
to be paid in connection with the Merger produced an offer price per Unit to
book value per Unit of 2.1x based on the June 30, 1998 financials. RAI&Co.
determined that the premiums of these completed or pending transactions in
relation to the market price prior to the date of
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announcement of such transactions ranged from -65.7%% to 106.5% one day prior to
announcement, -23.2% to 106.5% one week prior to announcement and -31.4% to
106.5% four weeks prior to announcement. RAI&Co. noted that the $5.75 per Unit
cash price to be paid in connection with the Merger would result in a premium of
27.8% over the market price of $4.50 per Unit one trading day prior to the date
of announcement of the proposed Merger, and a premium of 24.3% over the market
price of $4.63 one week prior to the date of announcement of the proposed Merger
and a premium of 31.4% over the market price of $4.38 four weeks prior to the
date of announcement of the proposed Merger.
STRUCTURE OF THE MERGER
At the Effective Time, (i) each issued and outstanding Unit, other than
those held by FGI or any of its affiliates, will be cancelled, extinguished and
retired and will be converted into the right to receive $5.75 in cash, without
interest, (ii) each outstanding Unit which is owned by FGI or any of its
affiliates will be and remain a unit of limited partner interest in the
Partnership; (iii) each outstanding partnership interest, general or limited, of
Forum MLP will be cancelled, extinguished and retired, and no payment will be
made thereon; and (iv) the General Partner's general partnership interest in the
Partnership will be and remain a general partnership interest in the
Partnership. The Partnership has been informed by Crestline that, following the
Merger, it intends to retain the Partnership's current management and continue
to manage the Partnership as an ongoing business in the same general manner as
it is now being conducted.
Because FGI is obligated to cause FGI and its affiliates (holding
approximately 93% of the outstanding Units) to consent to the Merger Agreement,
it is assured that the Merger and the Merger Agreement will be approved. It is
anticipated that the Merger will be consummated on March 1, 1999 or as promptly
as practicable thereafter, assuming that the conditions to the Merger set forth
in the Merger Agreement have been satisfied or, if permissible, waived. See
"The Merger Agreement--Conditions to the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
Public Unitholders should be aware that management and certain persons
associated with the General Partner have certain interests which may present
them with actual or potential conflicts of interest in connection with the
Merger.
Crestline is interested in the outcome of the Merger in that, following the
Merger, it and its affiliates would be the sole owners of the Partnership. As
the sole owner, Crestline would benefit from the Partnership's operations. The
Public Unitholders will no longer be owners and therefore will no longer benefit
from the Partnership's operations. As sole owner, Crestline will also bear the
total risk of the Partnership's operations. Crestline also would be able to
consolidate the Partnership's operations more fully with those of its other
owned properties without
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introducing issues with respect to potential conflicts of interest, and to
realize potential operating synergies therefrom.
The General Partner and the senior management of the Partnership have
certain interests that may present them with actual or potential conflicts of
interest. Among these are that (i) the General Partner is controlled by
Crestline, (ii) the current General Partner is expected to remain in its current
role subsequent to the Merger, and (iii) the current senior management of the
Partnership and the General Partner are expected to remain in their positions
following the Merger. The Advisory Committee was advised by separate legal
counsel from that of Host Marriott and its affiliates in connection with the
Merger.
FGI is interested in the outcome of the Merger in that, following the
Merger, FGI will have a better chance of receiving repayment of certain accrued
but unpaid management fees payable by the Partnership. Currently, such accrued
management fees are payable out of the proceeds of sales and refinancings after
payment to the partners of the Partnership of their unreturned capital
contributions and after payment to such partners of a 12% cumulative annual
return on unreturned capital contributions. Upon consummation of the Merger,
the Partnership will no longer be obligated to make payments to the partners of
unreturned capital contributions or of any annual return on such capital
contributions, and accordingly, it will become more likely that FGI will be able
to obtain repayment of accrued management fees payable by the Partnership. See
Annual Report on Form 10-K for the year ended December 31, 1997.
Under the terms of the Merger Agreement, all rights of the members of the
Board, including all of the members of the Advisory Committee, to exculpation
and indemnification in existence as of the date of the Merger Agreement shall
survive the Merger and shall continue in full force and effect in accordance
with their terms. In addition, for three years from and after the Effective
Time, FGI is obligated to use commercially reasonable efforts to maintain
directors' and officers' liability insurance covering the members of the Board
on terms no less favorable than those of the policy in effect prior to the
Effective Time.
In addition, members of the Advisory Committee received compensation from
the General Partner in accordance with preexisting policies for time spent by
such persons in Advisory Committee meetings and discussions pertaining to the
Merger and the Merger Agreement.
RELATIONSHIPS BETWEEN THE PARTIES
Except as set forth in this Consent Solicitation Statement, there are no
past, present or proposed material contracts, arrangements, understandings,
relationships, negotiations or transactions between the Partnership, on the one
hand, and Crestline and its affiliates, on the other hand, concerning a merger,
consolidation or acquisition, a tender offer or other acquisition of securities,
or sale or other transfer of a material amount of assets of the Partnership.
However, in the future, the Partnership's
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management may review additional information about the Partnership and, upon
completion of any such review, may propose or develop additional or new plans or
proposals or may propose the acquisition, disposition or refinancing of assets
or other changes in the Partnership's business, structure, capitalization,
management or distribution policy which they consider to be in the best
interests of the Partnership and its partners.
To the extent that Crestline provides accounting, legal, administrative and
related services to the Partnership and the General Partner, Crestline is
entitled to reimbursement for the fully allocated cost of providing such
services. For fiscal year 1997 and forward the Partnership has made
reimbursement payments to Host Marriott in the amount of approximately $250,000
per annum for such services.
PLANS FOR THE PARTNERSHIP AFTER THE MERGER
On December 29, 1998, Host Marriott distributed the stock of Crestline to
the stockholders of Host Marriott as a taxable dividend (the "Distribution").
Upon consummation of the Distribution, Crestline (instead of Host Marriott)
became the indirect parent of each of the General Partner and the Partnership.
Crestline intends to cause the business and operations of the Partnership
to continue to be conducted by the Partnership substantially as they are
currently being conducted. Crestline will, however, continue to evaluate the
business and operations of the Partnership after the consummation of the Merger
and will continue to take such actions as are deemed appropriate by Crestline
and its affiliates, under the circumstances then existing, to maximize the
profitability of the Partnership.
In 1997, Host Marriott purchased the stock of FGI, the indirect parent of
the Partnership. At that time, the Partnership's properties were managed by MSLS
pursuant to a management agreement that remains in effect as of the date of this
Consent Solicitation Statement. At or around the time of the closing of the
purchase of the FGI stock, Host Marriott proposed a revised management agreement
that would have resulted in, among other things, a reduction in the annual base
management fees payable by the Partnership and a new provision for incentive
management fees. That revised management agreement was presented to and approved
by a committee of the independent members of the Board. However, the Partnership
was unable to obtain the consent of its lender on terms acceptable to the
Partnership and the revised management agreement was never finalized. The
General Partner intends to continue to make efforts to finalize the revised
management agreement on terms acceptable to the General Partner, MSLS and the
Partnership's lender.
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Crestline believes that, if and when the Partnership and MSLS enter into a
revised management agreement on terms acceptable to the Partnership, MSLS and
the Partnership's lender, the aggregate annual management fees (base fees plus
incentive fees) payable by the Partnership could be lower for the first several
years such agreement is in effect compared to the amount of such fees payable
under the existing management agreement. However, if the Partnership's financial
performance exceeds Crestline's current expectations, it is possible that MSLS
would be entitled to incentive management fees, thereby resulting in no material
reduction in the aggregate annual management fees payable by the Partnership.
There is no assurance that the current management agreement will be revised or,
if revised, when such revisions will become effective. Nevertheless, RAI&Co.'s
valuation of the Units was based on the assumption that the revised management
agreement would become effective as of January 1, 1999, and that, as a result,
the Partnership's net income and cash flow would improve prospectively.
CERTAIN EFFECTS OF THE MERGER
Upon consummation of the Merger, all of the Units outstanding immediately
prior to the Effective Time (other than Units held by Crestline and its
affiliates) will be converted into the right to receive $5.75 per Unit in cash,
and the Public Unitholders will cease to have any interest in the Partnership
and will therefore not share in future earnings and growth of the Partnership,
if any. As a result of the Merger, Crestline and its affiliates will hold the
entire equity interest in the Partnership, including the entire interest in the
Partnership's net earnings and book value.
The Units are currently registered under the Exchange Act and traded on the
American Stock Exchange. Because no Units will be publicly held after
consummation of the Merger, the Units will be delisted and will no longer trade
on the American Stock Exchange. Registration of the Units under the Exchange
Act may be terminated upon application of the Partnership to the Commission if
the Units are neither listed on a national securities exchange nor held by more
than 300 holders of record. Termination of registration of the Units under the
Exchange Act would substantially reduce the information required to be furnished
by the Partnership to the Public Unitholders and to the Commission and would
make certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b), the requirement of furnishing a proxy
statement pursuant to Section 14(a) in connection with Unitholder meetings and
the related requirement of forwarding an annual report to Unitholders and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Partnership. Furthermore,
the ability of "affiliates" of the Partnership and persons holding "restricted
securities" of the Partnership to dispose of such securities pursuant to Rule
144 under the Securities Act may be impaired or eliminated. Crestline presently
intends to cause the Partnership to apply for termination of registration of the
Units under the Exchange Act as soon as the requirements for such termination
are met and to take all permitted actions to make the Partnership eligible for
such termination.
Income Tax Consequences
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The following is a brief summary of the material federal income tax rules
applicable to the Merger. The summary is for general information only and does
not discuss all of the federal income tax consequences that may be relevant to a
particular Unitholder or to certain Public Unitholders subject to special
treatment under the federal income tax laws (for example, foreign persons, tax-
exempt entities, life insurance companies or S corporations). The discussion
set forth below is based upon the Internal Revenue Code, regulations and
announcements promulgated thereunder and published rulings and court decisions,
all as in effect on the date hereof and without giving effect to changes to the
federal tax laws, if any, enacted after the date hereof. DUE TO THE INDIVIDUAL
NATURE OF TAX CONSEQUENCES, EACH PUBLIC UNITHOLDER IS URGED TO CONSULT HIS, HER
OR ITS OWN TAX ADVISOR TO DETERMINE THE SPECIFIC FEDERAL INCOME TAX CONSEQUENCES
OF SELLING UNITS IN THE MERGER, AS WELL AS THE EFFECTS OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
GAIN OR LOSS
A Public Unitholder will recognize gain or loss on the sale of Units in the
Merger to the extent of the difference between the amount realized and his, her
or its adjusted tax basis in the Units sold. The amount realized will equal the
amount of cash received plus the Public Unitholder's share of the Partnership's
liabilities (including the Partnership's share of the liabilities of
partnerships in which the Partnership is a partner) (determined under Section
752 of the Internal Revenue Code and the regulations promulgated thereunder).
Generally, the adjusted tax basis of a Public Unitholder's Units will be equal
to the cost of the Units to such Public Unitholder, decreased by the Public
Unitholder's share of Partnership distributions and losses, and increased by the
Public Unitholder's share of Partnership income and Partnership liabilities
(including the Partnership's share of the liabilities of partnerships in which
the Partnership is a partner), as determined under Section 752 of the Internal
Revenue Code and the regulations promulgated thereunder. Set forth below is a
summary of certain information provided to Public Unitholders by the Partnership
that is relevant to the calculation of a Public Unitholder's adjusted tax basis
in its Units. THIS SUMMARY IS PROVIDED FOR GENERAL INFORMATION ONLY, AND IS NOT
A SUBSTITUTE FOR INDIVIDUAL TAX ADVICE. ACCORDINGLY, PUBLIC UNITHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE CORRECT DETERMINATION OF THE
ADJUSTED TAX BASIS OF THEIR UNITS.
Gain or loss realized by a Public Unitholder who has held the Units as
capital assets will be capital gain or loss and will be long-term capital gain
or loss if such Units have been held for more than one year. Capital losses
generally are deductible only to the extent of capital gains plus, in the case
of non-corporate Unitholders, up to $3,000 of ordinary income. Capital losses
realized upon the sale of Units may be utilized to offset capital gains from
other sources and may be carried forward, subject to applicable limitations.
EFFECT OF PASSIVE LOSS RULES
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Upon the conversion by a Public Unitholder of all his Units in the Merger,
any net losses of the Partnership that were suspended under the passive loss
rules of Section 469 of the Internal Revenue Code may be used to offset income
and gain on such sale. If a Public Unitholder's suspended Partnership losses
exceed the gain on the sale of Units, such loss may be applied against any
income or gain of the Partnership for the current year and thereafter may be
applied against any other passive activity income of such Public Unitholder in
the current year. Thereafter, any excess suspended losses from prior years will
be available to offset income and gain from any other sources.
INCOME TAX CONSEQUENCES OF THE MERGER ON THE PARTNERSHIP AND ITS AFFILIATES
Pursuant to Internal Revenue Code Section 731(b), the cancellation of all
Units not currently held by FGI or its affiliates in exchange for the right to
receive $5.75 per Unit will not be a taxable event to the Partnership. In
addition, the Merger and retirement of the Units will not be a taxable event to
the continuing partners of the Partnership, FGI or its affiliates. Also,
pursuant to Internal Revenue Code Sections 708, 721, 731(a) and 731(b), the
Merger of Forum MLP and the Partnership will not be a taxable event to the
Partnership, its continuing partners, or any of their affiliates.
ACCOUNTING TREATMENT OF THE MERGER
The acquisition by FGI of the Units will be accounted for as an acquisition
of minority ownership interests of a subsidiary in accordance with the purchase
method of accounting.
REGULATORY APPROVALS AND FILINGS
The Partnership is not aware of any licenses or regulatory permits that
would be material to the business of the Partnership, taken as a whole, and that
might be adversely affected by the Merger as contemplated herein, except for the
filings with the State of Delaware necessary to effectuate the Merger. Except
for the Majority Consent Requirement, no filings, approvals or other actions by
or with any domestic (federal or state), foreign governmental, administrative or
regulatory agency are required prior to the Merger as contemplated herein.
Should any such approval or other action be required, it is the Partnership's
present intention to seek such approval or action. There can be no assurance
that any such additional approval or action, if needed, would be obtained
without substantial conditions or that adverse consequences might not result to
the Partnership's business, or that certain parts of the Partnership's business
might not have to be disposed of or held separate or other substantial
conditions complied with in order to obtain such approval or action or in the
event that such approvals were not obtained or such actions were not taken, any
of which would cause FGI to elect to terminate the Merger, without conversion of
the Units thereunder. The Merger was structured to preserve the current
licensing of the
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Partnership required under state laws applicable to the ownership and operation
of senior living retirement communities.
The Related Persons have filed with the Commission a Schedule 13E-3
pursuant to the Exchange Act, furnishing certain information with respect to the
Merger in addition to the information contained in this Consent Solicitation
Statement, and they may file amendments to the Schedule 13E-3. As permitted by
the rules and regulations of the Commission, this Consent Solicitation Statement
omits certain information contained in the Schedule 13E-3. For further
information pertaining to the Partnership, reference is made to the Schedule
13E-3 and the exhibits and amendments thereto. See "Available Information."
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THE CONSENT SOLICITATION
CONSENT PROCEDURES
This Consent Solicitation Statement and the accompanying consent form are
first being mailed to Limited Partners on or about ____________ ___, 1999.
Limited Partners are entitled to one consent right for each Unit held of record
at the close of business on _________ __, 1999 (the "Record Date"), with respect
to the Merger Agreement and the Merger.
Pursuant to the Delaware Revised Uniform Limited Partnership Act (the
"Delaware Act"), approval of the Merger Agreement will require the consent of
the holders of a majority of the aggregate voting power of all Limited Partners
entitled to vote thereon or consent thereto, including the Units held by FGI and
its affiliates. FGI is obligated under the terms of the Merger Agreement to
cause FGI and its affiliates, who hold approximately 93% of the outstanding
Units, to consent to approval of the Merger Agreement and the Merger. As a
result, approval of the Merger and the Merger Agreement by the Unitholders is
assured, regardless of whether the Public Unitholders consent to the Merger
Agreement and the Merger. Although neither Delaware law nor the Partnership
Agreement requires that the Merger Agreement provide the Public Unitholders with
appraisal rights, such rights have in fact been provided to the Public
Unitholders pursuant to the terms of the Merger Agreement. See "The Merger
Agreement Appraisal Rights." Such appraisal rights may be exercised by Public
Unitholders as an alternative to consenting to the Merger and receiving the
Merger Consideration.
SOLICITATION OF CONSENTS
Solicitation of consents from the Unitholders will be made by the General
Partner and will be undertaken principally by use of the United States Postal
Service. The cost of any such solicitation, including but not limited to the
cost of preparing and mailing consent materials and returning the consent form
will be borne by FGI.
APPRAISAL RIGHTS
Under the Delaware Act, the only appraisal rights available to limited
partners of a Delaware limited partnership are those provided pursuant to the
applicable limited partnership agreement or an agreement of merger or
consolidation. The Partnership Agreement does not provide appraisal rights to
the Public Unitholders. The Merger Agreement, however, provides that the Public
Unitholders shall have, in respect of the Units held by such Public Unitholders,
the appraisal rights provided for in Section 262 of the Delaware Act to the same
extent such rights would be available to a stockholder of a corporation
organized under the laws of the State of Delaware in the event of the merger of
the corporation in which such stockholder owns stock.
39
<PAGE>
In order to exercise such appraisal rights, a Public Unitholder must
satisfy certain conditions. The full text of Section 262 of the Delaware Act is
attached hereto as Annex C, and any holder of Units desiring to exercise
dissenters' rights of appraisal in connection with the Merger should consult
with legal counsel prior to taking any action in order to ensure that the Public
Unitholder complies with the applicable statutory provision. Failure to take
any of the steps required under Section 262 of the Delaware Act on a timely
basis may result in the loss of appraisal rights. See "The Merger Agreement
Appraisal Rights" and Annex C to this Consent Solicitation Statement.
The following is a brief summary of the conditions that a Public Unitholder
must satisfy in order to exercise appraisal rights with respect to the Units
held by such Public Unitholder as of the Record Date. The following is
qualified in its entirety by reference to the full text of Section 262 of the
Delaware Act:
. The Public Unitholder must deliver to the Partnership a written demand
for appraisal before _____ p.m., Eastern Standard Time, ______________
__, 1999 (twenty (20) calendar days after the mailing of this Consent
Solicitation Statement);
. The Public Unitholder must have continuously held its Units from the date
the appraisal demand is made through the Effective Date of the
Merger;
. The Public Unitholder must not have consented to the Merger in writing;
and
. The Public Unitholder must file a petition in the Delaware Court of
Chancery within 120 days of the Effective Time demanding a determination
of the "fair value" of the Units.
A demand for appraisal should be executed by or on behalf of the Public
Unitholder of record, fully and correctly, and should specify the Public
Unitholder's name and mailing address, the number of Units owned and that such
Public Unitholder intends thereby to demand appraisal of such Public
Unitholder's Units. If the Units are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, such demand must be executed by the
fiduciary. If the Units are owned of record by more than one person, as in a
joint tenancy or tenancy in common, such demand must be executed by all record
owners. An authorized agent, including an agent for two or more record owners,
may execute the demand for appraisal for a Public Unitholder of record; however,
the agent must identify the record owner and expressly disclose the fact that,
in exercising the demand, such person is acting as agent for the owner.
A record owner who holds Units as a nominee for more than one beneficial
owner may exercise appraisal rights with respect to the Units held for all or
less than all of such beneficial owners as to which such person is the record
owner. In
40
<PAGE>
such case, the written demand should set forth the number of Units covered by
such demand. Where the number of Units is not expressly stated, a demand will be
presumed to cover all Units outstanding in the name of the record owner making
such demand. Beneficial owners who are not record owners and who intend to
exercise appraisal rights should instruct their record owners to comply strictly
with the statutory requirements with respect to the exercise of appraisal
rights.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, which is attached as Annex A to this Consent Solicitation Statement.
Such summary is qualified in its entirety by reference to the Merger Agreement.
GENERAL
The Merger Agreement provides that, at the Effective Time, Forum MLP will
be merged with and into the Partnership. Following the Merger, the Partnership
will continue as the surviving partnership and the separate existence of Forum
MLP will cease. In the Merger, (i) each issued and outstanding Unit, other than
those held by FGI or any direct or indirect subsidiary of FGI, will be
cancelled, extinguished and retired and will be converted into the right to
receive $5.75 in cash, without interest, (ii) each outstanding Unit which is
owned by FGI or any of its affiliates will be and remain a unit of limited
partnership interest in the surviving partnership; (iii) each outstanding
partnership interest, general or limited, of Forum MLP will be cancelled,
extinguished and retired, and no payment will be made thereon; and (iv) the
General Partner's general partnership interest in the Partnership will be and
remain a general partnership interest in the surviving partnership.
EXPENSES OF THE MERGER
Except as otherwise provided in the Merger Agreement with respect to
indemnification, FGI has agreed to bear the expenses of each party in connection
with the transactions contemplated by the Merger Agreement. Accordingly, the
Partnership will not be obligated to pay any of the expenses of the parties to
the Merger Agreement in connection with the transactions contemplated thereby.
It is estimated that the expenses incurred in connection with the Merger
will be approximately as set forth below:
<TABLE>
<S> <C>
Investment banking fees and expenses (1)... $ 82,500
Legal fees and expenses (2)................ $250,000
Filing fees (3)............................ $ 47,000
Printing and mailing fees.................. $ 10,000
Miscellaneous (4).......................... $574,000
========
Total................................ $963,500
========
</TABLE>
41
<PAGE>
- --------------------
(1) Includes the fees and estimated expenses of RAI&Co. (see "Special
Factors Opinion of Financial Advisor").
(2) Includes the fees and estimated expenses of counsel to the Advisory
Committee, counsel to the Partnership and counsel to Crestline.
(3) Includes $45,000 filing fee payable in accordance with the Hart-Scott-
Rodino Antitrust Improvements Act of 1976.
(4) Includes (i) approximately $566,000 in additional consideration that
Host Marriott is obligated to pay to the settling Limited Partners pursuant to
the Settlement Agreement and (ii) approximately $8,000 in fees and expenses
payable to the payment agent for processing transmittals and payments to
Unitholders.
EFFECTIVE TIME
The Merger will become effective at the time of the filing by the
Partnership with the Secretary of State of the State of Delaware of a
certificate of merger in accordance with the Delaware Act. It is presently
anticipated that such filing will be made on or around March 1, 1999. Such
filing will be made, however, only upon satisfaction or waiver, where
permissible, of the conditions set forth in the Merger Agreement. See "--
Conditions to the Merger."
FINANCING OF THE MERGER
Approximately $7,100,000 will be required to consummate the Merger and to
pay related fees and expenses. The necessary funds will be provided by FGI,
which will obtain such funds from Crestline's funds on hand. Crestline has
sufficient funds on hand to provide the approximately $7,100,000 required to
consummate the Merger.
CONDITIONS TO THE MERGER
The respective obligations of the Partnership and FGI to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions: (a) the Merger Agreement and the Merger shall have been
approved and adopted by a majority of the aggregate voting power of all Units,
including Units held by FGI and its affiliates (a "Majority Interest") in the
manner required by the Delaware Act and the Partnership Agreement; (b) all
consents and approvals prescribed by law which are necessary to the consummation
of the transactions contemplated by the Merger Agreement shall have been
obtained, and all statutory waiting periods in respect thereof shall have
expired; (c) all applicable waiting periods (and any extensions thereof) under
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<PAGE>
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have
expired or otherwise been terminated; and (d) no preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a Governmental Entity nor any statute, rule, regulation or
executive order promulgated or enacted by any Governmental Entity shall be in
effect, which would make the acquisition or holding by FGI, its subsidiaries or
affiliates of the Units illegal or otherwise prevent the consummation of the
Merger or make the consummation of the Merger illegal.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned
notwithstanding approval thereof by the General Partner and holders of a
Majority Interest, at any time prior to the Effective Time, (a) if either FGI or
the Partnership concludes in good faith that any of the conditions to the Merger
specified in the Merger Agreement cannot be waived or satisfied in a timely
manner; (b) by the mutual agreement of FGI and the Partnership provided such
termination is authorized by the members of the Advisory Committee; or (c) by
either the Partnership (with the consent of the members of the Advisory
Committee) or FGI (without the consent of the members of the Advisory
Committee): (i) if the Effective Time has not occurred prior to March 31, 1999;
provided that the party seeking to terminate the Merger Agreement is not in
breach in any material respect of its obligations under the Merger Agreement in
any manner that shall have proximately contributed to the failure to consummate
the Merger on or before such date; or (ii) if any court of competent
jurisdiction or other Governmental Entity shall have issued an order, decree or
ruling, or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and non-appealable.
PAYMENT FOR UNITS
From and after the Effective Time, a bank or trust company designated by
FGI at or prior to the Effective Time and reasonably satisfactory to the
Advisory Committee (the "Payment Agent") shall act as payment agent in effecting
the payment of the Merger Consideration per Unit. At or before the Effective
Time, FGI or Forum MLP shall deposit with the Payment Agent the aggregate Merger
Consideration in trust for the benefit of the Public Unitholders. Promptly after
the Effective Time, the Payment Agent shall mail to each record holder of Units
a form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to such Unit shall pass, only upon delivery
of such Units to the Payment Agent) and instructions for use in surrendering
such Units and receiving the Merger Consideration for each Unit previously
represented thereby. Upon the surrender of each such Depository Receipt and the
payment by the Payment Agent of the Merger Consideration in exchange therefor,
such Depository Receipt shall be canceled. Until so surrendered and exchanged,
each such Depository Receipt held by any Unitholders shall represent solely the
right to receive $5.75 multiplied by the number of Units represented by such
Depository Receipt, and subject to the appraisal rights described in the Merger
Agreement, the holder thereof shall have no rights whatsoever in the
Partnership. Upon the surrender of such outstanding Depository Receipt, the
holder shall receive such $5.75 per Unit, without any interest
43
<PAGE>
thereon. If any cash is to be paid to a name other than the name in which the
Depository Receipt surrendered in exchange therefor is registered, it shall be a
condition to such payment that the person requesting such payment shall pay to
the Payment Agent any transfer or other taxes required by reason of the payment
of such cash to a name other than that of the registered holder of the
Depository Receipt surrendered, or such person shall establish to the
satisfaction of the Payment Agent that such tax has been paid or is not
applicable.
Six (6) months after the Effective Time, the Partnership shall be entitled
to the return of all amounts then held by the Payment Agent (including earnings
thereon), and the Payment Agent's duties shall terminate. Thereafter, any holder
of a Depository Receipt shall look only to the Partnership (subject to
applicable abandoned property, escheat and similar laws) as a general creditor
to receive in exchange therefor the Merger Consideration, without any interest
thereon. As of the Effective Time, each Public Unitholder shall be deemed to
have withdrawn as a limited partner and shall have no further interest in the
Partnership or any allocations or distributions of income, property or
otherwise, other than the right to receive the $5.75 per Unit in cash as
provided in the Merger Agreement.
APPRAISAL RIGHTS
Under the Delaware Act, limited partners of a Delaware limited partnership
are entitled to appraisal rights only if such rights are provided by the
applicable agreement of limited partnership or by an agreement of merger or
consolidation. The Partnership Agreement of the Partnership does not provide
appraisal rights to the Public Unitholders. The Merger Agreement, however,
provides that the Public Unitholders shall have, in respect of the Units held by
such Public Unitholders, the appraisal rights contemplated in Section 17-212 of
the Delaware Act to the same extent as would be available to a stockholder of a
corporation organized under the laws of the State of Delaware.
Under the DGCL, a stockholder of a corporation that is the subject of a
merger or consolidation has the right under certain circumstances to demand
appraisal of, and obtain the fair value of, such stockholder's shares (exclusive
of any value arising from the accomplishment or expectation of the merger or
consolidation) if the stockholder complies with the provisions of Section 262 of
the DGCL ("Appraisal Rights"). Among other requirements, a stockholder
exercising Appraisal Rights must continue to hold the subject shares through the
effective date of the merger or consolidation, and must not vote in favor of (or
consent to) the merger or consolidation.
Under the terms of the Merger Agreement, the Public Unitholders are
entitled to Appraisal Rights with respect to the Units owned by such Public
Unitholders as of the Record Date, provided that such Public Unitholders
strictly comply with the statutory procedures set forth in Section 262 of the
DGCL with respect to the perfection of Appraisal Rights. Public Unitholders
considering seeking appraisal should be aware that, if the Merger is
consummated, the fair value of their Units determined under Section 262
44
<PAGE>
could be more, the same, or less than the consideration that they would be
entitled to receive pursuant to the Merger Agreement if they do not demand
appraisal of Units.
The following is intended as a brief summary of certain provisions of the
statutory procedures required to be followed by Public Unitholders in order to
dissent from the Merger Agreement and perfect Appraisal Rights as if they were
the stockholders in a Delaware corporation under the DGCL. This summary,
however, is not a complete statement of all applicable requirements and is
qualified in its entirety by reference to Section 262 of the DGCL, the text of
which is set forth in Annex C to this Consent Solicitation Statement.
If any Public Unitholder elects to demand appraisal of such Public
Unitholder's Units, the Public Unitholder must satisfy each of the following
conditions:
(i) the Public Unitholder must deliver to the Partnership a written demand
for appraisal of any Units held by such Public Unitholder as of the Record Date
before the expiration of the twenty (20) calendar day period from and after the
mailing of the Consent Solicitation Statement. The written demand for appraisal
must be in addition to and separate from the Consent Form pursuant to which the
Public Unitholder abstains from or indicates that it does not consent to the
Merger Agreement. Withholding consent to or failing to consent to the Merger
Agreement by itself does not constitute a written demand for appraisal; and
(ii) the Public Unitholder must not consent to the Merger Agreement (an
abstention or withholding of consent will satisfy this requirement, but an
affirmative consent to the Merger Agreement will constitute a waiver of the
Unitholder's Appraisal Rights in respect of such Units and will nullify any
previously filed written demand for appraisal).
(iii) Written demands for appraisal must be delivered by mail (certified
mail, return receipt requested, is recommended) or overnight courier to: Forum
Retirement Partners L.P., 10400 Fernwood Road, Bethesda, Maryland 20817,
Attention: Elizabeth R. Lieberman, Esq., before the expiration of the twenty
(20) calendar day period from and after the mailing of the Consent Solicitation
Statement, and should be executed by, or on behalf of, the holder of record of
the Units. The demand must reasonably inform the Partnership of the identity of
the Public Unitholder and the intention of the Public Unitholder to demand
appraisal of such Public Unitholder's Units. In addition, a holder of Units
wishing to exercise Appraisal Rights must hold such Units of record on the date
the written demand for appraisal is made and must hold such Units continuously
through the Effective Date of the Merger.
(iv) A written demand for appraisal must be made by or in the name of the
registered Public Unitholder, fully and correctly, as the Unitholder's name
appears on such Depository Receipt and cannot be made by the beneficial owner if
the beneficial owner does not also hold the Units. The beneficial holder must,
in such cases, have the registered owner submit the required demand in respect
of such Units. If Units are
45
<PAGE>
owned of record in a fiduciary capacity, such as trustee, guardian or custodian,
execution of a demand for appraisal should be made in such a capacity, and if
the Units are owned of record by more than one person, as in joint tenancy or
tenancy in common, the demand should be executed by or for all joint owners. An
authorized agent, including one for two or more joint owners, may execute the
demand for appraisal for a Unitholder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, he or she is a nominee for others. A record holder, such
as a broker, who holds shares as nominee for several beneficial owners may
exercise his or her rights of appraisal with respect to the Units held of one or
more beneficial owners, while not exercising this right for other beneficial
owners. In such case, the written demand should state the number of Units as to
which appraisal is sought. Where no number of Units is expressly mentioned, the
demand will be presumed to cover all Units held in the name of such record
owner.
If any Public Unitholder fails to comply with any of the above conditions
and the Merger becomes effective, the Public Unitholder will be entitled to
receive the Merger Consideration, but will have no Appraisal Rights with respect
to such Public Unitholder's Units.
Within ten days after the Effective Date, the continuing entity, the
Partnership, must provide notice of the date upon which the Merger became
effective to each Unitholder who so filed a written demand for appraisal and who
did not consent to the Merger Agreement. Within 120 days after the Effective
Date, but not thereafter, either the Partnership or any Public Unitholder who
has complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery (the "Court") demanding a determination of the fair
value of the Units held by all Public Unitholders entitled to appraisal. It is
not expected that Partnership would file such a petition in the event there are
dissenting Public Unitholders. Inasmuch as the continuing entity has no
obligation to file such a petition, the failure of a Public Unitholder to do so
within the period specified could nullify such Public Unitholder's previously
written demand for appraisal.
At any time within 60 days after the Effective Date of the Merger, a Public
Unitholder has the right to withdraw the demand and to accept the payment of the
consideration provided for in the Merger Agreement. If a petition for appraisal
is duly filed by a Public Unitholder and a copy thereof is delivered to the
continuing entity, the continuing entity will then be obligated within 20 days
thereafter to provide the Court with a duly verified list containing the names
and addresses of all Unitholders who have demanded an appraisal of their Units.
After notice to such Public Unitholders, the Court is empowered to conduct a
hearing upon the petition, to determine those Public Unitholders who have
complied with Section 262 and who have become entitled to Appraisal Rights. The
Court may require the Public Unitholders who have demanded payment for their
Units to submit their Depository Receipts to the Register in Chancery for
notation thereon of the pendency of the appraisal proceeding; and if any Public
Unitholder fails to comply with such direction, the Court may dismiss the
proceeding as to such Public Unitholder. After determination of the Public
Unitholders entitled to an
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<PAGE>
appraisal, the Court will appraise the Units, determining their fair value
exclusive of any element of value arising from the accomplishment or expectation
of the Merger. In determining fair value, the Court is required to take into
account all relevant factors. When the value is so determined, the Court will
direct the payment by the continuing entity of such value, with interest thereon
accrued during the pendency of the proceeding if the Court so determines, to the
Public Unitholders entitled to receive the same, upon surrender to the
continuing entity by such holders of the certificates representing such Units.
Public Unitholders considering seeking appraisal should be aware that, if
the Merger is consummated, the fair value of their Units determined under
Section 262 could be more, the same, or less than the consideration that they
would be entitled to receive pursuant to the Merger Agreement if they do not
demand appraisal of Units, and that investment banking opinions as to fairness
from a financial point of view are not necessarily opinions as to fair value
under Section 262. Costs of the appraisal proceeding may be imposed upon the
parties thereto (i.e., the Partnership and the Public Unitholders participating
in the appraisal proceeding) by the Court as the Court deems equitable in the
circumstances. Upon the application of a Public Unitholder, the Court may order
all or a portion of the expenses incurred by any Public Unitholder in connection
with the appraisal proceeding, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts, to be charged pro rata
against the value of all Units entitled to Appraisal Rights.
Any Public Unitholder who demands Appraisal Rights will not, after the
Effective Date, be entitled to vote Units subject to such demand for any purpose
or to receive payments of dividends or any other distribution with respect to
such Units (other than with respect to payment as of a record date prior to the
Effective Date) or to receive the consideration provided for in the Merger
Agreement; however, if no petition for appraisal is filed within 120 days after
the Effective Date, or if such Unitholder delivers a written withdrawal of such
Public Unitholder's demand for appraisal and an acceptance of the Merger, either
within 60 days after the Effective Date, or thereafter with the written approval
of the continuing entity, then the right of such Public Unitholder to appraisal
will cease and such Public Unitholder will be entitled to receive the
consideration provided for in the Merger Agreement without interest.
Failure to follow the steps required by Section 262 for perfecting
Appraisal Rights may result in the loss of such rights. In view of the
complexity of Section 262, Public Unitholders of the Company who are considering
dissenting from the Merger Agreement should consult their legal advisors and
should see Annex C to the Consent Solicitation Statement.
THE PARTNERSHIP
FORWARD-LOOKING STATEMENTS
Certain matters discussed in the Partnership section are forward-looking
statements and as such
47
<PAGE>
may involve known and unknown risks, uncertainties, and other factors, which may
cause the actual results, performance or achievements of the Partnership to be
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Although the Partnership believes
the expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
attained. These risks are detailed from time to time in the Partnership's
filings with the Securities and Exchange Commission. The Partnership undertakes
no obligation to publicly release the result of any revisions to these forward-
looking statements that may be made to reflect any future events or
circumstances.
BUSINESS
The Partnership is a Delaware limited partnership that was formed in 1986
to own retirement communities originally developed or acquired by FGI. As of
October 31, 1998, the Partnership (through an operating limited partnership in
which the Partnership is the 99% limited partner and the General Partner is the
1% general partner) owned nine upscale senior living properties with 1,724
units. The General Partner, a wholly-owned subsidiary of FGI, is the general
partner of the Partnership and owns a one percent interest in the Partnership
and a one percent partnership interest in a subsidiary operating partnership in
which the Partnership owns a ninety-nine percent limited partnership interest.
The General Partner's interest in the subsidiary operating partnership is
reflected in the statements of operations as a reduction of the income or loss
of the Partnership. FGI beneficially owns approximately 93% of the outstanding
Units.
On June 21, 1997, Crestline (formerly HMC Senior Communities, Inc.),
formerly a wholly-owned subsidiary of Host Marriott, acquired all of the
outstanding stock of FGI from MSLS, a subsidiary of Marriott International, Inc.
In connection with the acquisition, FGI assigned to MSLS its interest as manager
under a long-term management agreement (the "Management Agreement") for the nine
senior living communities owned by the Partnership. FGI is a direct wholly-owned
subsidiary of Crestline.
On April 16, 1998, the Board of Directors of Host Marriott approved a plan
to reorganize Host Marriott's business by spinning off its senior living
business by distributing the stock of Crestline to the Host Marriott
stockholders as a taxable dividend. The Distribution is part of a series of
transactions pursuant to which Host Marriott converted into a real estate
investment trust for federal income tax purposes. As part of the REIT
Conversion, Host Marriott contributed its hotels and certain other assets and
liabilities to a newly formed Delaware limited partnership, Host Marriott, L.P.,
whose sole general partner will be the REIT. In addition to its other lines of
business, Crestline will continue to lease hotels from the REIT.
Crestline and its subsidiaries are engaged in the business of owning senior
living communities,
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leasing and sub-leasing hotels from the REIT and asset management of hotels.
Upon consummation of the Distribution, Crestline became a separate publicly
traded corporation listed on the New York Stock Exchange.
The REIT Conversion and Distribution did not have a significant impact on
the operations of the Partnership.
The Partnership has an ongoing expansion program related to almost all of
its communities in an effort to further improve the Partnership's results of
operations. The expansions are designed to add capacity to and/or modify the
uses of existing facilities in order to increase earnings without incurring
substantial land acquisition and common area build-out costs. Certain expansions
will require additional regulatory approvals. The expansion program consists of
eleven separate projects at eight communities expected to increase the total
number of units by 280, at an estimated capital cost of $22 million. Seven
expansion projects have been completed increasing the total number of units by
119 at a total cost of $7.9 million. Two expansion projects currently under
construction are expected to increase the total number of units by an additional
74 units at a total cost of $6.2 million; one of these projects is expected to
be completed in the first quarter of 1999 and the other project is expected to
be completed in the fourth quarter of 1999. The two remaining expansion projects
and a portion of one of the completed expansion projects are under going a
feasibility analysis. As a result of increased construction costs and
deteriorating market conditions, the Partnership may determine that it would not
be economically feasible to proceed with these remaining expansion projects.
The Partnership is financing and intends to continue to finance this
expansion program from the Partnership's cash flow from operations. If cash flow
from operations is insufficient to complete future expansions on a timely basis,
the expansion may be delayed, reduced in scope or discontinued. The terms of the
Partnership's current loan documents restrict the Partnership from incurring
additional third-party financing (other than $1 million of equipment financing)
and prohibit the imposition of liens on the Partnership's assets. There can be
no assurance that a waiver can be obtained from the lender to permit any third
party financing, or whether, when and on what terms, any such financing may be
available. As a result of the capital required to fund the expansion program,
the Partnership does not expect to make distributions to limited partners for
the foreseeable future.
PROPERTIES
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<PAGE>
The Partnership (through an operating limited partnership in which the
Partnership is the 99% limited partner and the General Partner is the 1% general
partner) owns nine senior living communities with 1,724 units in Delaware,
Florida, New Mexico, South Carolina and Texas (collectively, the "Communities").
In connection with the acquisition of FGI by Crestline, FGI assigned to MSLS its
interest as manager under a long-term management agreement for Communities.
Seven of the nine Communities consist of independent living, assisted
living and nursing components. The remaining two Communities provide assisted
living and nursing components only.
Independent living components, which represent 44% of the Partnership's
senior living units, contain a variety of accommodations, together with
amenities such as dining facilities, lounges, and game and craft rooms. All
residents of the independent living components are provided security, meals,
housekeeping, scheduled transportation and each independent living unit is
equipped with an emergency call system to assist with emergency situations. The
independent living components of the Communities consist of apartments and, in
the case of Foulk Manor North and Shipley Manor, villas. Each resident enters
into a residency agreement that may be terminated by the resident, upon a short
notice period. Although there can be no assurance that available independent
living units will be reoccupied as residency agreements expire or are
terminated, since 1988 at least 80% of the residents of the apartments and
villas have renewed their residency agreements from year to year.
Assisted living components, which represent 19% of the Partnership's senior
living units, provide a supportive environment that encourages independent
living. Residents have private apartments, eat meals in a separate dining room,
and are provided the added services of scheduled activities, housekeeping and
linen service, preventive health surveillance, periodic health monitoring,
security and transportation services, assistance with activities of daily
living, and emergency care. Certain of the Communities also provide personal
assistance with Alzheimer's disease or other forms of dementia.
Nursing components, which represent 37% of the Partnership's senior living
units, provide residents a full range of nursing care. Residents have private or
semiprivate rooms, and share communal dining and social facilities. In most
instances each resident of the independent living component of Community is
entitled to priority admission in the assisted living or nursing component.
Some Communities also provide ancillary services, including physical,
occupational and speech and learning therapy, respite care and adult daycare
centers. All of the Communities are managed by MSLS under the Management
Agreements. The average age of the Communities is 18 years.
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The following table indicates the name, location and current capacity for
each Community:
CAPACITY
<TABLE>
<CAPTION>
Independent Assisted
Living Living Nursing Total
Name And Location Units Units Units Units
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Forum at Lincoln Heights 151 30 60 241
San Antonio, Texas
Foulk Manor North 58 11 46 115
Wilmington, Delaware
Foulk Manor South -- 75 31 106
Wilmington, Delaware
Millcroft 62 26 110 198
Newark, Delaware
The Montebello on Academy 114 35 60 209
Albuquerque, New Mexico
The Montevista at Coronado 126 15 110 251
El Paso, Texas
Myrtle Beach Manor -- 60 104 164
Myrtle Beach, South Carolina
The Park Summit of Coral Springs 181 65 35 281
Coral Springs, Florida
Shipley Manor 62 15 82 159
Wilmington, Delaware
------------------------------------
TOTAL UNITS 754 332 638 1,724
------------------------------------
</TABLE>
The overall average occupancy rate for the Communities for fiscal year 1997
and the nine months ended September 30, 1998 was 92.8% and 94.0% respectively.
The degree of utilization of each facility is dependent on many factors.
Occupancy rates may be adversely affected by the opening of newly developed
facilities and the expansion or renovation of competing facilities. The
expansion program of the Communities may also adversely impact occupancy during
the development and lease-up process, as was the case during fiscal 1997 and the
nine months ended September 30, 1998 at certain of these properties.
51
<PAGE>
MORTGAGES
On December 28, 1993 FRP Financing Limited, L.P., a subsidiary of the
Partnership, entered into a loan agreement with Nomura Asset Capital Corporation
("Nomura") pursuant to which Nomura provided approximately $50,707,000 in new
financing (the "Nomura Loan"). The proceeds of the Nomura Loan were used to
prepay the remaining balances of certain of the Partnership bank debt scheduled
to mature on December 31, 1993 and to prepay the Partnership's split coupon
first mortgage notes due July 1, 1996, to pay fees and expenses related to the
financing and to fund reserves.
The Nomura Loan requires monthly payments of principal (based on a 20-year
amortization) and interest at 9.93% per annum to maturity on January 1, 2001.
The loan agreement prohibited prepayment for the first three years of the loan
term and requires payment of a yield maintenance premium, as defined, if prepaid
thereafter. Additional principal payments are required if the debt service
coverage ratio, as defined, is below specified levels. The Nomura Loan is
secured by first priority mortgages on the Partnership's Communities and by
security interests in substantially all of the Partnership's other assets. The
principal amount outstanding under the Nomura Loan at September 30, 1998 was
$45.9 million.
SOURCES OF PAYMENT
The independent and assisted living components of the Communities receive
direct payment for resident occupancy solely on a private pay basis. The nursing
components of the Communities receive payment for resident care directly on a
private pay basis, including payment from private health insurance, and from
governmental reimbursement programs such as the federal Medicare program for
certain elderly and disabled residents, and state Medicaid programs for certain
financially qualified residents.
52
<PAGE>
The following table indicates the approximate percentages of operating
revenues for each of the last five years derived by the Partnership from private
sources, and from Medicare and Medicaid:
<TABLE>
<CAPTION>
INDEPENDENT AND ASSISTED LIVING COMPONENTS
------------------------------------------
SOURCE 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Private 100% 100% 100% 100% 100%
Medicare/Medicaid -- -- -- -- --
----------------------------------------------------------
Total 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
NURSING COMPONENTS
------------------
SOURCE 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Private 55% 61% 65% 65% 69%
Medicare/Medicaid 45% 39% 35% 35% 31%
----------------------------------------------------------
Total 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
TOTAL
-----
SOURCE 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Private 75% 79% 82% 82% 85%
Medicare/Medicaid 25% 21% 18% 18% 15%
---------------------------------------------------------
Total 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
Most private insurance carriers reimburse their policyholders, or make
direct payment to facilities, for covered services at rates established by the
facilities. Where applicable, the resident is responsible for any difference
between the insurance proceeds and the total charges. In certain states, Blue
Cross plans pay for covered services at rates negotiated with facilities. In
other states, Blue Cross plans are administered under contracts with facilities
providing for payment under formulae based on the cost of services. The Medicare
program also make payments under a cost-based reimbursement formula. Under the
Medicaid program, each state is responsible for developing and administering its
own reimbursement formula.
The Balanced Budget Act of 1997 switches Medicare's retrospective cost-
based reimbursement to a prospective payment system (PPS). The current
retrospective cost-based reimbursement system allows providers to be reimbursed
for reasonable costs, up to certain limits, incurred in providing services.
Under PPS, providers will be paid based on a fixed Federal payment rate. The
implementation of PPS will begin for cost reporting periods beginning after July
1, 1998 and will be phased in over a four-year period. The Partnership is still
evaluating the potential impact of PPS to its communities, but it does not
believe it will have a material impact on its operating results.
53
<PAGE>
Within the statutory framework of the Medicare and Medicaid programs, there
are substantial areas subject to administrative rulings, interpretations and
discretion which affect payments made under those programs. In addition, the
federal and state governments might reduce the funds available under those
programs in the future or require more stringent utilization of healthcare
facilities. Those measures could adversely affect the Partnership's future
revenues and, therefore, the value of the Communities.
In addition, various legislative and industry groups are studying numerous
healthcare issues, including access, delivery, and financing of long-term
healthcare, and at any given time there are numerous federal and state
legislative proposals relating to the funding and reimbursement of healthcare
costs. It is difficult to predict whether these proposals will be adopted or the
form in which they might be adopted, and no assurance can be given that any such
legislation, if adopted, would not have a material effect on the Partnership or
the value of the Communities.
REGULATION AND OTHER FACTORS
Healthcare facility operations are subject to federal, state, and local
government regulations. Facilities are subject to periodic inspection by state
licensing agencies to determine whether the standards necessary for continued
licensure are being maintained. In granting and renewing licenses, the state
agencies consider, among other things, buildings, furniture, and equipment;
qualifications of administrative personnel and staff; quality of care; and
compliance with laws and regulations relating to operation of facilities. State
licensure of a nursing facility is a prerequisite to certification for
participation in the Medicare and Medicaid programs. Requirements for licensure
of assisted living components are generally less comprehensive and stringent
than requirements for licensure of nursing facilities. Most states do not have
licensure requirements for the independent living components of Communities,
except to the extent that such independent living components are associated with
the provision of healthcare services. The Communities are presently in
substantial compliance with all applicable federal, state and local regulations
with respect to licensure requirements. However, because those requirements are
subject to change, there can be no assurance that the Communities will be able
to maintain their licenses upon a change in standards, and future changes in
those standards could necessitate substantial expenditures by the Partnership to
comply therewith.
COMPETITION
The Communities compete with various senior living facilities in each
property's respective geographical market areas. Competing facilities are
operated on a national, regional, and local basis by religious groups and other
nonprofit organizations, as well as by public and private operators, some of
which have substantially greater resources than the Partnership. Some of the
national and regional competitors in the senior living industry are: MSLS,
Manor Care, Sunrise Assisted Living, Care Matrix and Kapson Senior Quarters.
The independent living components of the Communities face
54
<PAGE>
competition from all the various types of residential opportunities available to
the elderly. However, the number of Communities that offer on-premises
healthcare services is limited. The assisted living and nursing components of
the Communities compete with other assisted living and nursing facilities.
Significant competitive factors for attracting residents to the independent
living components of the Communities include price, physical appearance, and
amenities and services offered. Additional competitive factors for attracting
residents to the assisted living and nursing components of the Communities
include quality of care, reputation of the manager, physician and nursing
services available, and family preferences. The Partnership believes that its
Communities rate high in each of these categories, except that its Communities
are generally more expensive than competing facilities.
Moreover, some of the Partnership's present and potential competitors are
significantly larger and have, or may obtain, greater financial resources that
the Partnership. Consequently, there can be no assurance that the Partnership
will not encounter increased competition that could limit its ability to attract
residents or expand its senior living community business in the future.
Moreover, if development of new senior living communities outpaces demand for
those communities in certain markets, such markets may become oversaturated.
Such an oversupply of senior living communities could cause the Communities to
experience decreased occupancy, depressed margins and lower operating results.
OPTION AGREEMENT
Pursuant to an option agreement (the "Option Agreement") entered into at
the time of the Partnership's formation, FGI has the option to purchase, for a
price equal to the appraised fair market value thereof, any Community which the
Partnership determines to sell. Accordingly, consummation of any transaction to
sell any of the Communities would be subject to, among other limitations, the
election of FGI not to exercise such option. Under the Option Agreement, the
Partnership has an option, subject to certain limitations and restrictions, to
purchase up to 15 additional Communities developed by FGI or any wholly owned
(or in certain circumstances partly owned) affiliate of FGI at the lower of the
appraised value of the Community or the sum of 115% of the costs incurred in
connection with development of the Community and an amount equal to net
operating losses incurred between completion and the purchase.
EMPLOYEES
Neither the General Partner nor the Partnership has any employees.
Crestline currently provides the services of certain employees (including the
General Partner's executive officers) to the Partnership and the General
Partner. The Partnership and the General Partner anticipate that each of the
executive officers of the General Partner will generally devote a sufficient
portion of his or her time to the business of the Partnership. However, each of
such executive officers also will devote a significant portion of his or her
time to the business of Crestline and its other affiliates. No officer or
director of the General Partner or employee of Crestline devotes a
55
<PAGE>
significant percentage of time to Partnership matters. To the extent that any
officer, director or employee does devote time to the Partnership, the General
Partner, or Crestline, as applicable, is entitled to reimbursement for the cost
of providing such services. As of October 30, 1998, MSLS had approximately 1,200
employees working on the premises of the Partnership's nine communities pursuant
to the Management Agreement.
LEGAL PROCEEDINGS
On March 25, 1998, the General Partner acquired 1,000,894 Units from The
Russell F. Knapp Revocable Trust and related parties (the "Knapp Trust") for
$4,504,023 pursuant to the terms of a Settlement and Release Agreement (the
"Settlement Agreement") executed to resolve outstanding litigation between the
Knapp Trust, the General Partner and FGI. The Settlement Agreement was executed
on February 4, 1998 (the "Settlement Date") by the Knapp Trust, MSLS, the
General Partner, FGI, and Host Marriott. On February 5, 1998, the United States
District Court for the Southern District of Indiana entered an order approving
dismissal of the Knapp Trust litigation. Under the terms of the Settlement
Agreement, Host Marriott agreed to pay each Unitholder electing to join the
Settlement Agreement (including the Knapp Trust) $4.50 per Unit in exchange for
(i) the transfer of all Units owned by the settling Unitholders, (ii) an
agreement by such settling Unitholders not to purchase additional Units and
(iii) release of all claims asserted in the litigation. The agreement also
provides for the payment of additional consideration (the "Additional
Consideration") to the settling Unitholders, in the event that, within three
years after the date of the Settlement Agreement, Crestline (as successor in
interest to Host Marriott) pays more than $4.50 per Unit for the publicly held
Units pursuant to a tender offer. The Additional Consideration would be equal
to fifty percent (50%) of the amount by which the tender offer price exceeds
$4.50 per Unit, or the base price ("Base Price"); provided, that, (1) the
Additional Consideration shall not exceed $1.25 per Unit and (2) in calculating
the Additional Consideration, the Base Price shall be increased by fifteen
percent per annum calculated from the Settlement Date to the date on which the
Additional Consideration is due. Accordingly, the amount of the Additional
Consideration will decrease over time, amounting to approximately $___________
if, for example, the Merger is consummated on March 1, 1999 and decreasing to
approximately $491,000 if the Merger is consummated on March 31, 1999.
Because of the derivative nature of the allegations contained in the Knapp
Trust litigation and in accordance with the terms of the Settlement Agreement,
Host Marriott invited all holders of Units, in their sole discretion, to
participate in the Settlement Agreement and detailed the requirements for
participation in two notices to Unitholders dated March 27, 1998 and May 6,
1998. Initially, the period within which Unitholders could elect to participate
in the Settlement Agreement was scheduled to expire on April 27, 1998 but was
extended to May 22, 1998. As a result of elections to participate in the
settlement by Unitholders, the General Partner purchased an additional 1,140,901
Units from Unitholders prior to the end of May 1998 for an aggregate
consideration of $5,134,055. These purchases, together with the acquisition
from the Knapp Trust and
56
<PAGE>
related entities, resulted in Host Marriott's beneficial ownership increasing to
14,214,310 Units, or approximately 93% of the 15,285,248 Units outstanding.
On July 22, 1998, Harbor Finance Partners, Ltd., a Public Unitholder, filed
a purported class action suit relating to the merger proposal in the Court of
Chancery of the State of Delaware against Host Marriott, the General Partner,
FGI, HMC Senior Communities, Inc. (predecessor entity to Crestline), the
Partnership, and members of the Board apparently alleging breach of fiduciary
duties to the Unitholders by offering an inadequate price for the Units,
attempting to improperly influence the market price of the Units, and failing to
provide for a mechanism that would establish a fair price for the Units (the
"Delaware Lawsuit"). In the Delaware Lawsuit, Harbor Finance Partners, Ltd. is
seeking certification of a class, an injunction to prevent completion of the
proposed transaction or, in the alternative, rescission of the transaction and
compensatory damages. Crestline believes the Delaware Lawsuit is without merit
and plans to vigorously defend the Delaware Lawsuit.
BENEFICIAL OWNERSHIP OF UNITS AND TRANSACTIONS IN UNITS BY CERTAIN PERSONS
The following table sets forth information as of October 30, 1998 with
respect to persons who are known to the Partnership (based on statements filed
with the Commission pursuant to Section 13(d) or 13(g) of the Exchange Act) to
be the beneficial owner of more than five percent of any class of the
Partnership's voting securities.
<TABLE>
<CAPTION>
Name and address of beneficial owner Amount, Percent and Nature of beneficial
ownership
<S> <C>
Crestline Capital Corporation Indirect Ownership
10400 Fernwood Road 14,214,310 Units
Bethesda, Maryland 20817 92.99%
Forum Group, Inc. Direct and Indirect Ownership
10400 Fernwood Road 14,214,310 Units
Bethesda, Maryland 20817 92.99%
Forum A/H, Inc. Direct Ownership
10400 Fernwood Road 4,505,811 Units
Bethesda, Maryland 20817 29.48%
Forum Retirement, Inc. Direct Ownership
10400 Fernwood Road 2,141,795
Bethesda, Maryland 20817 14.01%
</TABLE>
57
<PAGE>
None of the Related Persons or their respective affiliates, officers or
directors has purchased, transferred or sold any Units within the past 60 days.
For certain information concerning the directors and executive officers of
the Related Persons, see Schedule 1 to this Consent Solicitation Statement.
IMPACT OF FINANCIAL ACCOUNTING STANDARDS
During 1997, the Company adopted SFAS No. 129, "Disclosure of Information
About Capital Structure" and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The adoption of these statements did not
have a material effect on the partnership's financial statements and the
appropriate disclosures required by these statements have been incorporated
herein.
In the First Quarter 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in financial statements. The
objective of SFAS No. 130 is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the period
other than transactions with owners. Comprehensive income is the total of net
income and all other nonowner changes in equity. For all periods presented the
Partnership had no items of other comprehensive income. Consequently,
comprehensive income equals net income and the Partnership has no accumulated
other comprehensive income for all periods presented.
On November 20, 1997, the EITF of the Financial Accounting Standards Board
reached a consensus on EITF 97-2. EITF 97-2 addresses the circumstances in
which a management entity may include the revenues and expenses of managed
entity in its financial statements.
The Partnership has considered the impact of EITF 97-2 on its financial
statements and has determined that EITF 97-2 requires the Partnership to include
property-level sales and operating expenses of its senior living communities in
its statements of operations. The Partnership will adopt EITF 97-2 in the
fourth quarter of 1998, with retroactive effect in prior periods to conform to
the new presentation. Application of EITF 97-2 to the consolidated financial
statements for the nine months ended September 30, 1998 and 1997 and fiscal
years 1997, 1996, 1995, 1994 and 1993 would have increased both revenues and
operating expenses by approximately $32 million, $41 million, $37 million, $35
million, $30 million, $32 million and $31 million, respectively, and would have
had no impact on operating profit, net income or earnings per Unit.
INFLATION
The rate of inflation as measured by changes in the average consumer price
index has not had a material impact on the revenue or net income of the
Partnership in the three most recent years.
58
<PAGE>
FORUM MERGER LIMITED PARTNERSHIP
Forum MLP is a Delaware limited partnership formed on October 1, 1998
solely for the purpose of effecting the transactions contemplated by the Merger
Agreement. Forum MLP has no material assets or liabilities and has not engaged
in any activities except in connection with the proposed Merger. Forum A/H,
Inc., an affiliate of Crestline, is the sole general partner of Forum MLP and
owns a 1% interest as a general partner. FGI owns a 99% interest in Forum MLP as
the sole limited partner.
The principal executive offices of Forum MLP are located at 10400 Fernwood
Road, Bethesda, Maryland 20817, telephone (240) 694-2000.
MARKET FOR PARTNERSHIP'S UNITS; DISTRIBUTIONS
The Units of the Partnership are listed on the American Stock Exchange and
are traded under the symbol "FRL". The following tables set forth, for the
fiscal periods indicated, the high and low sales prices per Unit, as reported in
the consolidated transaction reporting system. The approximate number of record
holders of Units as of October 30, 1998 was 258. The Partnership has not
declared or made any distributions on Units for the last seven years. The
Partnership intends to invest its excess cash flow in its expansion program and
does not expect to make distributions on Units in the foreseeable future. There
necessarily can be no assurance as to whether or when, or at what level, any
future cash distributions to holders of Units will be made.
<TABLE>
<CAPTION>
1996 High Low
- ---- -------- --------
<S> <C> <C>
First Quarter $ 5 $2-11/16
Second Quarter $ 4 $ 3-1/4
Third Quarter $ 3-5/8 $ 3-1/8
Fourth Quarter $ 3-3/4 $ 3
1997 High Low
- ---- -------- --------
First Quarter $ 3-3/4 $ 3
Second Quarter $3-10/16 $2-15/16
Third Quarter $ 4-3/4 $ 3
Fourth Quarter $ 5-7/8 $ 4-1/4
1998 High Low
- ---- -------- --------
First Quarter $ 5-1/8 $ 4-3/8
Second Quarter $ 4-5/8 $ 4-5/16
Third Quarter $ 4-5/8 $ 4-1/4
Fourth Quarter $5-11/16 $ 4-3/8
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
1999 High Low
- ---- -------- --------
<S> <C> <C>
First Quarter $ 5-3/4 $ 5-1/2
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Partnership with the Commission
pursuant to the Exchange Act (Commission File No. 1-9302) are incorporated by
reference herein:
1. Schedule 13E-3 Transaction Statement dated
November 23, 1998 as amended.
2. Annual Report on Form 10-K for the year ended
December 31, 1997.
3. Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1998, June 30, 1998 and September 30, 1998.
Accompanying this Consent Solicitation Statement is a copy of the
Partnership's Annual Report on Form 10-K (attached as Annex D) and a copy of the
Partnership's Quarterly Report on Form 10-Q ( attached as Annex E) for the
quarter ended September 30, 1998.
THIS CONSENT SOLICITATION STATEMENT INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO THE PARTNERSHIP WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. DOCUMENTS RELATING TO THE PARTNERSHIP (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS CONSENT
SOLICITATION STATEMENT IS DELIVERED, ON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE,
FROM FORUM RETIREMENT INC., 10400 FERNWOOD ROAD, BETHESDA, MARYLAND 20817, ATTN:
CORPORATE SECRETARY, TELEPHONE (240) 694-2000. COPIES OF DOCUMENTS SO REQUESTED
WILL BE SENT BY FIRST CLASS MAIL, POSTAGE PAID, WITHIN ONE BUSINESS DAY OF THE
RECEIPT OF SUCH REQUEST.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS CONSENT SOLICITATION STATEMENT AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED.
60
<PAGE>
SCHEDULE 1
CRESTLINE CAPITAL CORPORATION
Set forth below is the name, citizenship, current business address,
principal occupation and employment history for at least the past five years of
each director and executive officer of Crestline.
S-1
<PAGE>
S-2
<PAGE>
Bruce D. Wardinski. Mr. Wardinski, Chairman of the Board, President and
Chief Executive Officer of Crestline, joined Host Marriott in 1987 as a Senior
Financial Analyst of Financial Planning and Analysis and was named Manager in
June 1988. He was appointed Director of Financial Planning and Analysis of Host
Marriott in 1989, Director of Project Finance in January 1990, Senior Director
of Project Finance in June 1993, Vice President of Project Finance in June 1994
and Senior Vice President of International Development in October 1995. Mr.
Wardinski served as Senior Vice President and Treasurer of Host Marriott from
June 1996 until December 1998. Mr. Wardinski also serves as President of FGI and
Forum A/H.
S-3
<PAGE>
Mr. Wardinski's business address is 10400 Fernwood Road, Bethesda,
Maryland 20817. Mr. Wardinski is a citizen of the United States.
James L. Francis. Mr. Francis is the Executive Vice President and Chief
Financial Officer of Crestline. Mr. Francis also serves as a director, Vice
President and Treasurer of FGI and Forum A/H. Mr. Francis joined Host Marriott
in July 1997 as Vice President of Finance and became Assistant Treasurer of Host
Marriott in February 1998. He was Vice President and Division Controller,
Courtyard by Marriott/Fairfield Inn at Marriott International, Inc. from 1993 to
1994, served as Brand Executive, Courtyard by Marriott at Marriott
International, Inc. from 1994 to 1995, served as Vice President of Finance,
Lodging-Reengineering Team Leader of Marriott International from 1995 to 1997
and was promoted to Vice President of Finance, Lodging-Asset Management and
Owner Relations of Marriott International, Inc. prior to his joining Host
Marriott in that year. Mr. Francis' business address is 10400 Fernwood Road,
Bethesda, Maryland 20817. Mr. Francis is a citizen of the United States.
Bruce F. Stemerman. Mr. Stemerman, Executive Vice President Asset
Management of Crestline, joined Host Marriott in 1989 as Director Partnership
Services. He was promoted to Vice President Lodging Partnerships of Host
Marriott in 1994 and became Senior Vice President Asset Management of Host
Marriott in 1996. Mr. Stemerman also serves as a director and Vice President of
FGI and Forum A/H. Prior to joining Host Marriott, Mr. Stemerman was with the
public accounting firm of PricewaterhouseCoopers LLP. Mr. Stemerman's business
address is 10400 Fernwood Road, Bethesda, Maryland 20817. Mr. Stemerman is a
citizen of the United States.
Steven J. Fairbanks. Mr. Fairbanks, Executive Vice President-Lodging
Investments of Crestline, joined Host Marriott in 1996 as Vice President
Acquisitions. In 1997, he was elected Senior Vice President Acquisitions of Host
Marriott. Prior to joining Host Marriott, he served as Vice President of Capital
Management and Development Corporation from 1992 until 1996. He had previously
served as a principal with Eastbanc from 1988 to 1992. Mr. Fairbanks' business
address is 10400 Fernwood Road, Bethesda, Maryland 20817. Mr. Fairbanks is a
citizen of the United States.
Larry K. Harvey. Mr. Harvey, Senior Vice President and Corporate Controller
of Crestline, also serves as President, Treasurer and director of the General
Partner. Mr. Harvey joined Host Marriott in 1994 as Senior Manager Corporate
Accounting. In 1995, Mr. Harvey was promoted to Director Corporate Accounting of
Host Marriott. He was promoted to Senior Director Corporate Accounting of Host
Marriott in 1997 and Vice President Corporate Accounting of Host Marriott in
1998. Prior to joining Host Marriott, Mr. Harvey was with the public accounting
firm of PricewaterhouseCoopers LLP. Mr. Harvey's business address is 10400
Fernwood Road, Bethesda, Maryland 20817. Mr. Harvey is a citizen of the United
States.
Tracy M.J. Colden. Ms. Colden serves as Senior Vice President, General
Counsel and Corporate Secretary of Crestline. Ms. Colden also serves as a
director and Vice President of FGI and Forum A/H. Ms. Colden joined Host
S-4
<PAGE>
Marriott as an attorney in 1996. She was promoted to Senior Attorney of Host
Marriott in June 1996 and served as Assistant General Counsel of Host Marriott
from June 1997 until December 1998. Prior to joining Host Marriott, Ms. Colden
was an attorney with the law firm of Hogan & Hartson L.L.P. Ms. Colden's
business address is 10400 Fernwood Road, Bethesda, Maryland 20817. Ms. Colden is
a citizen of the United States.
Christopher J. Nassetta. Mr. Nassetta, a director of Crestline, joined Host
Marriott in October 1995 as Executive Vice President and was elected Chief
Operating Officer of Host Marriott in 1997. Prior to joining Host Marriott, Mr.
Nassetta served as President of Bailey Realty Corporation from 1991 until 1995.
He had previously served as Chief Development Officer and in various other
positions with The Oliver Carr Company from 1984 through 1991. Mr. Nassetta's
business address is 10400 Fernwood Road, Bethesda, Maryland 20817. Mr. Nassetta
is a citizen of the United States.
Adam M. Aron. Mr. Aron, a director of Crestline, has held the position of
Chairman of the Board and Chief Executive Officer of Vail Resorts, Inc. since
July 1996. Prior to joining Vail Resorts, Inc., Mr. Aron served as President
and Chief Executive Officer of Norwegian Cruise Line Ltd. from 1993 until 1996.
He had previously served as Senior Vice President--Marketing of United Airlines
from 1990 to 1993. Prior to joining United Airlines, Mr. Aron was the Senior
Vice President--Marketing for Hyatt Hotels Corporation from 1987 to 1990. Mr.
Aron also currently serves on the Board of Directors of the Sunterra Corporation
and the Florsheim Group, Inc. Mr. Aron's business address is 137 Benchmark
Road, Avon, Colorado 81620. Mr. Aron is a citizen of the United States.
Louise M. Cromwell. Ms. Cromwell, a director of Crestline, has served as
Senior Counsel in the Real Estate Practice Group of Shaw, Pittman, Potts &
Trowbridge since January 1998. From April 1984 to December 1997, Ms. Cromwell
was a Partner at Shaw, Pittman. She currently acts as General Counsel of Federal
City Council. Ms. Cromwell is a member of the National Association of Corporate
Directors, The Greater Washington Board of Trade, Leadership Washington and the
Board of Directors of The Economic Club of Washington. Ms. Cromwell's business
address is 8301 Hectic Hill Lane, Rockville, Maryland 20854. Ms. Cromwell is a
citizen of the United States.
Kelvin L. Davis. Mr. Davis, a director of Crestline, has served as
President and Chief Operating Officer of Colony Capital, Inc. and Colony
Advisors, Inc., international real estate investment and management firms, since
August 1997, and has served in various other capacities with these companies
since 1991. Prior thereto, Mr. Davis served as a principal of RMB Realty, Inc.,
the real estate development vehicle of Robert M. Bass. Prior to his affiliation
with RMB Realty, Inc., Mr. Davis worked at Goldman, Sachs & Co. in New York City
and with Trammell Crow Company in
S-5
<PAGE>
Dallas and Los Angeles. Mr. Davis's business address is 1999 Avenue of the
Stars, Suite 1200, Los Angeles, California 90067. Mr. Davis is a citizen of the
United States.
John W. Marriott, III. Mr. Marriott, a director of Crestline, became Senior
Vice President of Marriott International's Mid Atlantic Region in June 1996.
Since 1993, Mr. Marriott has held successive positions as Director of Finance in
Marriott International's Treasury Department, Director of Finance in Host
Marriott's Finance and Development Department and Vice President, Lodging
Development for The Ritz-Carlton Hotel Company LLC. In 1989, Mr. Marriott served
as Executive Assistant to the Chairman of Host Marriott, J.W. Marriott, Jr., who
is his father. He has also held positions as Director of Corporate Planning,
Finance, Director of Marketing for a hotel and General Manager. He joined
Marriott Corporation in 1986 as a Sales Manager and subsequently served as a
Restaurant Manager and as Director of Food and Beverages. Mr. Marriott serves on
the Board of Directors of Sodexho Marriott Services, Inc. Mr. Marriott's
business address is 10401 Fernwood Road, Bethesda, MD 20817. Mr. Marriott is a
citizen of the United States.
John B. Morse, Jr. Mr. Morse, a director of Crestline, has held the
position of Vice President, Finance, and Chief Financial Officer of The
Washington Post Company since 1989. Prior to holding such position, Mr. Morse
served as Vice President and Controller of The Washington Post Company from July
1989 to November 1989. Mr. Morse also currently serves as the President of
Washington Post Telecommunications, Inc. and Washington Post Productions, Inc.,
subsidiaries of The Washington Post Company. Prior to joining The Washington
Post Company, Mr. Morse was a Partner with the public accounting firm of
PricewaterhouseCoopers LLP. Mr. Morse's business address is 1150 15th Street,
N.W., Washington, D.C. 20071. Mr. Morse is a citizen of the United States.
Michael A. Wildish. Mr. Wildish, a director of Crestline, has been a
Managing Director in the investment firm of Donaldson, Lufkin & Jenrette since
1997. Prior to joining Donaldson, Lufkin & Jenrette, Mr. Wildish worked in the
investment firm of Lazard Freres & Co. LLC, where he served as a General Partner
from 1996 to 1997, as Vice President from 1992 to 1995 and as an Associate from
1989 to 1991. Prior to joining Lazard Freres & Co. LLC, Mr. Wildish served as an
Associate with the investment firm of Goldman, Sachs & Co. from 1986 to 1989.
Mr. Wildish's business address is 277 Park Avenue, New York, New York 10172.
Mr. Wildish is a citizen of the United States.
THE PARTNERSHIP AND THE GENERAL PARTNER
Set forth below is the name, citizenship, current business address,
principal occupation and employment history for at least the past five years of
each director and executive officer of the General Partner of the Partnership.
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<PAGE>
John F. Sexton. Mr. Sexton has been Director of the General Partner since
1993.Mr. Sexton is Chairman of the Board of Directors of EvansMcKinsey Company,
a financial consulting firm, a position he has held since 1993. From 1960 to
1993, Mr. Sexton held various positions with Lomas Financial Corporation,
serving as Chief Financial Officer from 1989 to 1993. Mr. Sexton has previously
served as a director of Americana Hotels and Realty Corp. and as Chairman and
Director of Mutual Equity Mortgage. Mr. Sexton's business address is c/o Evans
Mckinsey & Company, Sterling Plaza, 5949 Sherry Lane, Suite 1880, Dallas, Texas
75225. Mr. Sexton is a citizen of the United States.
James C. Leslie. Mr. Leslie has been Director of the General Partner since
1993. Mr. Leslie is President, Chief Operating Officer and a director of the
Staubach Company, a national real estate brokerage company. He has been
President and Chief Operating Officer of the Staubach Company since January 1996
and has been a director since September 1984. Mr. Leslie served as Chief
Financial Officer of the Staubach Company from 1982 to January 1992 when he
formed and headed Staubach Financial Services, from January 1992 until February
1996. Mr. Leslie is also President and a board member of Wolverine Holding
Company and its affiliated companies. Mr. Leslie serves on the boards of
Stratus Properties, Inc., Amresco Capital Trust, and Wyndham International, Inc.
Mr. Leslie is a certified public accountant. Mr. Leslie's business address is
6750 LBJ Freeway, Suite 1100, Dallas, Texas 75240. Mr. Leslie is a citizen of
the United States.
Larry K. Harvey See "--Crestline" above.
FORUM A/H, INC. AND FORUM MERGER LIMITED PARTNERSHIP
Set forth below is the name, citizenship, current business address,
principal occupation and employment history for at least the past five years of
each director and executive officer of Forum A/H, the general partner of Forum
MLP.
Elizabeth R. Lieberman. Ms. Lieberman joined Host Marriott in 1995 as
Assistant General Counsel and became Associate General Counsel in 1997. She also
serves as Vice President of Forum A/H and FGI. Prior to joining Host Marriott,
Ms. Lieberman was with Marriott Corporation as an attorney since 1988. Ms.
Lieberman's business address is 10400 Fernwood Road, Bethesda, Maryland 20817.
Ms. Lieberman is a citizen of the United States.
Bruce D. Wardinski See "--Crestline" above.
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<PAGE>
Tracy M.J. Colden See "--Crestline" above.
Bruce F. Stemerman See "--Crestline" above.
James L. Francis See "--Crestline" above.
FORUM GROUP, INC.
Set forth below is the name, citizenship, current business address,
principal occupation and employment history for at least the past five years of
each director and executive officer of FGI.
Bruce D. Wardinski See "--Crestline" above.
Tracy M.J. Colden See "--Crestline" above
Bruce F. Stemerman See "--Crestline" above
James L. Francis See "--Crestline" above
Elizabeth Lieberman. See "--Forum A/H, Inc. and Forum Merger Limited
Partnership" above.
S-8
<PAGE>
SCHEDULE 2
FORUM RETIREMENT PARTNERS, L.P.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
Nine months ended
September 30, Fiscal Year
----------------- ---------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from operations
before income taxes $3,615 $1,950 $2,579 $ 699 $ 297 $ 317 ($1,762)
Add (deduct):
Fixed charges 3,717 3,839 5,115 5,097 5,261 5,384 6,106
Capitalized interest - (34) (34) (247) (99)
Amortization of capitalized
interest - 1 1 9 - - -
Minority interest 37 2 26 7 1 2 (9)
------- ------ ------ ------ ------ ------ --------
Adjusted earnings $7,369 $5,776 $7,667 $5,566 $5,460 $5,703 $ 4,335
======= ====== ====== ====== ====== ====== ========
Fixed charges:
Interest on indebtedness and
amortization of debt expense
and premium $3,717 $3,839 $5,115 $5,097 $5,261 $5,384 $ 6,106
------- ------ ------ ------ ------ ------ --------
Total fixed charges $3,717 $3,839 $5,115 $5,097 $5,261 $5,384 $ 6,106
======= ====== ====== ====== ====== ====== ========
Ratio of earnings to fixed charges 2.0x 1.5x 1.5x 1.1x 1.0x 1.1x --
======= ====== ====== ====== ====== ====== ========
Deficiency of earnings to fixed
charges $ -- $ -- $ -- $ -- $ -- $ -- $ (1,771)
======= ====== ====== ====== ====== ====== ========
</TABLE>
S-9
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER BY AND AMONG FORUM RETIREMENT PARTNERS, L.P., FORUM
RETIREMENT, INC., FORUM GROUP, INC., and FORUM MERGER LIMITED PARTNERSHIP.
October 5, 1998
This AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of October 5,
1998, by and among FORUM RETIREMENT PARTNERS, L.P., a Delaware limited
partnership (the "Partnership"), FORUM RETIREMENT, INC., a Delaware corporation
(the "General Partner"), FORUM GROUP, INC., a Delaware corporation (the
"Parent"), and FORUM MERGER LIMITED PARTNERSHIP, a Delaware limited partnership
and an indirect subsidiary of the Parent ("Forum MLP").
RECITALS
WHEREAS, the Partnership has heretofore issued limited partnership units
(the "Units"), each representing limited partner interests in the Partnership;
WHEREAS, the Units have been deposited with a depository (the "Depositary")
designated by the General Partner, and the Units are represented by depositary
receipts ("Depositary Receipts")
WHEREAS, the General Partner is the sole general partner of the
Partnership;
WHEREAS, each of the Parent and Forum MLP is an affiliate (as used herein,
such term shall have the meaning set forth in the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder (the "Exchange Act"))
of the General Partner;
WHEREAS, the Parent wishes to merge Forum MLP with and into the Partnership
(the "Merger") pursuant and subject to the terms and conditions of this
Agreement, whereby each issued and outstanding Unit not owned directly or
indirectly by Forum MLP, the Parent or their affiliates will be converted into
the right to receive $5.75 per Unit in cash (the "Merger Consideration");
WHEREAS, the Board of Directors of the General Partner has established an
advisory committee consisting of persons not otherwise affiliated with the
Parent or its affiliates (the "Advisory Committee"), and has charged the
Advisory Committee to negotiate and determine the fairness of this Agreement and
the Merger to the holders of Depositary Receipts other than Parent and its
affiliates;
WHEREAS, the Advisory Committee has considered the fairness of this
Agreement and the Merger to the Limited Partners (as defined in the Amended and
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Restated Agreement of Limited Partnership of the Partnership dated as of
December 29, 1986 (the "Partnership Agreement")) other than the Parent and its
affiliates (the "Unaffiliated Limited Partners"), and has, subject to the terms
and conditions of this Agreement, (i) determined that the Merger is fair to,
advisable and in the best interests of the Unaffiliated Limited Partners, (ii)
recommended that the General Partner approve this Agreement and (iii)
recommended that the Merger be approved by the Limited Partners;
WHEREAS, the General Partner, on its own behalf and on behalf of the
Partnership, and the Parent, on its own behalf and on behalf of Forum MLP, have
duly approved this Agreement and the Merger, and the General Partner has
determined, upon the recommendation of the Advisory Committee, that the Merger
is fair to and in the best interests of the Unaffiliated Limited Partners and,
subject to the terms and conditions of this Agreement, has recommended that the
Merger be approved by the Limited Partners; and
WHEREAS, the Parent and affiliates of the Parent holding, in the aggregate,
approximately 92.9% of the outstanding Units have agreed to consent to approval
of this Agreement and the Merger upon submission of this Agreement and the
Merger to the Limited Partners for approval (the "Merger Consent") pursuant to
Section 17-211 of the Delaware Revised Uniform Limited Partnership Act (the
"Delaware Partnership Act") and Articles XV and XVI of the Amended and Restated
Agreement of Limited Partnership of the Partnership.
NOW THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement and of the representations, warranties, agreements and conditions
contained in this Agreement, the parties agree as follows:
ARTICLE I THE MERGER
1.1 THE MERGER. In accordance with and subject to (a) the provisions of
this Agreement, (b) the Certificate of Merger (as hereinafter defined), and (c)
the Delaware Partnership Act, at the Effective Time (as hereinafter defined),
Forum MLP shall be merged with and into the Partnership in the Merger. As a
result of the Merger, the separate existence of Forum MLP shall cease, and the
Partnership shall continue as the surviving partnership. The Partnership is
hereinafter sometimes referred to as the "Surviving Partnership."
1.2 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement, an appropriate form of certificate of merger (the "Certificate of
Merger") shall be duly executed and filed by the Partnership and Forum MLP on
the Closing Date (as hereinafter defined) in the manner provided in Section 17-
211 of the Delaware Partnership Act. The Merger shall become effective at such
time on the Closing Date as the Certificate of Merger is filed with the
Secretary of State of the State of Delaware (or such later time as may be
specified in the Certificate of Merger) (the "Effective Time").
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<PAGE>
1.3 CLOSING. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement shall have been abandoned pursuant
to the provisions of Article VI, and subject to the provisions of Article V, the
closing of the Merger (the "Closing") will take place at 10:00 a.m., Washington,
D.C. time, on the first Business Day (as hereinafter defined) occurring after
the Merger Consent (which shall consist of a solicitation of consents of the
Limited Partners during the twenty (20) calendar day period from and after the
mailing of the Consent Solicitation Statement (as defined below)) or, if later,
the date which is the first Business Day after all of the conditions set forth
in Article V hereof shall have been satisfied or waived, or such other date and
time which is agreed to in writing by the parties (the "Closing Date"). The
Closing shall take place at the offices of Arnold & Porter, 555 12th Street,
N.W., Washington, D.C., unless another place is agreed to by the parties. For
purposes of this Agreement, "Business Day" shall mean any day except Saturday,
Sunday or any day on which banks are generally not open for business in
Washington, D.C.
1.4 EFFECTS OF THE MERGER; GENERAL PARTNER. The Merger shall, from and
after the Effective Time, have the effects provided for in the Delaware
Partnership Act. The General Partner shall be the general partner of the
Surviving Partnership until its resignation or removal or until its successor is
duly qualified.
1.5 GOVERNING DOCUMENTS. Following the Effective Time, the Partnership
Agreement of the Partnership shall be the partnership agreement of the Surviving
Partnership, until amended in accordance with the provisions thereof and
applicable law.
1.6 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any action on the part of Forum MLP, the Partnership, the
Surviving Partnership or any holder of any of the following securities:
(a) Subject to Section 1.8, each Unit which is issued and outstanding
immediately prior to the Effective Time and is owned by persons other than the
Parent and its affiliates (the "Unaffiliated Unitholders") shall be canceled,
extinguished and retired, and be converted into and become a right to receive
the Merger Consideration;
(b) Each Unit which is issued and outstanding immediately prior to the
Effective Time and is not owned by an Unaffiliated Unitholder shall be and
remain a unit of limited partnership interest in the Surviving Partnership;
(c) Each partnership interest, general or limited, of Forum MLP issued
and outstanding immediately prior to the Effective Time shall be canceled,
extinguished and retired, and no payment shall be made thereon; and
(d) The General Partner's general partnership interest in the
Partnership shall be and remain a general partnership interest in the Surviving
Partnership.
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<PAGE>
1.7 PAYMENT.
-------
(a) From and after the Effective Time, a bank or trust company
designated by the Parent at or prior to the Effective Time and reasonably
satisfactory to the Advisory Committee (the "Payment Agent") shall act as
payment agent in effecting the payment of the Merger Consideration for Units or
Depositary Receipts pursuant to Section 1.6(a) hereof. At or before the
Effective Time, the Parent or Forum MLP shall deposit with the Payment Agent the
aggregate Merger Consideration in trust for the benefit of the Unaffiliated
Unitholders. Promptly after the Effective Time, the Payment Agent shall mail to
each record holder of Depositary Receipts a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
such Depositary Receipt shall pass, only upon delivery of such Depositary
Receipts to the Payment Agent) and instructions for use in surrendering such
Depositary Receipts and receiving the Merger Consideration for each Unit
previously represented thereby. Upon the surrender of each such Depositary
Receipt and the payment by the Payment Agent of the Merger Consideration in
exchange therefor, such Depositary Receipt shall be canceled. Until so
surrendered and exchanged, each such Depositary Receipt held by any Unaffiliated
Unitholders shall represent solely the right to receive the Merger
Consideration, multiplied by the number of Units represented by such Depositary
Receipt, and subject to the rights described in Section 1.8, the holder thereof
shall have no rights whatsoever in the Partnership or the Surviving Partnership.
Upon the surrender of such outstanding Depositary Receipt, the holder shall
receive such Merger Consideration, without any interest thereon. If any cash is
to be paid to a name other than the name in which the Depositary Receipt
surrendered in exchange therefor is registered, it shall be a condition to such
payment that the person requesting such payment shall pay to the Payment Agent
any transfer or other taxes required by reason of the payment of such cash to a
name other than that of the registered holder of the Depositary Receipt
surrendered, or such person shall establish to the satisfaction of the Payment
Agent that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Payment Agent nor any party hereto shall be liable to a
holder of Depositary Receipts for any Merger Consideration or other payments
made to a public official pursuant to applicable abandoned property laws. The
Surviving Partnership and the Payment Agent shall be entitled to deduct and
withhold from the Merger Consideration otherwise payable to a holder of Units
pursuant to the Merger any taxes or other amounts as are required by applicable
law, including without limitation Sections 3406 and 1445 of the Internal Revenue
Code of 1986. To the extent that amounts are so withheld by the Surviving
Partnership or the Payment Agent, they shall be treated for all purposes of this
Agreement as having been paid to the holder of the Units in respect of which
such deduction and withholding was made.
(b) Six (6) months after the Closing Date, the Surviving Partnership
shall be entitled to the return of all amounts then held by the Payment Agent
pursuant to Section 1.7(a) (including earnings thereon), and the Payment Agent's
duties shall terminate. Thereafter, any holder of a Depositary Receipt shall
look only to the Surviving Partnership (subject to applicable abandoned
property, escheat and similar laws) as a
S-13
<PAGE>
general creditor to receive in exchange therefor the Merger Consideration,
without any interest thereon.
(c) At and after the Effective Time, there shall be no transfers on
the books of the Surviving Partnership of any Unit other than Units that remain
outstanding pursuant to Section 1.6(b) hereof. As of the Effective Time, each
Unaffiliated Unitholder shall be deemed to have withdrawn as a limited partner
and shall have no further interest in the Partnership or the Surviving
Partnership or any allocations or distributions of income, property or
otherwise, other than the right to receive the Merger Consideration as provided
in this Article I.
1.8 APPRAISAL RIGHTS. In accordance with Section 17-212 the Delaware
Partnership Act the Unaffiliated Unitholders shall have, in respect of the Units
held by such Unaffiliated Unitholders, the appraisal rights to the same extent
as would be available to a shareholder in such circumstances if the Partnership
were a corporation organized under the laws of the State of Delaware.
ARTICLE II APPROVAL OF THE MERGER
2.1 ACTIONS OF THE PARTNERSHIP AND THE GENERAL PARTNER. (a) The General
Partner hereby consents to the Merger, agrees in all respects with the terms of
this Agreement and, subject to the terms and conditions of this Agreement, the
consummation of the transactions contemplated hereby. In connection therewith,
by executing this Agreement, the General Partner, as the sole general partner of
the Partnership, consents to and approves in all respects this Agreement and the
transactions contemplated hereby (including, without limitation, the Merger) on
behalf of the Partnership. The General Partner hereby represents that, at a
meeting of its Board of Directors duly called and held on October 5, 1998, (i)
based upon (x) the opinion of Robert A. Innamorati & Co., Inc., financial
advisor to the Advisory Committee (the "Financial Advisor") that, as of the date
of this Agreement, the Merger Consideration to be received by the Unaffiliated
Unitholders pursuant to the Merger is fair, from a financial point of view, to
the Unaffiliated Limited Partners and (y) the recommendation of the Advisory
Committee, such Board approved this Agreement and the Merger and has determined
that the Merger, considered as a whole, is fair to and in the best interests of
the Unitholders and (ii) such Board recommended that the Unitholders of the
Partnership approve and adopt this Agreement and the Merger.
S-14
<PAGE>
2.2 SOLICITATION OF CONSENTS OF LIMITED PARTNERS OF THE PARTNERSHIP.
Promptly after the date of this Agreement, the Partnership shall take all action
necessary, in accordance with the Delaware Partnership Act and the Partnership
Agreement, to solicit the consents of the Limited Partners to this Agreement and
the Merger during the twenty (20) calendar day period following the mailing of
the Consent Solicitation Statement (hereinafter defined). The parties agree
that the Partnership shall take all commercially reasonable actions necessary to
admit as Limited Partners of the Partnership all Assignees (as defined in the
Partnership Agreement), as of the record date established by the General
Partner. The Parent shall cause, and shall cause each of the affiliates of the
Parent holding outstanding Units to cause, all of the Units owned by them to
approve and consent to this Agreement and the Merger.
2.3 CONSENT SOLICITATION STATEMENT. Promptly following the execution of
this Agreement, the Partnership shall prepare (and Parent and Forum MLP shall
cooperate in preparing) and as soon as reasonably practicable thereafter shall
file with the Securities and Exchange Commission ("SEC") a consent solicitation
statement with respect to the Merger. Subject to compliance with the rules and
regulations of the SEC, the Partnership shall thereafter file with the SEC and
mail to Unitholders a definitive consent solicitation statement with respect to
the Merger. The term "Consent Solicitation Statement" shall mean such consent
solicitation statement at the time it initially is mailed to the Unitholders and
all amendments or supplements thereto, if any, similarly filed and mailed. Forum
MLP and the Partnership each agree to correct any information provided by it for
use in the Consent Solicitation Statement which shall have become false or
misleading in any material respect.
ARTICLE III
Representations and Warranties
------------------------------
3.1 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND FORUM MLP. The Parent
and Forum MLP each, jointly and severally, represents and warrants to the
Partnership as follows:
(a) Organization and Qualification. The Parent is a corporation
validly existing and in good standing under the laws of Delaware. Forum MLP
is a limited partnership duly formed, validly existing and in good standing
under the laws of Delaware.
(b) Authority Relative to this Agreement. The Parent has the requisite
corporate power and authority to enter into this Agreement and to perform
its obligations hereunder. Forum MLP (through its general partner) has the
requisite partnership power and authority to enter into this Agreement and
to perform its obligations hereunder. The execution, delivery and
performance of this Agreement by the Parent and Forum MLP and the
consummation by the Parent and Forum MLP of the transactions contemplated
hereby have been duly authorized by the Parent and Forum MLP and no other
corporate or partnership action on the part of the Parent or Forum MLP is
necessary to authorize the execution, delivery and performance of this
Agreement and the consummation of the
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<PAGE>
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Parent and Forum MLP and constitutes a valid and binding
obligation of each such company, enforceable against each such company in
accordance with its terms, except to the extent that its enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or other
laws affecting the enforcement of creditors' rights generally or by general
equitable principles.
(c) Financing. The Parent has sufficient available funds to consummate
the Merger, and shall make such funds available for such purposes.
(d) Certain Information. To the knowledge of Parent, without
independent inquiry, the written information (other than the Projections
(as defined below)) concerning the Partnership supplied to the Advisory
Committee by the Parent or any of its affiliates was, taken as a whole,
accurate in all material respects at the time such written information was
provided. To the knowledge of Parent, without independent inquiry, the
financial projections of the results of operations and cash flows relating
to the Partnership's properties furnished by the General Partner to the
Advisory Committee (the "projections") prepared by Marriott Senior Living
Services, Inc., manager of the Partnership's assets (the "Manager"), were
based upon the reasonable, good faith assumptions of the General Partner at
the time such assumptions were made. For purposes of this Section 3.1(d),
the knowledge of the Manager shall not be imputed to Parent.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP. The Partnership
represents and warrants to each of the Parent and Forum MLP as follows:
(a) Organization and Qualification. The Partnership is a limited
partnership duly formed, validly existing and in good standing under the
laws of the State of Delaware.
(b) Authority Relative to Agreement. The General Partner, pursuant to
the Partnership Agreement and the Delaware Partnership Act, has the
requisite power and authority to cause the Partnership to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereunder. No other corporate or partnership
proceedings on the part of the General Partner or the Partnership are
necessary to authorize this Agreement and the transactions contemplated
hereby, other than the affirmative vote of the Limited Partners
representing a Majority Interest (as defined in the Partnership Agreement).
This Agreement has been duly executed and delivered by the Partnership and
constitutes a valid and binding obligation of the Partnership, enforceable
against the Partnership in accordance with its terms, except to the extent
that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of
creditors rights generally or by general equitable principles.
(c) General Partner Recommendation. The Board of Directors of the
General Partner, upon the recommendation of the Advisory Committee, has
duly approved and
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<PAGE>
adopted this Agreement and the Merger on the terms and conditions set forth
herein, and has recommended and will recommend that the Unaffiliated
Limited Partners approve and adopt this Agreement and the Merger; provided,
however, that such recommendation may be withdrawn or modified if, and only
to the extent that, the Advisory Committee, after consultation with and
based upon the advice of outside legal counsel, determines in good faith
that such action is required for the Board of Directors of the General
Partner to comply with its fiduciary duties to Unaffiliated Limited
Partners under Delaware law as in effect at the time of such action.
(d) Fees. Except for the fees payable to Robert A. Innamorati & Co.,
neither the General Partner nor the Partnership has paid or become
obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated hereby.
ARTICLE IV COVENANTS
4.1 LEGAL CONDITIONS TO MERGER. The General Partner (on behalf of itself
and the Partnership), Forum MLP and the Parent shall take all reasonable actions
necessary to comply promptly with all legal requirements with respect to the
Merger and shall use commercially reasonable efforts to cooperate promptly with
and furnish information to the other parties in connection with any such
requirements. The General Partner (on behalf of itself and the Partnership),
Forum MLP and the Parent shall use commercially reasonable efforts (i) to obtain
(and will take all reasonable actions necessary to promptly cooperate with the
other parties in obtaining) any consent, authorization, order or approval of, or
any exemption by, any administrative agency or commission or other governmental
authority or instrumentality (a "Governmental Entity"), or other third party,
required to be obtained or made (or cooperate in the obtaining of any thereof
required to be obtained) in connection with the Merger or the taking of any
action contemplated by this Agreement; (ii) to lift, rescind or mitigate the
effect of any injunction or restraining order or other order adversely affecting
the consummation of the transactions contemplated hereby; (iii) to fulfill all
conditions pursuant to this Agreement; (iv) to prevent, with respect to a
threatened or pending temporary, preliminary or permanent injunction or other
order, decree or ruling, the entry thereof and (v) to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement.
4.2 EXPENSES. Whether or not the Merger is consummated, Parent and/or its
affiliates (other than the General Partner and the Partnership) shall bear all
costs and expenses of each party hereto incurred in connection with the
transactions contemplated by this Agreement.
4.3 ADVISORY COMMITTEE. (a) During the term of this Agreement and until the
Effective Time, Parent and the General Partner of the Partnership shall take all
actions necessary such that the Advisory Committee of the Board of Directors
shall continue in
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existence without diminution of any of its powers or duties and its members
shall consist solely of the directors of the General Partner who currently serve
on such committee, or any successors selected by such directors.
(b) Any amendment or termination of this Agreement by the Partnership,
any waiver of any of the Partnership's or the General Partner's rights
hereunder, any extension of the time for performance of the Parent or Forum
MLP's obligations or other acts hereunder, or any actions to be taken by
the Board of Directors of the General Partner in connection with this
Agreement, shall require the concurrence of the members of the Advisory
Committee; provided, however, that if no members of the Advisory Committee
shall then be in office, this Section 4.3(b) shall be inapplicable.
4.4 INDEMNIFICATION. (a) The General Partner, Parent and Forum MLP agree
that all rights to exculpation and indemnification for acts or omissions
occurring prior to the Effective Time now existing in favor of the current or
former directors or officers (the "Indemnified Parties") of the General Partner
as provided in its charter or by-laws, the Partnership Agreement or in any other
document or agreement shall survive the Merger and shall continue in full force
and effect in accordance with their terms.
(b) The Surviving Partnership shall not amend Section 6.9 or 6.10 of
the Partnership Agreement as in effect on the date hereof in any manner
that would adversely affect the rights thereunder of individuals who at or
prior to the Effective Time were directors or officers of the General
Partner.
(c) For three years from and after the Effective Time, Parent shall
use commercially reasonable efforts to maintain directors' and officers'
liability insurance covering the Indemnified Parties who are currently
covered by Parent's directors' and officers' liability insurance policy on
terms no less favorable (in terms of coverage and amounts) to such persons
than those of the policy in effect prior to the Effective Time.
ARTICLE V CONDITIONS PRECEDENT
5.1 CERTAIN CONDITIONS ON THE OBLIGATION OF FORUM MLP TO CONSUMMATE THE
-------------------------------------------------------------------
MERGER.
- ------
The respective obligations of each party to effect the Merger shall be
subject to satisfaction of the following conditions at or prior to the Effective
Time:
(a) this Agreement and the Merger shall have been approved and adopted
by a Majority Interest (as defined in the Partnership Agreement) in the manner
required by the Delaware Partnership Act and the Partnership Agreement;
(b) All consents and approvals prescribed by law which are necessary
to the consummation of the transactions contemplated hereby shall have been
obtained, and all statutory waiting periods in respect thereof shall have
expired.
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<PAGE>
(c) All applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have
expired or otherwise been terminated.
(d) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a Governmental Entity
nor any statute, rule, regulation or executive order promulgated or enacted by
any Governmental Entity shall be in effect, which would make the acquisition or
holding by the Parent, its subsidiaries or affiliates of the Units of the
Surviving Partnership illegal or otherwise prevent the consummation of the
Merger or make the consummation of the Merger illegal.
ARTICLE VI - TERMINATION
6.1 TERMINATION. This Agreement may be terminated, and the Merger
contemplated herein may be abandoned, at any time prior to the Effective Time,
whether prior to or after approval of the Merger by the Unitholders:
(a) by the Parent or the Partnership, if either party concludes in
good faith that any of the conditions specified in Article V cannot be satisfied
in a timely manner; or
(b) by the Parent and the Partnership, by their mutual agreement,
provided such termination is authorized by the members of the Advisory
Committee; or
(c) by either the Partnership (with the consent of the members of the
Advisory Committee) or the Parent (without the consent of the members of the
Advisory Committee):
(i) if the Effective Time has not occurred prior to March 31,
1999; provided that the party seeking to terminate this Agreement pursuant
to this clause 6.1(c)(i) shall not have breached in any material respect
its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger on or
before such date; or
(ii) if any court of competent jurisdiction or other Governmental
Entity shall have issued an order, decree or ruling, or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become
final and non-appealable .
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6.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 6.1 hereof, this Agreement shall forthwith
become void, except (i) as set forth in this Section 6.2 and in Sections 4.2 and
4.4 and (ii) nothing herein shall relieve any party from liability for any
breach of this Agreement, and there shall be no liability on the part of the
Parent, Forum MLP, the General Partner or the Partnership, or any of their
respective directors or officers.
ARTICLE VII GENERAL PROVISIONS
7.1 AMENDMENT. This Agreement may not be amended except by (i) an
instrument in writing signed on behalf of each of the parties hereto and (ii)
prior approval of such amendment by the members of the Advisory Committee
provided, however, that after approval of the Merger by the Limited Partners, no
amendment may be made which would: (a) alter or change the Merger Consideration;
or (b) alter or change any other terms and conditions of this Agreement if any
of the alterations or changes, alone or in the aggregate, would materially
adversely affect the Limited Partners in each case without the further approval
of a Majority Interest (as defined in the Partnership Agreement).
7.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
respective representations and warranties of the Parent, Forum MLP and the
Partnership contained herein shall expire with, and be terminated and
extinguished upon, consummation of the Merger, and thereafter none of the
Partnership, the Parent or Forum MLP or any officer, director or principal
thereof shall be under any liability whatsoever with respect to any such
representation or warranty. This Section 7.2 shall have no effect upon any other
obligation of the parties hereto, whether to be performed before or after the
consummation of the Merger.
7.3 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement contains the entire
agreement among the Partnership, the Parent and Forum MLP with respect to the
subject matter hereof and supersedes all prior arrangements and understandings,
both written and oral, among such parties with respect thereto. This Agreement
may be executed in one or more counterparts, all of which shall be considered
one and the same agreement and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
7.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to be sufficient if contained in a written
instrument and shall be deemed to have been duly given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other addresses as shall be
specified by a party by like notice):
Forum Group, Inc.
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10400 Fernwood Road
Bethesda, MD 20817-1109
Attention: David L. Buckley
with a copy to:
Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004
Attention: Andrew Pace
and:
Mr. John Sexton
Chairman, Advisory Committee of
Forum Retirement, Inc.
c/o Evan-Mckinsey & Company
Sterling Plaza
5949 Sherry Lane, Suite 1880
Dallas, TX 75225
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery if received
prior to 5:00 p.m. Washington, D.C. time on such date, (b) in the case of a
telecopy, when the party receiving such telecopy shall have confirmed receipt of
the communication, (c) in the case of delivery by nationally recognized
overnight courier, on the Business Day following dispatch and (d) in the case of
mailing, on the third Business Day following such mailing.
7.5 PUBLIC ANNOUNCEMENTS. The General Partner, on behalf of itself and the
Partnership, and the Parent and Forum MLP shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement or the Merger and shall not issue any such press release or
make such public statement prior to such consultation except as may be required
by law or the rules of the American Stock Exchange.
7.6 SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, such provision shall be interpreted to be only so
broad as is enforceable.
7.7 INTERPRETATION. When a reference is made in this Agreement to
subsidiaries of Forum MLP, the Parent, the General Partner or the Partnership,
the word "subsidiaries" means any corporation more than 50% of whose outstanding
voting
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securities, or any partnership, joint venture or other entity more than
50% of whose total equity interest, is directly or indirectly owned by the
Parent, Forum MLP, the General Partner or the Partnership, as the case may be.
For purposes of this Agreement, the Partnership shall not be deemed to be an
affiliate or subsidiary of the Parent or Forum MLP.
7.8 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
7.9 BENEFITS; ASSIGNMENT. Except for Section 4.4 hereof, this Agreement is
not intended to confer upon any person other than the parties any rights or
remedies hereunder. This Agreement shall not be assigned (other than by
operation of law); provided, however, that notwithstanding the foregoing, the
parties hereto acknowledge that Forum MLP shall have the unrestricted right to
assign all of its respective rights and obligations hereunder to a wholly-owned
affiliate of the Parent or Forum MLP; provided, further, that notwithstanding
such assignment, Forum MLP shall not be released from its obligations hereunder.
This Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
7.10 LIMITATION OF LIABILITY. In no event shall any partner (other than the
General Partner) or representative of the Partnership or any direct or indirect
stockholder, officer, director, partner or representative of the General Partner
or any other such person, be personally liable for any obligation of the
Partnership or the General Partner under this Agreement. In no event shall
recourse with respect to the obligations under this Agreement of the Partnership
or the General Partner be had to the assets or business of any person other than
the Partnership or the General Partner, respectively.
7.11 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to the
conflicts of laws provisions thereof.
IN WITNESS WHEREOF, the Partnership, the General Partner, the Parent and
Forum MLP have caused this Agreement to be executed as of the date first written
above by their respective officers thereunder duly authorized.
FORUM RETIREMENT PARTNERS, L.P.
By: Forum Retirement, Inc., its General Partner
By: /s/ Christopher G Townsend
----------------------------
Name: Christopher G Townsend
Title: Vice-President
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FORUM RETIREMENT, INC.
By: /s/ Christopher G Townsend
----------------------------
Name: Christopher G Townsend
Title: Vice-President
FORUM GROUP, INC.
By: /s/ David L. Buckley
--------------------
Name: David L. Buckley
Title: Vice-President
FORUM MERGER LIMITED PARTNERSHIP
By: Forum A/H, Inc., its General Partner
By: /s/ David L. Buckley
--------------------
Name: David L. Buckley
Title: Vice-President
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October 5, 1998
Advisory Committee of the Board of Directors
Forum Retirement, Inc.
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, MD 20817-1109
Attn: Mr. John Sexton
Mr. James Leslie
Gentlemen:
We understand that pursuant to a proposal presented to you by Host Marriott
Corporation ("Host Marriott"), it is proposed that Forum Merger Limited
Partnership, an indirect subsidiary of Host Marriott ("Forum MLP"), will be
merged (the "Merger") with and into Forum Retirement Partners, L.P. (the
"Partnership"). As a result of the Merger, the separate existence of Forum MLP
will cease, and the Partnership will continue as the surviving partnership. In
connection with the Merger, each of the outstanding preferred depositary units
(the "Units") representing preferred limited partners' interests in the
Partnership, other than Unites held by Forum Group, Inc. (the "Parent") and its
affiliates, will be converted into the right to receive $5.75 in cash. The
proposed terms and conditions of the Merger are set forth in the October 5, 1998
draft of the Agreement and Plan of Merger dated October 5, 1998 (the "Draft
Merger Agreement") by and among the Partnership, Forum Retirement, Inc. (the
"General Partner"), the Parent, and Forum MLP.
You have asked us whether, in our opinion, the proposed cash consideration to be
received by the holders of Units, other than the Parent and its affiliates (the
"Unaffiliated Limited Partners"), is fair to such Unaffiliated Limited Partners,
from a financial point of view.
In arriving at our opinion, we have reviewed the Draft Merger Agreement and
financial and other information that was publicly available or furnished to us
by the General Partner or its affiliates and representatives, including certain
financial projections for the Partnership and information provided by the
General Partner or its affiliates in discussions therewith concerning the
Partnership's business, operations and future
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prospects. In addition, we have compared certain financial and securities data
of the Partnership with various other entities in similar businesses whose
securities are traded in public markets, reviewed other similar cash
transactions and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
In rendering the opinion set forth below, we have assumed and relied upon,
without independent verification, the accuracy and completeness of the financial
and other information obtained by us from public sources and provided to us by
the General Partner or its affiliates and representatives. With respect to the
financial projections supplied to us, we have assumed that they have been
reasonably prepared on the basis of the best currently available estimates and
judgments of the management of the General Partner or its affiliates, and with
reasonable assumptions as to the future operating and financial performance of
the Partnership. We have neither made nor obtained any independent appraisal of
the assets or liabilities of the Partnership nor have we conducted any physical
inspection of the properties and facilities of the Partnership.
Our opinion is necessarily based on the status and condition of the Partnership
and economic, market, financial and other conditions as they exist on, and on
the information made available to us as of, the date of this letter. It should
be understood that, although subsequent developments may affect this opinion, we
do not have any obligation to update or revise this opinion. This opinion is
being delivered pursuant to the terms and conditions agreed to in the engagement
agreement between the General Partner and ROBERT A. INNAMORATI & CO., INC.
Our services and the opinion expressed herein are provided for the information
of the Advisory Committee in its evaluation of the proposed Merger, and our
opinion is not intended to be and does not constitute a recommendation as to how
anyone should vote on the proposed Merger.
Based on the foregoing and such other factors as we deem relevant, we are of the
opinion that the proposed cash consideration to be received by the Unaffiliated
Limited Partners pursuant to the Merger is fair to such Unaffiliated Limited
Partners, from a financial point of view.
Very truly yours,
/s/ Robert A. Innamorati & Co., Inc.
ROBERT A. INNAMORATI & CO., INC.
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Annex C
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
ss.262 Appraisal Rights.
(a) any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to sec.228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
'stockholder' means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words 'stock' and 'share' mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
'depository receipt' mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to effected
pursuant to sec.251 (other than a merger effected pursuant to sec.251(g) of this
title), sec.252, sec.254, sec.257, sec.258, sec.263 or sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sec.sec.251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
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a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
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subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon
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the merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial
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proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder whose
name appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded such stockholder's appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
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Annex D
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number: 1-9302
FORUM RETIREMENT PARTNERS, L.P.
Delaware 35-1686799
(State of Incorporation) (I.R.S. Employer
Identification Number)
10400 Fernwood Road
Bethesda, MD 20817
Telephone: (301) 380-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Preferred Depository Units Representing American Stock Exchange
Preferred Limited Partners' Interests
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes x No
There were 15,285,248 Preferred Depository Units outstanding as of March
18, 1998.
The aggregate market value of the voting stock held by non-affiliates of
the registrant (excluding units owned by the Registrant's General Partner or its
Affiliates) was $14,658,094 as of March 18, 1998.
<PAGE>
PART I
Forward-Looking Statements
Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may involve
known and unknown risks, uncertainties, and other factors, which may cause the
actual results, performance or achievements of the Forum Retirement Partners,
L.P. (the "Partnership") to be different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Although
the Partnership believes the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be attained. These risks are detailed from time to time
in the Partnership's filings with the Securities and Exchange Commission. The
Partnership undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Item 1. Business.
Forum Retirement Partners, L.P. (the "Partnership") is a Delaware
limited partnership that was formed in 1986 to own retirement communities
("RCs") originally developed or acquired by Forum Group, Inc. ("Forum Group").
As of March 19, 1998, the Partnership owned nine upscale senior living
properties with 1,731 units. Forum Retirement, Inc., a wholly-owned subsidiary
of Forum Group, Inc., is the general partner of the Partnership (the "General
Partner") and owns a one percent interest in the Partnership and a one percent
partnership interest in a subsidiary operating partnership in which the
Partnership owns a ninety-nine percent limited partnership interest. The General
Partner's interest in the subsidiary operating partnership is reflected in the
statements of operations as a reduction of the income or loss of the
Partnership. Forum Group beneficially owns approximately 79% of the outstanding
Preferred Depository Units (the "Units") representing preferred limited partner
interests in the Partnership.
On June 21, 1997, HMC Senior Communities, Inc. ("HMCSC"), a wholly-
owned subsidiary of Host Marriott Corporation ("Host Marriott"), acquired all of
the outstanding stock of Forum Group from Marriott Senior Living Services, Inc.
("MSLS"), a subsidiary of Marriott International, Inc. ("MI"). In connection
with the acquisition, Forum Group assigned to MSLS its interest as manager under
a long-term management agreement (the "Management Agreement") for the nine
senior living communities owned by the Partnership.
The Partnership has an on-going expansion program related to all of its
communities in an effort to further improve the Partnership's results of
operations. The expansions are designed to add capacity to and/or modify the
uses of existing facilities to increase earnings without incurring substantial
land acquisition and common area build-out costs. Certain expansions will
require additional regulatory approvals. The expansion program consists of
eleven separate projects expected to increase the total number of units by 292,
or 18% of total units, at an estimated capital cost of $20 million. Currently,
six expansion projects have been completed, two expansion projects are under
construction and another three expansion projects are in active development or
design. The three remaining projects in development or design are expected to
begin construction by the end of 1998 or early 1999. The six completed projects
increased the total number of units by 113, at a cost of $7.9 million.
The Partnership is financing and intends to continue to finance this
expansion program from the Partnership's cash flow from operations. If cash
flow from operations is insufficient to complete future expansions on a timely
basis, the expansion may be delayed, reduced in scope or discontinued. The
terms of the Partnership's current debt agreement restrict the Partnership from
incurring additional third-party financing (other than $1 million of equipment
financing) and prohibit the imposition of liens on the Partnership's assets.
There can be no assurance that a waiver can be obtained from the lender to
permit any third party financing, or whether, when and on what terms, any such
financing may be available. As a result of the capital required to fund the
expansion program, the Partnership does not expect to make distributions to
limited partners for the foreseeable future.
2
<PAGE>
Item 2. Properties.
The Partnership (through an operating limited partnership in which the
Partnership is the 99% limited partner and the General Partner is the 1% general
partner) owns nine senior living communities with 1,731 units in Delaware,
Florida, New Mexico, South Carolina and Texas (collectively, the "Properties").
In connection with the acquisition of Forum Group by HMCSC, Forum Group assigned
to MSLS its interest as manager under a long-term management agreement for the
nine senior living communities owned by the Partnership.
Seven of the nine communities consist of independent living, assisted
living and nursing components. The remaining two communities provide assisted
living and nursing components only.
Independent living components, which represent 44% of the Partnership's
senior living units, contain a variety of accommodations, together with
amenities such as dining facilities, lounges, and game and craft rooms. All
residents of the independent living components are provided security, meals, and
housekeeping and linen service. Emergency healthcare service is available upon
demand 24 hours a day from on-site staff, and each independent living unit is
equipped with an emergency call system. The independent living components of the
Properties consist of apartments and, in the case of Foulk Manor North, villas.
Each resident enters into a residency agreement that may be terminated by the
resident, generally requiring 30 days notice. Although there can be no
assurance that available independent living units will be reoccupied as
residency agreements expire or are terminated, since 1988 at least 80% of the
residents of the apartments and villas have renewed their residency agreements
from year to year.
Assisted living components, which represent 18% of the Partnership's
senior living units, provide a supportive environment that encourages
independent living. Residents have private or semiprivate units, 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, security and transportation services, assistance
with activities of daily living, and emergency care. Additionally, skilled
nursing and therapy services are generally available.
Nursing components, which represent 38% of the Partnership's senior
living units, provide residents a full range of nursing care. Residents have
private or semiprivate rooms, and share communal dining and social facilities.
In most instances each resident of the independent living component of a
Property is entitled to priority admission in the assisted living (if any) or
nursing component.
Some communities also provide ancillary healthcare services, including
the operation of an adult day care center on the premises of one community.
3
<PAGE>
The following table indicates the name, location and current capacity for each
property:
Capacity
-----------------------------------------
Independent Assisted
Living Living Nursing Total
Name And Location Units Units Units Units
- ----------------- ----- ----- ----- -----
The Forum at Lincoln Heights 151 30 60 241
San Antonio, Texas
Foulk Manor North 58 11 46 115
Wilmington, Delaware
Foulk Manor South -- 56 57 113
Wilmington, Delaware
Millcroft 62 36 100 198
Newark, Delaware
The Montebello on Academy 114 35 60 209
Albuquerque, New Mexico
The Montevista at Coronado 123 15 109 247
El Paso, Texas
Myrtle Beach Manor -- 68 104 172
Myrtle Beach, South Carolina
The Park Summit of Coral Springs 192 50 35 277
Coral Springs, Florida
Shipley Manor 62 15 82 159
Wilmington, Delaware
------- ------- ------- -------
Total units 762 316 653 1,731
======= ======= ======= =======
The overall average occupancy rate for the Properties for 1997 was 92.8%.
The degree of utilization of each facility is dependent on many factors.
Occupancy rates may be adversely affected by the opening of newly developed
facilities and the expansion or renovation of competing facilities. Expansion
of the Properties may adversely impact occupancy during the development and
lease-up process, as was the case during 1997 at certain of these properties.
Mortgages
On December 28, 1993 the Partnership entered into a loan agreement with
Nomura Asset Capital Corporation ("Nomura") pursuant to which Nomura provided
approximately $50,707,000 in new financing (the "Nomura Loan"). The proceeds of
the Nomura Loan were used to prepay the remaining balances of certain of the
Partnership bank debt scheduled to mature on December 31, 1993 and to prepay the
Partnership's split coupon first mortgage notes due July 1, 1996, to pay fees
and expenses related to the financing and to fund reserves. The Nomura Loan is
secured by first priority mortgages on the Partnership's Properties and by
security interests in substantially all of the Partnership's other assets.
4
<PAGE>
The principal amount outstanding under the Nomura Loan at December 31, 1997
was $46.9 million, which bears interest at 9.93% per annum. See "Item 1 -
Business" and Note 7 of the accompanying Consolidated Financial Statements for
additional information regarding the Nomura Loan.
Sources of Payment
The independent and assisted living components of the Properties receive
direct payment for resident occupancy solely on a private pay basis. The nursing
components of the Properties receive payment for resident care directly on a
private pay basis, including payment from private health insurance, and from
governmental reimbursement programs such as the federal Medicare program for
certain elderly and disabled residents, and state Medicaid programs for certain
financially qualified residents.
The following table indicates the approximate percentages of operating
revenues for each of the last five years derived by the Partnership from private
sources, and from Medicare and Medicaid:
INDEPENDENT AND ASSISTED LIVING COMPONENTS
------------------------------------------
SOURCE 1997 1996 1995 1994 1993
- ------ ---- ---- ---- ---- ----
Private 100% 100% 100% 100% 100%
Medicare/Medicaid -- -- -- -- --
---- ---- ---- ---- ----
Total 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
NURSING COMPONENTS
-------------------------------------------
SOURCE 1997 1996 1995 1994 1993
- ------ ---- ---- ---- ---- ----
Private 55% 61% 65% 65% 69%
Medicare/Medicaid 45% 39% 35% 35% 31%
---- ---- ---- ---- ----
Total 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
TOTAL PROPERTIES
-------------------------------------------
SOURCE 1997 1996 1995 1994 1993
- ------ ---- ---- ---- ---- ----
Private 75% 79% 82% 82% 85%
Medicare/Medicaid 25% 21% 18% 18% 15%
---- ---- ---- ---- ----
Total 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
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 make payments under a cost-based reimbursement formula. Under the
Medicaid program, each state is responsible for developing and administering its
own reimbursement formula.
Within the statutory framework of the Medicare and Medicaid programs, there
are substantial areas subject to administrative rulings, interpretations and
discretion which affect payments made under those programs. In addition, the
federal and state governments might reduce the funds available under those
programs in the future or require more stringent utilization of healthcare
facilities. Those measures could adversely affect the Partnership's future
revenues and, therefore, the value of the Properties.
5
<PAGE>
Various legislative and industry groups are studying numerous healthcare
issues, including access, delivery, and financing of long-term healthcare, and
at any given time there are numerous federal and state legislative proposals
relating to the funding and reimbursement of healthcare costs. It is difficult
to predict whether these proposals will be adopted or the form in which they
might be adopted, and no assurance can be given that any such legislation, if
adopted, would not have a material effect on the Partnership or the value of the
Properties.
Regulation And Other Factors
Healthcare facility operations are subject to federal, state, and local
government regulations. Facilities are subject to periodic inspection by state
licensing agencies to determine whether the standards necessary for continued
licensure are being maintained. In granting and renewing licenses, the state
agencies consider, among other things, buildings, furniture, and equipment;
qualifications of administrative personnel and staff; quality of care; and
compliance with laws and regulations relating to operation of facilities. State
licensure of a nursing facility is a prerequisite to certification for
participation in the Medicare and Medicaid programs. Requirements for licensure
of assisted living components are generally less comprehensive and stringent
than requirements for licensure of nursing facilities. Most states do not have
licensure requirements for the independent living components of RCs, except to
the extent that such independent living components are associated with the
provision of healthcare services. The Properties are presently in substantial
compliance with all applicable federal, state and local regulations with respect
to licensure requirements. However, because those requirements are subject to
change, there can be no assurance that the Properties will be able to maintain
their licenses upon a change in standards, and future changes in those standards
could necessitate substantial expenditures by the Partnership to comply
therewith.
Competition
The Properties compete with various senior living facilities in each
property's respective geographical market areas. Competing facilities are
operated on a national, regional, and local basis by religious groups and other
nonprofit organizations, as well as by private operators, some of which have
substantially greater resources than the Partnership. Some of the national and
regional competitors in the senior living industry are: Manor Care, Sunrise
Assisted Living, Care Matrix and Kapson Senior Quarters. The independent living
components of the Properties face competition from all the various types of
residential opportunities available to the elderly. However, the number of RCs
that offer on-premises healthcare services is limited. The assisted living and
nursing components of the Properties compete with other assisted living and
nursing facilities. Because the target market segment of the Properties (i.e.,
full-service RCs) is relatively narrow, the risk of competition may be higher
than with some other types of 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 Properties include price, physical appearance, and
amenities and services offered. Additional competitive factors for attracting
residents to the assisted living and nursing components of the Properties
include quality of care, reputation of the manager, physician and nursing
services available, and family preferences. The Partnership believes that its
RC's rate high in each of these categories, except that its RC's are generally
more expensive than competing facilities.
Option Agreement
Pursuant to an option agreement (the "Option Agreement") entered into at
the time of the Partnership's formation, Forum Group has the option to purchase,
for a price equal to the appraised fair market value thereof, any RC which the
Partnership determines to sell. Accordingly, consummation of any transaction to
sell any of the Properties would be subject to, among other limitations, the
election of Forum Group not to exercise such option. Under the Option Agreement,
the Partnership has an option, subject to certain limitations and restrictions,
to purchase up to 15 additional RCs developed by Forum Group or any wholly
owned (or in certain circumstances partly owned) affiliate of Forum Group at the
lower of the appraised value of the RC or the sum of 115% of the costs incurred
in connection with development of the RC and an amount equal to net operating
losses incurred between completion and the purchase.
6
<PAGE>
Employees
Neither the General Partner nor the Partnership has any employees. Host
Marriott provides the services of certain employees (including the General
Partner's executive officers) to the Partnership and the General Partner. The
Partnership and the General Partner anticipate that each of the executive
officers of the General Partner will generally devote a sufficient portion of
his or her time to the business of the Partnership. However, each of such
executive officers also will devote a significant portion of his or her time to
the business of Host Marriott and its other affiliates. No officer or director
of the General Partner or employee of Host Marriott devotes a significant
percentage of time to Partnership matters. To the extent that any officer,
director or employee does devote time to the partnership, the General Partner or
Host Marriott, as applicable, is entitled to reimbursement for the cost of
providing such services. As of March 9, 1998, MSLS had approximately 1,200
employees working on the premises of the Partnership's nine communities pursuant
to the Management Agreement.
Item 3. Legal Proceedings.
On June 15, 1995, The Russell F. Knapp Revocable Trust (the "Plaintiff") filed a
complaint in the United States District Court for the Southern District of
Indiana (the "Indiana Court") against the General Partner and Forum Group
alleging breach of the partnership agreement ( the "Partnership Agreement"),
breach of fiduciary duty, fraud, insider trading and civil conspiracy/aiding and
abetting. On February 4, 1998, the Plaintiff, Marriott Senior Living Services,
Inc., the General Partner, Forum Group and Host Marriott Corporation entered
into a Settlement and Release Agreement (the "Settlement Agreement"), pursuant
to which Host Marriott Corporation agreed to purchase, at a price of $4.50 per
unit, the Partnership units of each Limited Partner electing to join in the
Settlement Agreement. A subsidiary of Host Marriott Corporation currently holds
79% of the outstanding units in the Partnership. Host Marriott Corporation also
agreed to pay as much as an additional $1.25 per unit to the settling Limited
Partners, under certain conditions, in the event that Host Marriott within three
years following the date of settlement initiates a tender offer for the purchase
of units not presently held by Host Marriott Corporation or the settling Limited
Partners. On February 5, 1998, the Indiana Court entered an order approving the
dismissal of the Plaintiff's case.
In connection with the Settlement Agreement on March 25, 1998, Host Marriott
acquired 1,000,894 limited partner shares for $4,504,023. As a result of this
purchase, Host Marriott's ownership interest in the Partnership is approximately
86%.
Item 4. Submission Of Matters To A Vote Of Security Holders.
None.
7
<PAGE>
PART II
Item 5. Market For The Partnership's Common Equity And Related Unitholder
Matters.
The preferred depository units are listed on the American Stock Exchange
and are traded under the symbol "FRL". The following tables set forth, for the
fiscal periods indicated, the high and low sales prices per unit, as reported in
the consolidated transaction reporting system. The approximate number of record
holders of Preferred Depository Units as of March 19, 1998 was 374. The
Partnership has not declared or made any distributions on Preferred Depository
Units for the last seven years. The Partnership intends to invest its excess
cash flow in its expansion program and does not expect to make distributions on
Preferred Depository Units in the foreseeable future. There necessarily can be
no assurance as to whether or when, or at what level, any future cash
distributions to holders of Units will be made. See "Item 1 - Business" for a
discussion of possible cash needs for expansions of the Partnership's RCs.
1996 High Low
- ---- ---- ----
First Quarter $5 $2-11/16
Second Quarter 4 3-1/4
Third Quarter 3-5/8 3-1/8
Fourth Quarter 3-3/4 3
1997 High Low
- ---- ---- ---
First Quarter $3-3/4 $3
Second Quarter 3-10/16 2-15/16
Third Quarter 4-3/4 3
Fourth Quarter 5-7/8 4-1/4
1998 High Low
- ---- ---- ---
First Quarter (through March 18, 1998) $4-5/8 $4-9/16
Item 6. Selected Financial Data.
Years Ended December 31
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Income Statement Data (in thousands except per Unit amounts)
Revenues $ 17,614 $ 16,283 $ 15,135 $ 15,093 $ 13,046
Income (loss) before
extraordinary charge 2,579 699 297 317 (1,762)
Extraordinary charge -
early extinguishment
of debt -- -- -- -- (2,917)
Net income (loss) 2,579 699 297 317 (4,679)
General Partner's interest
in net income (loss) 26 7 3 3 (47)
Limited Partners' interest
in net income (loss) 2,553 692 294 314 (4,632)
Average number of Units
outstanding 15,285 15,285 15,285 15,285 10,317
Basic and diluted earnings
(loss) per limited partner
Unit:
Income (loss) before
extraordinary charge .17 .05 .02 .02 (.17)
Extraordinary charge -- -- -- -- (.28)
Net income (loss) .17 .05 .02 .02 (.45)
Balance Sheet Data
Total assets $109,670 $106,510 $110,610 $111,163 $110,480
Long-term obligations 46,854 47,984 49,007 49,934 50,707
Partners' Equity 42,187 39,608 38,909 38,612 38,386
8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
1997 Compared to 1996
Revenues. Revenues represent gross property routine and ancillary sales less
property-level expenses. Routine service revenues are generated from monthly
charges for independent living units and daily charges for assisted living
suites and nursing beds which are recognized monthly based on the terms of the
residents' agreements. Ancillary service revenues are generated on a "fee for
service" basis for supplementary items requested by residents and are recognized
as the services are provided. Revenues increased $1,331,000, or 8.2%, to
$17,614,000 for 1997. The revenue increase is primarily the result of increases
in residency fees and charges in the independent living, assisted living and
nursing components, the favorable impact of the expansion units and increases in
therapy and other ancillary healthcare services. However, the increases in gross
sales also resulted in increased department costs due to a higher level of
nursing and therapy staffing as well as an increase in the amount of therapy and
ancillary healthcare services, resulting from the expansions described above.
Combined average occupancy (calculated based on the number of units occupied
during the respective period) at the nine senior communities was 92.8% for the
year ended December 31, 1997, a decrease of approximately 1.6% compared to 1996.
The Partnership has not made any distributions on its Units in the past
seven years. Recently, this has been primarily due to the level of expansion
activity at several of its communities. The Partnership believes that operating
results can be expected to improve as a result of the expansion program.
Furthermore, the Partnership believes that it can continue to sustain high
levels of occupancy at the senior communities while enhancing operating margins
and performance. There necessarily can be no assurance that operating results
will improve or as to whether or when, or at what levels, any distributions will
be made. Implementation of the Partnership's expansion plan will negatively
affect the Partnership's level of distributable cash, if any, until the
expansion plan is completed. See "Item 1 - Business" for a discussion of the
Partnership's expansion efforts.
Operating Costs and Expenses. Operating costs and expenses consist of
depreciation and amortization, base management fees, real and personal property
taxes, insurance and certain other costs. The Partnership's operating costs and
expenses decreased $230,000, or 2.3%, to $9,946,000 for 1997 generally due to
lower depreciation and property taxes, partially offset by increased management
fees as a result of the gross sales increase discussed above. As a percentage
of revenues, operating costs and expenses decreased from 62.5% in 1996 to 56.5%
in 1997.
Operating Profit. As a result of the changes in revenues and operating
costs and expenses discussed above, the operating profit increased $1,561,000,
or 25.6% to $7,668,000 in 1997. As a percentage of revenues, operating profit
increased to 43.5% in 1997 from 37.5% in 1996.
Interest Expense. Interest expense increased nominally to $5,115,000 in
1997 from $5,097,000 in 1996.
Net Income. Net income in 1997 was $2,579,000 compared to a net income of
$699,000 in 1996. The net income per limited partner unit for 1997 was $.17 per
share, compared to $.05 per share for 1996.
Income Taxes. The Omnibus Budget Reconciliation Act of 1987, as amended by
the Taxpayer Relief Act of 1997 (the "Act"), provided that certain publicly
traded partnerships should be treated as corporations for federal income tax
purposes. A provision of the Act allows certain publicly traded partnerships
which would otherwise become subject to tax as a corporation beginning in 1998
or, in certain cases, to elect to be subject to a special tax on gross income
from its active conduct of a trade or business, and continue to avoid being
treated as a corporation for federal income tax purposes. The tax generally
applies to a partnership's gross income at the rate of three and one half
percent, effective for taxable years beginning after December 31, 1997.
Alternatives available to the Partnership to avoid corporate taxation for
tax years beginning after December 31, 1997 include: (i) selling or otherwise
disposing of all or substantially all of the Partnership's assets pursuant to a
plan
9
<PAGE>
of liquidation and (ii) converting the Partnership into a real estate
investment trust or other type of legal entity. Such actions are prohibited or
restricted under the Partnership's current financing and would require the
granting of a waiver by the lender thereunder. The General Partner does not
believe that these are viable alternatives.
Had the Partnership historically been taxed as a corporation, income tax
expense recognized for the periods presented in the accompanying Statements of
Operations would have approximated $1,042,000, $282,000, and $119,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. Had the Partnership
been taxed under the elective provisions of the Act for the periods presented,
tax incurred by the Partnership would have been approximately $2,049,000,
$1,880,000, and $1,743,000 for 1997, 1996 and 1995, respectively.
The Partnership has not elected to pay the special tax on gross income and
will continue to be treated as a partnership. As a result, for federal tax
purposes beginning in 1998, corporate income tax will be assessed upon and paid
for by the Partnership. Effective January 1,1998, the Partnership will recognize
a deferred tax liability of approximately $8 million representing the excess of
the Partnership's book basis in its assets over its tax basis as of that date,
with a corresponding one-time charge against income in 1998. The excess results
from the cumulative tax effect of temporary differences between the book and tax
treatment of certain items principally depreciation.
1996 Compared to 1995
Revenues. Revenues increased $1,148,000, or 7.6%, to $16,283,000 in 1996 as
compared to 1995. The revenue increase is primarily the result of increases in
residency fees and charges in the independent living, assisted living and
nursing components, occupancy increases at a majority of the senior communities
and the favorable impact of expansion units at four communities. Each of the
nine senior communities experienced revenue increases in 1996.
Operating Costs and Expenses. Operating costs and expenses increased
$863,000, or 9.3%, to $10,176,000 over the comparable period last year. The
increase in operating costs and expenses is primarily related to increases in
depreciation and amortization expense as a result of additions to property and
equipment, including additions related to the expansions discussed above.
Management fees increased as a function of the increase in sales. As a
percentage of revenues, operating costs and expenses increased to 62.5% in 1996
as compared to 61.5% in 1995.
Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, the Partnership's operating profit increased
$285,000, or 4.9%, to $6,107,000 in 1996. As a percentage of revenues,
operating profit decreased to 37.5% in 1996 from 38.5% in 1995.
Interest Expense. Interest expense decreased by 3% to $5,097,000, due
primarily to a reduction in the principal amount of debt.
Net Income. Net income for 1996 was $699,000 compared to a net income of
$297,000 in 1995. The net income per limited partner unit for 1996 was $.05 per
share, compared to $.02 per share for 1995.
Liquidity and Capital Resources
Capital Transactions. At December 31, 1997, the Partnership had cash and
cash equivalents of $6,459,000 and restricted cash of $2,452,000 which is
included in other assets on the balance sheet. The Partnership believes that it
has adequate liquidity to meet its foreseeable working capital requirements.
The Partnership has an on-going expansion program related to all of its
communities in an effort to further improve the Partnership's results of
operations. The expansions are designed to add capacity to and/or modify the
uses of existing facilities to increase earnings without incurring substantial
land acquisition and common area build-out costs. Certain expansions will
require additional regulatory approvals. The expansion program consists of
eleven separate projects expected to increase the total number of units by 292,
or 18% of total units, at an estimated cost of $20 million.
10
<PAGE>
The Partnership is financing and intends to continue to finance this
expansion program with cash from operations. If cash flow from operations is
insufficient to complete future expansions on a timely basis, the expansion may
be delayed, reduced in scope or discontinued. The terms of the Partnership's
current debt agreement restrict the Partnership from incurring additional third-
party financing (other than $1 million of equipment financing) and prohibit the
imposition of liens on the Partnership's assets. There can be no assurance that
a waiver can be obtained from the lender to permit any third party financing, or
whether, when and on what terms, any such financing may be available. As a
result of the capital required to fund the expansion program, the Partnership
does not expect to make distributions to the limited partners in the foreseeable
future.
The implementation of the expansion program and its impact on the value of an
investment in the Partnership is subject to a number of variables, including
without limitation, the availability of cash flow from operations, the ability
to obtain required zoning variances and permits from local government
authorities and the timing thereof, whether development and construction costs
are higher or lower than anticipated, whether construction is completed faster
or slower than anticipated, whether newly added units are occupied faster or
slower than anticipated and whether operating costs are higher or lower than
anticipated.
The management fee payable to Forum Group of $15,780,000 for all periods from
the formation of the Partnership in 1986 to December 31, 1993 was deferred.
Management fees for periods after December 31, 1993 are being paid quarterly, in
arrears. Deferred management fees are payable to Forum Group out of proceeds of
sales and refinancings after making distributions of those proceeds in an amount
sufficient to (i) meet limited partners' tax liabilities, (ii) repay limited
partners' capital contributions, and (iii) pay a 12% cumulative, simple annual
return on limited partners' unrecovered capital contributions. Deferred
management fees become immediately due and payable in the event that the
Management Agreement is terminated, which may occur under certain conditions
including, but not limited to, if Forum Retirement, Inc. is removed as the
General Partner and 80% of the limited partners' interest vote to terminate such
agreement. The Partnership is unable to predict when or if management fees
deferred prior to January 1, 1994 will become payable.
Debt Payments. At December 31, 1997, the Partnership had approximately $47
million in mortgage debt secured by the Partnership's communities. Required
principal maturities on the mortgage debt are $1,247,000 in 1998, $1,376,000 in
1999, $1,520,000 in 2000 and the remaining balance of $42,712,000 in 2001.
Cash Flows. The Partnership's operating activities provided $7,372,000,
$7,914,000 and $2,988,000 of cash flow in 1997, 1996 and 1995. Cash provided by
operations, excluding changes in other operating accounts, was $6,891,000,
$5,203,000 and $4,289,000 in 1997, 1996 and 1995, respectively, due to improved
results for the RCs.
The Partnership's cash used in investing activities in 1997, 1996 and 1995
totaled $6,025,000, $3,607,000 and $4,519,000, respectively. Cash used in
investing activities primarily consists of the cost of new expansion units and
the funding of other capital additions, improvements and renewals and
replacements to existing community facilities.
The Partnership's cash used in financing activities was $1,087,000,
$1,068,000 and $1,097,000 in 1997, 1996 and 1995, respectively. The
Partnership's cash used in financing activities primarily consists of principal
payments on the secured mortgage debt of the RCs.
Inflation. Management does not believe that inflation has had a material
effect on net income. To the extent possible, increased costs are recovered
through increased residency fees and charges.
11
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements are filed under this Item:
Page
-----
Reports of Independent Public Accountants 13-14
Consolidated Balance Sheets - December 31, 1997 and 1996 15
Consolidated Statements of Operations - Years ended December 31, 1997,
1996 and 1995 16
Consolidated Statements of Partners' Equity - Years ended December 31,
1997, 1996 and 1995 17
Consolidated Statements of Cash Flows - Years ended December 31, 1997,
1996 and 1995 18
Notes to Consolidated Financial Statements 19
12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Partners of
FORUM RETIREMENT PARTNERS, L.P.:
We have audited the accompanying consolidated balance sheets of Forum Retirement
Partners, L.P. and subsidiary partnership (the "Partnership") as of December 31,
1997 and 1996, and the related consolidated statements of operations, partners'
equity and cash flows for each of the years in the two year period ended
December 31, 1997. These consolidated financial statements and the schedule
referred to below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Forum Retirement
Partners, L.P. and the Partnership as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for each of the years in the
two year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the consolidated financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the consolidated financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the consolidated financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
March 18, 1998
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners of
FORUM RETIREMENT PARTNERS, L.P.:
We have audited the accompanying consolidated statements of operations,
partners' equity and cash flows of Forum Retirement Partners, L.P. and
subsidiary partnership for the year ended December 31, 1995. These
consolidated financial statements and financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of their operations and their
cash flows of Forum Retirement Partners, L.P. and subsidiary partnership for
the year ended December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Indianapolis, Indiana
February 9, 1996, except as to note 7,
which is as of March 25, 1996
14
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Consolidated Balance Sheets
December 31, 1997 and 1996
(in thousands)
ASSETS 1997 1996
------ ---- ----
Property and equipment, net................................ $ 99,615 $ 97,540
Deferred financing costs, net.............................. 1,144 1,528
Other assets............................................... 2,452 1,243
Cash and cash equivalents.................................. 6,459 6,199
-------- --------
Total assets............................................. $109,670 $106,510
======== ========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Debt....................................................... $ 46,854 $ 47,984
Due to manager............................................. 3,909 2,611
Other liabilities.......................................... 678 291
General partner's equity in subsidiary partnership......... 262 236
Deferred management fees due to parent of general partner.. 15,780 15,780
-------- --------
Total liabilities........................................ 67,483 66,902
-------- --------
Partners' equity:
General partner.......................................... 528 502
Limited partners (15,285 units issued and outstanding)... 41,659 39,106
-------- --------
Total partners' equity................................ 42,187 39,608
-------- --------
Total liabilities and partners' equity................ $109,670 $106,510
======== ========
See Notes to Consolidated Financial Statements.
15
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
(in thousands, except per unit amounts)
1997 1996 1995
---- ---- ----
REVENUES......................................... $17,614 $16,283 $15,135
------- ------- -------
OPERATING COSTS AND EXPENSES
Depreciation and amortization.................... 3,928 4,093 3,630
Base management fees to MSLS..................... 4,684 4,301 3,961
Property taxes................................... 1,256 1,619 1,299
Insurance and other.............................. 78 163 423
------- ------- -------
Total operating costs and expenses............ 9,946 10,176 9,313
------- ------- -------
OPERATING PROFIT BEFORE PARTNERSHIP
EXPENSES AND INTEREST......................... 7,668 6,107 5,822
General and administrative....................... (357) (699) (601)
Interest expense................................. (5,115) (5,097) (5,261)
Interest income.................................. 409 395 338
------- ------- -------
Income before general partner's interest in
income of subsidiary partnership.............. 2,605 706 298
General partner's interest in income of
subsidiary partnership........................ (26) (7) (1)
------- ------- -------
NET INCOME....................................... $ 2,579 $ 699 $ 297
======= ======= =======
General partner's interest in net income......... $ 26 $ 7 $ 3
======= ======= =======
Limited partners' interest in net income......... $ 2,553 $ 692 $ 294
======= ======= =======
Average number of limited partner
units outstanding............................. 15,285 15,285 15,285
======= ======= =======
Earnings per limited partner unit................ $ .17 $ .05 $ .02
======= ======= =======
See Notes to Consolidated Financial Statements.
16
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Consolidated Statements of Partners' Equity
For the Years ended December 31, 1997, 1996 and 1995
(in thousands)
General Limited
partner partners
------- --------
Balances at December 31, 1994.......................... $ 492 $ 38,120
Net income........................................... 3 294
------ --------
Balances at December 31, 1995.......................... 495 38,414
Net income........................................... 7 692
------ --------
Balances at December 31, 1996.......................... 502 39,106
Net income........................................... 26 2,553
------ --------
Balances at December 31, 1997.......................... $ 528 $ 41,659
====== ========
Accumulated balances:
Capital contributions................................ $1,173 $116,279
Offering costs....................................... (4) (6,715)
Cash distributions................................... (255) (29,679)
Accumulated losses................................... (386) (38,226)
------ --------
Balances at December 31, 1997.......................... $ 528 $ 41,659
====== ========
See Notes to Consolidated Financial Statements.
17
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 2,579 $ 699 $ 297
Adjustments to reconcile to cash from operations
Depreciation and amortization ...................... 3,928 4,093 3,630
Amortization of deferred financing costs............ 384 411 362
Changes in other operating accounts................. 481 2,711 (1,301)
------- ------- -------
Cash provided by operations........................... 7,372 7,914 2,988
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures................................ (6,003) (4,427) (3,986)
(Increase) decrease in capital improvement reserve.. (22) 820 (533)
------- ------- -------
Cash used in investing activities..................... (6,025) (3,607) (4,519)
------- ------- -------
FINANCING ACTIVITIES
Repayments of debt.................................. (1,130) (1,023) (927)
Payments on note due to general partner............. (53) (45) (121)
Decrease in financing reserves...................... 96 -- --
Payment of deferred financing costs................. -- -- (49)
------- ------- -------
Cash used in financing activities..................... (1,087) (1,068) (1,097)
------- ------- -------
Increase (decrease) in cash and cash equivalents...... 260 3,239 (2,628)
------- ------- -------
Cash and cash equivalents, beginning of year.......... 6,199 2,960 5,588
------- ------- -------
Cash and cash equivalents, end of year................ $ 6,459 $ 6,199 $ 2,960
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Forum Retirement Partners, L.P. and a subsidiary partnership (collectively,
the "Partnership") own nine retirement communities ("RCs") with 1,731 units
which were acquired from Forum Group, Inc. ("Forum Group").
The general partner of the Partnership, a wholly-owned subsidiary of Forum
Group, receives 1% of all distributions of net cash flow until the limited
partners receive cumulative distributions equal to a 12% cumulative annual
return on the initial offering price. Thereafter, the general partner is to
receive 30% of all distributions of net cash flow.
In September 1995, Forum Group commenced a tender offer for any and all
outstanding units not already owned by it at $2.83 per unit. The tender offer
was completed in December 1995, with 2,644,724 units being purchased. Forum
Group owned 79% of the Partnership at December 31, 1997 and 1996.
On February 15, 1996, Forum Group, Marriott International, Inc., and a
subsidiary thereof (collectively "Marriott International") entered into an
Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger
Agreement, Marriott completed a tender offer for the shares of Forum Group on
March 23, 1996 and purchased 100% of the outstanding common stock of Forum
Group.
Forum Retirement, Inc., a wholly-owned subsidiary of Forum Group,
is the general partner of the Partnership (the "General Partner") and owns a one
percent interest in the Partnership and a one percent partnership interest in a
subsidiary operating partnership in which the Partnership owns a ninety-nine
percent limited partnership interest. The General Partner's interest in the
subsidiary operating partnership is reflected in the accompanying consolidated
statements of operations as a reduction of the income of the Partnership. Forum
Group beneficially owns 79% of the outstanding Preferred Depository Units (the
"Units") representing a preferred limited partner interest in the Partnership.
On June 21, 1997, HMC Senior Communities, Inc. ("HMCSC"), a wholly-owned
subsidiary of Host Marriott Corporation ("Host Marriott"), acquired all of the
outstanding stock of Forum Group from Marriott Senior Living Services, Inc.
("MSLS"), a subsidiary of Marriott International, Inc. ("MI"). In connection
with the acquisition, Forum Group assigned to MSLS its interest as manager under
a long-term management agreement (the "Management Agreement") for the nine
RC's owned by the Partnership.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Partnership and its subsidiary operating partnership in which the Partnership
has a 99% limited partner's interest and the General Partner of the Partnership
owns the remaining 1% interest. The effects of all significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents.
19
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Property and Equipment
Property and equipment is recorded at cost. For newly developed properties,
cost includes interest, rent and real estate taxes incurred during development
and construction. Replacements and improvements are capitalized.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally 40 years for buildings and three to 10
years for furniture and equipment. Leasehold improvements are amortized over
the shorter of the lease term or the useful lives of the related assets.
Effective January 1, 1996, the Companies adopted SFAS No. 121, which
requires that an impairment loss be recognized when the carrying amount of an
asset exceeds the sum of the undiscounted estimated future cash flows associated
with the asset. Management has determined that no such provision is necessary at
December 31, 1997.
Deferred Costs
Financing costs are amortized as interest expense on the straight-line
method over the remaining life of the debt.
Revenues
Revenues represent house profit from the Partnership's senior living
communities. House profit reflects the net revenues flowing to the Partnership
as property owner and represents gross community operating sales less property-
level expenses excluding depreciation and amortization, real and personal
property taxes, insurance, management fees and certain other costs which are
classified as operating costs and expenses.
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus on EITF 97-2,
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities and Certain Other Entities with Contractual
Management Arrangements." EITF 97-2 addresses the circumstances in which a
management entity may include the revenues and expenses of a managed entity in
its financial statements.
The Partnership is assessing the impact of EITF 97-2 on its policy of
excluding the property-level revenues and operating expenses of its communities
from its consolidated statements of operations. If the Partnership concludes
that EITF 97-2 should be applied to its communities, it would include operating
results of those managed operations in its consolidated financial statements.
Application of EITF 97-2 to financial statements as of and for the year ended
December 31, 1997 would have increased both revenues and operating expenses by
approximately $41 million and would have had no impact on operating profit, net
income or earnings per limited partner unit.
Working Capital
Pursuant to the terms of the Partnership's Management Agreements, the
Partnership is required to provide the respective manager with working capital
and supplies to meet the operating needs of the RCs. The respective manager
converts cash advanced by the Partnership into other forms of working capital
consisting primarily of operating cash, inventories, resident deposits and trade
receivables and payables which are maintained and controlled by the manager.
Upon the termination of the Management Agreements, the manager is required to
convert working capital and supplies into cash and return it to the Partnership.
As a result of these conditions, the individual components of working capital
and supplies controlled by the manager are not reflected in the accompanying
balance sheets.
20
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Income Taxes
Provision for federal and state income taxes has not been made in the
accompanying consolidated financial statements as the Partnership does not pay
income taxes, but rather, allocates its profits and losses to individual
unitholders.
The tax basis of the Partnership's assets are approximately $8 million less
than the basis reported for financial statement purposes, primarily due to the
carryover tax basis of the affiliated operating partnerships and differences in
tax reporting methods.
The Omnibus Budget Reconciliation Act of 1987, as amended by the Taxpayer
Relief Act of 1997 (the "Act"), provided that certain publicly traded
partnerships should be treated as corporations for federal income tax purposes.
A provision of the Act allows certain publicly traded partnerships which would
otherwise become subject to tax as a corporation beginning in 1998, to elect
in certain cases, to be subject to a special tax on gross income from its
active conduct of a trade or business, and continue to avoid being treated as a
corporation for federal income tax purposes. The tax generally applies to a
partnership's gross income at the rate of three and one half percent, effective
for taxable years beginning after December 31, 1997.
The Partnership has not elected to pay the special tax on gross income and
continues to be treated as a partnership. As a result, for federal tax purposes
beginning in 1998, corporate income tax will be assessed upon and paid for by
the Partnership. Effective January 1,1998, the Partnership will recognize a
deferred tax liability of approximately $8 million representing the excess of
the Partnership's book basis in its assets over its tax basis as of that date,
with a corresponding one-time charge against income in 1998. The excess results
from the cumulative tax effect of temporary differences between the book and tax
treatment of certain items, principally depreciation.
Per Unit Data
The earnings per unit is based on the limited partners' interest in the
Partnership's net income divided by the average number of limited partner
units outstanding.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the financial statements have been reclassified to
conform with the 1997 presentation.
21
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. REVENUES
House profit generated by the Partnership's senior living communities
consists of (in thousands):
1997 1996 1995
---- ---- ----
Community Sales
Routine....................... $ 50,544 $ 47,917 $ 43,921
Ancillary..................... 8,011 5,794 5,877
-------- -------- --------
Total Community Sales....... 58,555 53,711 49,798
-------- -------- --------
Department Costs
Routine....................... 34,239 31,992 29,895
Ancillary..................... 6,702 5,436 4,768
-------- -------- --------
Total Department Costs...... 40,941 37,428 34,663
-------- -------- --------
Department Profit
Routine....................... 16,305 15,925 14,026
Ancillary..................... 1,309 358 1,109
-------- -------- --------
Revenues.................... $ 17,614 $ 16,283 $ 15,135
======== ======== ========
Community sales consist of routine and ancillary sales. Routine sales are
generated from monthly charges for independent living units and daily charges
for assisted living suites and nursing beds, and are recognized monthly based on
the terms of the residents' agreements. Advance payments received for services
are deferred until the services are provided. Ancillary sales are generated on
a "fee for service" basis for supplementary items requested by residents, and
are recognized as the services are provided.
Total sales include amounts estimated by management to be reimbursable by
Medicare, Medicaid and other third party payor agreements. Medicare and
Medicaid represented 17% and 8% in 1997, 14% and 7% in 1996 and a combined 18%
in 1995 of total sales. Reimbursement arrangements are subject to audit and
retroactive adjustment. Provisions are made for potential adjustments that may
result. To the extent those provisions vary from settlements, sales are charged
or credited when the adjustments become final. Changes in the estimate of
amounts reimbursable by third party payors from prior years resulted in the
recognition of $238,000, $107,000 and $261,000 of additional sales for 1997,
1996 and 1995, respectively. In the General Partner's opinion, any adjustments
related to current and prior years' operations will be immaterial to current and
future financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
1997 1996
---- ----
Land and land improvements $ 14,348 $ 14,871
Buildings and leasehold improvements 105,425 103,496
Furniture and equipment 11,310 9,955
Construction in progress 4,177 941
-------- --------
135,260 129,263
Less accumulated depreciation (35,645) (31,723)
-------- --------
$ 99,615 $ 97,540
======== ========
22
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Interest costs capitalized in connection with the Partnership's development
and construction activities totaled $34,000 in 1997, $247,000 in 1996 and
$99,000 in 1995.
4. OTHER ASSETS
Other assets include restricted cash as follows (in thousands):
1997 1996
---- ----
Debt service reserve fund $ 391 $ 487
Fixed asset reserve fund 268 246
Real estate tax reserve fund 627 510
Insurance reserve fund 1,166 --
------- -------
$ 2,452 $ 1,243
======= =======
The debt service, fixed asset, real estate tax and insurance reserve funds
consist of monies transferred into segregated escrow accounts out of revenues
generated by the Partnership, pursuant to the Partnership's secured loan
facility. These funds are periodically disbursed by the collateral agent to pay
for debt service, capital expenditures, insurance premiums and real estate taxes
relating to the secured property. In some cases, to ensure prompt payment, the
Partnership utilizes its unrestricted cash to pay for capital expenditures,
insurance premiums and real estate taxes and is thereafter reimbursed for such
payments out of funds held in the appropriate escrow account.
5. MANAGEMENT FEES
In connection with the formation of the Partnership, the Partnership
entered into a long-term Management Agreement with Forum Group which requires
fees of 8% of gross operating revenues. Pursuant to the terms of the Management
Agreement in effect since the Partnership's formation in 1986, management fees
payable to Forum Group for all periods prior to 1994 have been deferred as cash
flow was not adequate to make the distributions. Fees accruing after January 1,
1994 have been paid on a current basis. The deferred management fees were
expensed in the Partnership's statements of operations as incurred and are
reflected as deferred management fees due to parent of General Partner in the
Partnership's accompanying balance sheet as of December 31, 1997. As
discussed in Note 9, the payment of deferred fees is uncertain in the
foreseeable future.
On June 21, 1997, in connection with the acquisition of Forum Group by
HMCSC, Forum Group assigned its interest as manager to MSLS. The Partnership
paid MSLS management fees of $4,684,000, $4,301,000 and $3,961,000 for 1997,
1996 and 1995, respectively.
6. RELATED PARTIES
At December 31, 1997, the Partnership had related party payables totaling
$1,496,000 due to HMCSC resulting from corporate and operating expenses paid by
HMCSC on behalf of the Partnership. At December 31, 1997 and 1996, the
Partnership had related party payables totaling $2,413,000 and $2,611,000 due to
MI and its affiliates resulting from the net reimbursement for current operating
expenses, management fees and working capital. The Partnership also reimburses
the General Partner for general and administrative costs incurred on behalf of
the Partnership, which amounted to $250,000 in 1997, $180,000 in 1996 and
$180,000 in 1995. These amounts are included in general and administrative cost
in the Partnership's accompanying Income Statement.
23
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. DEBT
On December 28, 1993, the Partnership entered into a mortgage loan
agreement for $50,707,000, and the proceeds were used to retire the split coupon
mortgage notes, including the yield maintenance premium, and the bank credit
facility and to pay related fees and expenses of $775,000. The mortgage loan
requires monthly payments of principal (based on a 20-year amortization) and
interest at 9.93% per annum to maturity on January 1, 2001. The loan agreement
prohibited prepayment for the first three years of the loan term and requires
payment of a yield maintenance premium, as defined, if prepaid thereafter.
Additional principal payments are required if the debt service coverage ratio,
as defined, is below specified levels. The loan is secured by all of the
Partnership's communities.
Debt maturities at December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 1,247
1999 1,376
2000 1,520
2001 42,711
2002 --
Thereafter --
-------
$46,854
=======
</TABLE>
Amounts due to parent of General Partner include long-term debt of $222,500
and $291,000 at December 31, 1997 and 1996, respectively, with a blended
interest rate of 7.2% and maturities in varying amounts through January 31,
2004.
Interest expense incurred during 1997, 1996 and 1995 totaled $5,115,000,
$5,097,000 and $5,261,000, respectively. Amortization of deferred financing
costs, included within interest expense totaled $384,000, $411,000 and $362,000
in 1997, 1996 and 1995, respectively.
8. COMMITMENTS AND CONTINGENCIES
In connection with the formation of the Partnership, the Partnership
entered into a long-term Management Agreement with Forum Group which requires
fees of 8% of gross operating revenues. Through December 31, 1993, the agreement
provided for the deferral of the payment of the fees if net cash flow was not
adequate to make certain distributions to limited partners. Cash flow was not
adequate to make the distributions, and the entire $15,780,000 of management
fees earned from formation of the Partnership through December 31, 1993 was
deferred. The management fee payable to Forum Group of $15,780,000 for all
periods from the formation of the Partnership in 1986 to December 31, 1993 was
deferred. Management fees for periods after December 31, 1993 are being paid
quarterly, in arrears. Deferred management fees are payable to Forum Group out
of proceeds of sales and refinancings after making distributions of those
proceeds in an amount sufficient to (i) meet limited partners' tax liabilities,
(ii) repay limited partners' capital contributions, and (iii) pay a 12%
cumulative, simple annual return on limited partners' unrecovered capital
contributions. Deferred management fees become immediately due and payable in
the event that the Management Agreement is terminated, which may occur under
certain conditions including, but not limited to, if Forum Retirement, Inc. is
removed as the General Partner and 80% of the limited partners' interest vote to
terminate such agreement. The Partnership is unable to predict when or if
management fees deferred prior to January 1, 1994 will become payable.
On June 15, 1995, The Russell F., Knapp Revocable Trust (the "Plaintiff")
filed a complaint in the United States District Court for the Southern District
of Indiana (the "Indiana Court") against the General Partner and Forum Group
alleging breach of the partnership agreement, breach of fiduciary duty, fraud,
insider trading and civil conspiracy/aiding and abetting. On February 4, 1998,
the Plaintiff, MSLS, the General Partner, Forum Group and Host Marriott
entered into a Settlement and Release Agreement (the "Settlement Agreement"),
pursuant to which Host Marriott agreed to purchase, at a price of $4.50 per
unit, the Partnership units of each limited partner electing to join in the
Settlement Agreement. A subsidiary of Host Marriott currently holds 79% of
the outstanding limited partner units in the Partnership. Host Marriott also
agreed to pay as much as an additional $1.25 per unit to the settling limited
24
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
partners, under certain conditions, in the event that Host Marriott within three
years following the date of settlement initiates a tender offer for the purchase
of units not presently held by Host Marriott or the settling Limited Partners.
On February 5, 1998, the Indiana Court entered an order approving the dismissal
of the Plaintiff's case.
In connection with the Settlement Agreement on March 25, 1998, Host
Marriott acquired 1,000,894 limited partner shares for $4,504,023. As a result
of this purchase, Host Marriott's ownership interest in the Partnership is
approximately 86%.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership believes the carrying amount of its financial instruments
(excluding property indebtedness and deferred management fees) approximates
their fair value due to the relatively short maturity of these instruments.
There is no quoted market value available for any of the Partnership's
instruments. Property indebtedness, with a carrying amount of $46,854,000, at
December 31, 1997, has been calculated to have a fair value of $49,820,000 by
discounting the scheduled loan payments to maturity using rates that are
believed to be currently available for debt of similar terms and maturities. The
deferred management fees due to the parent of the General Partner, with a
carrying amount of $15,780,000 at December 31, 1997, have been assessed to have
a fair value of zero due to the uncertainty of payment for the foreseeable
future.
10. QUARTERLY FINANCIAL DATA (Unaudited)
(in thousands, except per unit amounts)
<TABLE>
<CAPTION>
1997
--------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $3,983 $4,640 $4,332 $4,659 $17,614
Operating profit 1,864 2,476 1,408 1,920 7,668
Net income 527 1,219 204 629 2,579
Earnings per limited partner unit .03 .08 .01 .05 .17
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $3,961 $3,767 $4,404 $4,151 $16,283
Operating profit 1,858 1,764 1,523 962 6,107
Net income 374 256 507 (438) 699
Earnings (loss) per
limited partner unit .03 .02 .03 (.03) .05
</TABLE>
25
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors And Executive Officers Of The Partnership.
The following table lists the names and ages of all current directors and
executive officers of the General Partner; all positions and offices with the
General Partner held by each such person; each such person's term of office as a
director or an executive officer, and the period during which he has served as
such; and each such person's business experience for the past five years. The
directors of the General Partner serve as such until their successors are
elected and qualified. The executive officers of the General Partner serve at
the pleasure of the Board of Directors of the General Partner.
<TABLE>
<CAPTION>
Name, Principal Occupation
and Business Experience Served Since Age
- ------------------------------ ------------ ---
<S> <C> <C>
Robert E. Parsons, Jr. 1997 42
Robert E. Parsons, Jr. joined Host Marriott's Corporate
Financial Planning staff in 1981 and was made Assistant
Treasurer in 1988. In 1993, Mr. Parsons was elected Senior
Vice President and Treasurer of Host Marriott, and in 1995,
he was elected Executive Vice President and Chief
Financial Officer of Host Marriott. In June of 1997 Mr.
Parsons was elected President and Director of the
Partnership.
John F. Sexton 1993 65
John F. Sexton is Chairman of Evans - McKinsey Company, a
financial consulting firm, a position he has held from
1993. From 1989 to 1993, Mr. Sexton served as Chief
Financial Officer of Lomas Financial Corporation.
Previously, Mr. Sexton served as a director of Americana
Hotels and Realty Corp. and Chairman and Director of Mutual
Equity Mortgage. Mr. Sexton was elected a Director of the
General Partner in 1993.
James C. Leslie 1993 42
James C. Leslie is President, Chief Operating Officer and a
director of The Staubach Company, positions he has held
since March 1996 and September, 1984, respectively. Mr. Leslie
was Chief Financial Officer of the Staubach Company from
1982 to January 1992, at which time he became President of
Staubach Financial Services, a position he held until
February 1996. Mr. Leslie is also President and a board
member of Wolverine Holding Company, and serves on the
boards of FM Properties, Inc., Wyndham International, Inc. and
the North Texas Chapter of the Arthritis Foundation. Mr.
Leslie is a certified public accountant.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Name, Principal Occupation
and Business Experience Served Since Age
- ---------------------------- ------------ ---
<S> <C> <C>
Christopher G. Townsend 1997 50
Christopher G. Townsend joined Host Marriott in 1982 as a
Senior Attorney. In 1984, Mr. Townsend was made Assistant
Secretary of Host Marriott, and in 1986, he was made
Assistant General Counsel. In 1993, Mr. Townsend was
elected Senior Vice President, Corporate Secretary and
Deputy General Counsel of Host Marriott. In January 1997,
he was elected General Counsel of Host Marriott. In June
of 1997 Mr. Townsend was elected Vice President of the
Partnership.
Christopher J. Nassetta 1997 35
Christopher J. Nassetta joined Host Marriott in October 1995
as Executive Vice President. Prior to joining Host
Marriott, Mr. Nassetta served as President of Bailey Realty
Corporation from 1991 until 1995. He had previously served
as Chief Development Officer and in various other positions
with The Oliver Carr Company from 1984 through 1991. In
June of 1997 Mr. Nassetta was elected Vice President of the
Partnership.
Bruce D. Wardinski 1997 37
Bruce D. Wardinski joined Host Marriott in 1987 as Senior
Financial Analyst of Financial Planning & Analysis and was
named Manager in June 1988. He was appointed Host
Marriott's Director of Financial Planning & Analysis in
1989, Director of Project Finance in June 1993, Vice
President of Project Finance in June 1994, and Senior Vice
President of International Development in October 1995. In
1996, Mr. Wardinski was named Senior Vice President and
Treasurer of Host Marriott. Prior to joining Host Marriott,
Mr. Wardinski was with the public accounting firm of Price
Waterhouse. In June of 1997 Mr. Wardinski was elected Vice
President and Treasurer of the Partnership.
Donald D. Olinger 1997 39
Donald D. Olinger joined Host Marriott in 1993 as Director
of Corporate Accounting. Later in 1993, Mr. Olinger was
promoted to Senior Director and Assistant Controller of
Host Marriott. He was promoted to Vice President of
Corporate Accounting in 1995. In 1996, he was elected
Senior Vice President and Corporate Controller of Host
Marriott. Prior to joining Host Marriott, Mr. Olinger was
with the public accounting firm of Deloitte & Touche. In
June of 1997 Mr. Olinger was elected Vice President of the
Partnership.
</TABLE>
See "Item 1--Business" for a discussion of a change in control of Forum Group
that occurred on June 21, 1997.
27
<PAGE>
The Partnership Agreement provides that the Board of Directors of the
General Partner shall at all times contain a majority of individuals each of
whom is an Independent Director. The Partnership Agreement defines an
"Independent Director" as a person who is not (i) a director, officer or
employee of, (ii) a holder of 1% or more of the capital stock of, or (iii) an
Affiliate of, the General Partner or any of its affiliates. Vacancies of
Independent Directors are filled by the remaining Independent Director(s).
The certificate of incorporation of the General Partner requires that a
majority of the Board of Directors of the General Partner consist at all times
of individuals who are each an Independent Director. The certificate of
incorporation defines an "Independent Director" to be a person meeting the same
test set forth in the Partnership Agreement, except that, for so long as the
Nomura Loan remains outstanding, the Board of Directors of the General Partner
shall contain a majority of individuals each of whom (i) is not, and during the
immediately preceding five years has not been, a director (other than a director
of the General Partner), officer or employee of Forum Group or any of its
subsidiaries or Affiliates, and (ii) does not have, and has not had during the
immediately preceding five years, any ownership interest in the General Partner,
Forum Group or any other subsidiary or Affiliate thereof. The certificate of
incorporation provides that any vacancy on the Board created by the removal or
withdrawal of an Independent Director shall be filled by an Independent Director
selected by the remaining Independent Directors, and if there are none, by the
shareholders of the General Partner.
Messrs. Leslie and Sexton are Independent Directors under each of the
foregoing definitions. See "Item 3 - Legal Proceedings" for a discussion of
certain litigation challenging the constitution of the Board of Directors of the
General Partner and the Management Agreement entered into in 1986 in connection
with the formation of the Partnership.
Item 11. Executive Compensation.
No cash or other compensation is paid to any officer of the General Partner
for services rendered in any capacity to the Partnership and its affiliated
operating partnership.
Messrs. Sexton and Leslie are compensated for all services as a director at
the rate of $18,000 per year, payable quarterly in advance, plus $1,500 for each
board or committee meeting attended in person and $1,000 per meeting attended
telephonically. In addition, if Mr. Sexton or Mr. Leslie serve as a committee
chairman, he will receive $250 per substantive discussion of such committee.
Mr. Parsons will receive no compensation for his service as a director.
In addition to amounts payable to Forum Group under the Management
Agreement, Forum Group and the General Partner are entitled to the reimbursement
of various amounts and to indemnification for certain costs and losses under the
Management Agreement and the Partnership Agreement.
Item 12. Security Ownership Of Certain Beneficial Owners And Management.
(a) Security Ownership of Certain Beneficial Owners. The following table
shows the numbers and percentages of Units owned beneficially on March 20, 1998
by any person known to the Partnership to be the beneficial owner of more than
5% of the issued and outstanding units. Each person has sole voting and
investment power as to the Units beneficially owned by that person. In addition
to the Units beneficially owned by it, Forum Group beneficially owns the General
Partner's 1% general partnership interest.
Units
----------------------------
Name and Address of Beneficial Owner Number Percent of Total
- ------------------------------------ ------ ----------------
Forum Group, Inc. (1) 12,072,515 79.0%
- ---------------
(1) Consists of Units owned by the General Partner and by another wholly-owned
subsidiary of Forum Group. Forum Group is a wholly-owned subsidiary of Host
Marriott Corporation.
28
<PAGE>
(b) Security Ownership of Management. None of the directors or officers of
the General Partner beneficially owns any Units, except insofar as they may be
deemed beneficially to own Units owned by Forum Group or its affiliates.
Changes in Control. See "Item 1- Business" for a discussion of a change of
control of Forum Group that occurred on June 21, 1997.
Item 13. Certain Relationships and Related Transactions.
Under the Management Agreement, for fiscal 1997, MSLS received (i)
management fees of $4,684,000 and (ii) reimbursement of $41,434,892 for direct
expenses incurred on behalf of the Partnership, and for office expenses,
salaries, compensation expenses, administrative expenses and other expenses
necessary or appropriate to the conduct of the business of, and allocable to,
the Partnership.
29
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement Schedules, And Reports On Form 8-K.
(a) Documents Filed as Part of Report. The following documents are
filed as a part of this report:
1. Financial Statements:
The following consolidated financial statements of the Partnership and
its affiliated operating partnership are filed under Item 8 of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Public Accountants.........................................................................13-14
Consolidated Balance Sheets - December 31, 1997 and 1996..........................................................15
Consolidated Statements of Operations - Years ended December 31, 1997, 1996 and 1995..............................16
Consolidated Statements of Partners' Equity - Years ended December 31, 1997, 1996 and 1995........................17
Consolidated Statements of Cash Flows - Years ended December 31, 1997, 1996 and 1995..............................18
Notes to Consolidated Financial Statements........................................................................19
</TABLE>
2. Financial Statement Schedules:
The following other financial statement schedule is filed pursuant to this
item:
<TABLE>
Page
----
<S> <C>
Schedule III - Real Estate and Accumulated Depreciation.........................................................S-1
</TABLE>
All other schedules for which provision is made in Regulation S-X are not
required under the related instruction or are inapplicable, and have therefore
been omitted.
3. Exhibits:
<TABLE>
<S> <C>
Exhibit 2(1): Option Agreement (MLP), dated December 29, 1986, by and among Forum Group,
the Partnership and Operations (incorporated by reference to Exhibit 2(1) to Registration Statement
Number 33-71498 dated November 10, 1993 (the "1993 Form S-2"))........................................ N/A
Exhibit 2(2): Recapitalization Agreement, dated October 6, 1993, between Forum Group and the
Partnership (incorporated by reference to Exhibit 10(1) to Partnership Current Report on
Form 8-K, dated October 12, 1993 (the "October 1993 Form 8-K"))....................................... N/A
Exhibit 2(3): Letter Agreement, dated December 14, 1993, by and among Forum Group,
Forum A/H and the Partnership (incorporated by reference to Exhibit 2(3) of Amendment No. 1
to the 1993 Form S-2, dated December 21, 1993 ("1993 Amendment No. 1")).............................. N/A
Exhibit 4(1): Amended and Restated Agreement of Limited Partnership, dated as of December 29, 1986,
of the Partnership, as amended (incorporated by reference to Exhibit 4(1) to the 1993 Form S-2)...... N/A
Exhibit 10(1): Management Agreement (MLP), dated as of December 31, 1986, by and among
the Partnership, Forum Retirement Operations, L.P., Forum Health Partners I-A, L.P.,
Foulk Manor Associates, L.P. and Forum Group (the "Management Agreement")
(incorporated by reference to Exhibit 10(1) to the 1993 Form S-2)..................................... N/A
Exhibit 10(2): First Amendment to Management Agreement, dated as of September 20, 1986
(incorporated by reference to Exhibit 10(2) to the 1993 Form S-2)..................................... N/A
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
Exhibit 10(3): Second Amendment to Management Agreement, dated as of September 20, 1989
(incorporated by reference to Exhibit 10(3) to the 1993 Form S-2).......................... N/A
Exhibit 10(4): Third Amendment to Management Agreement, dated as of May 27, 1992
(incorporated by reference to Exhibit 10(4) to the 1993 Form S-2).......................... N/A
Exhibit 10(5): Fourth Amendment to Management Agreement, dated as of
November 9, 1993 (incorporated by reference to Exhibit 10(5) to the 1993 Form S-2)........ N/A
Exhibit 10(6): Depository Agreement, dated as of December 29, 1986, by and among
the Partnership, the General Partner, limited partners and assignees holding depository
receipts and Manufacturers Hanover Trust Company ("Manufacturers")
(incorporated by reference to Exhibit 10(6) to the 1993 Form S-2)........................... N/A
Exhibit 10(7): Assignment of Depository Agreement from Manufacturers to American
Stock & Trust Company, dated January 1, 1992 (incorporated by reference to Exhibit
10(7) of Amendment No. 2 to the 1993 Form S-2, dated January 5, 1994
("1993 Amendment No. 2")).................................................................... N/A
Exhibit 10(8): Loan Agreement, dated as of December 28, 1993, by and among FRP Financing
Limited, L.P., Nomura Asset Capital Corporation and Bankers Trust Company
(incorporated by reference to Exhibit 10(8) to 1993 Amendment No. 2) ....................... N/A
Exhibit 10(9): Amendment to Loan Agreement, dated as of January 31, 1994, by
and among FRP Financing Limited, L.P., Nomura Asset Capital Corporation
and Bankers Trust Company (incorporated by reference to Exhibit 10(9) to 1995 Form 10-K) .... N/A
Exhibit 10(10): Second Amendment to Loan Agreement, dated as of March 31, 1995,
by and among FRP Financing Limited, L.P., Nomura Asset Capital Corporation
and Bankers Trust Company (incorporated by reference to Exhibit 10(10) to 1995 Form 10-K) .... N/A
Exhibit 21: Subsidiaries of the Partnership............................................................ E-21
</TABLE>
Reports on Form 8-K.
July 7, 1997- Report of the announcement that HMC Senior
Communities, Inc., a wholly-owned subsidiary of Host
Marriott Corporation, acquired all of the outstanding
stock of Forum Group, Inc. ("Forum Group") from
Marriott Senior Living Services, Inc., a wholly-owned
subsidiary of Marriott International, Inc. Forum
Group owns all of the outstanding stock of Forum
Retirement, Inc., the general partner of the
Partnership, and also indirectly owns approximately
79% of the outstanding preferred depository units of
the Partnership.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FORUM RETIREMENT PARTNERS, L.P.,
a Delaware Limited Partnership
By: FORUM RETIREMENT, INC., GENERAL PARTNER
---------------------------------------
Date: March 25, 1998 By: /s/ Robert E. Parsons, Jr.
---------------------------------------
Robert E. Parsons, Jr.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
(1) Principal Executive Officer
of General Partner
/s/ ROBERT E. PARSONS, JR. President March 25, 1998
- ----------------------------------------
Robert E. Parsons, Jr.
(2) Principal Financial and
Accounting Officer of
General Partner:
/s/ DONALD D. OLINGER Vice President March 25, 1998
- ----------------------------------------
Donald D. Olinger
(3) A majority of the Board of
Directors of General Partner:
/s/ ROBERT E. PARSONS, JR. Director March 25, 1998
- ----------------------------------------
Robert E. Parsons, Jr.
/s/ JAMES C. LESLIE Director March 25, 1998
- ----------------------------------------
James C. Leslie
/s/ JOHN F. SEXTON Director March 25, 1998
- ----------------------------------------
John F. Sexton
</TABLE>
32
<PAGE>
SCHEDULE III
Page 1 of 2
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Gross Amount
at
Initial Costs December 31, 1997
------------------------ -----------------
Subsequent
Building and Costs
Description Debt Land Improvements Capitalized Land
- ----------- ---- ---- ------------ ----------- ----
<S> <C> <C> <C> <C> <C>
Senior Living Communities:
Lincoln Heights
San Antonio, TX .................. $ 9,846 $ 3,345 $ 19,617 $ 487 $ 3,345
Coral Springs/Park Summit
Coral Springs, FL ................ 4,962 3,227 12,339 1,256 3,227
Montebello
Albuquerque, NM .................. 9,154 1,726 13,031 1,774 1,726
Montevista
El Paso, TX ...................... 6,013 1,652 13,616 586 1,652
Millcroft
Wilmingon, DE .................... 3,881 507 9,592 2,818 507
Shipley Manor
Wilmington, DE ................... 4,905 1,379 8,810 1,636 1,379
Myrtle Beach
Myrtle Beach, SC ................. 3,286 1,046 6,060 1,695 1,046
Foulk Manor North
Wilmington, DE ................... 2,925 912 6,487 981 912
Other senior living properties
each less than 5% of total ....... 1,882 554 3,859 781 554
--------- --------- ---------- ---------- ----------
TOTAL ............................ $ 46,854 $ 14,348 $ 93,411 $ 12,014 $ 14,348
========= ========= ========== ========== ==========
<CAPTION>
Gross Amount at
December 31, 1997
-----------------------
Building and Accumulated Date Depreciation
Description Improvements Total Depreciation Acquired Life
- ----------- ------------ ----- ------------ -------- ----
<S> <C> <C> <C> <C> <C>
Senior Living Communities:
Lincoln Heights
San Antonio, TX .................. $ 20,104 $ 23,449 $ (4,188) 1989 40
Coral Springs/Park Summit
Coral Springs, FL ................ 13,595 16,822 (4,626) 1986 40
Montebello
Albuquerque, NM .................. 14,805 16,531 (3,890) 1986 40
Montevista
El Paso, TX ...................... 14,202 15,854 (4,050) 1986 40
Millcroft
Wilmingon, DE .................... 12,410 12,917 (3,161) 1986 40
Shipley Manor
Wilmington, DE ................... 10,446 11,825 (2,727) 1986 40
Myrtle Beach
Myrtle Beach, SC ................. 7,755 8,801 (1,970) 1986 40
Foulk Manor North
Wilmington, DE ................... 7,468 8,380 (2,109) 1986 40
Other senior living properties
each less than 5% of total ....... 4,640 5,194 (1,402)
--------- --------- ----------
TOTAL ............................ $ 105,425 $ 119,773 $ (28,123)
========= ========= ==========
</TABLE>
S-1
<PAGE>
Schedule III
Page 2 of 2
FORUM RETIREMENT PARTNERS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in millions)
Notes:
(A) The change in total cost of properties for the years ended December 31,
1995, 1996 and 1997 is as follows:
Balance as of December 31, 1994 ..................... $112,643
Additions:
Capital expenditures ............................ 1,484
Transfers from construction in progress ......... 33
--------
Balance as of December 31, 1995 ..................... $114,160
========
Additions:
Capital expenditures ............................ 2,729
Transfers from construction in progress ......... 1,478
--------
Balance as of December 31, 1996 ..................... $118,367
========
Additions:
Capital expenditures ............................ 465
Transfers from construction in progress ......... 941
--------
Balance as of December 31, 1997 ..................... $119,773
========
(B) The change in accumulated depreciation and amortization for the years ended
December 31, 1995, 1996 and 1997 is as follows:
Balance as of December 31, 1994 ..................... $(18,933)
Depreciation and amortization ..................... (2,864)
--------
Balance as of December 31, 1995 ..................... (21,797)
Depreciation and amortization ..................... (3,229)
--------
Balance as of December 31, 1996 ..................... (25,026)
Depreciation and amortization ..................... (3,097)
--------
Balance as of December 31, 1997 ..................... $(28,123)
========
(C) The aggregate cost of properties for Federal income tax purposes is
approximately $107,612,000 at December 31, 1997.
(D) The total cost of properties excludes construction-in-progress
properties.
S-2
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF FORUM RETIREMENT PARTNERS, L.P.
NAME STATE OF
- ---- ORGANIZATION
------------
FRP Financing Limited, L.P. (99% limited partnership interest) Delaware
E-21
<PAGE>
Annex E
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934
FOR QUARTER ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER: 1-9302
FORUM RETIREMENT PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 35-1686799
(State of Incorporation) 10400 Fernwood Road (I.R.S. Employer Identification
Bethesda, MD 20817 Number)
TELEPHONE: (301) 380-9000
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
Preferred Depository Units Representing Preferred ON WHICH REGISTERED
Limited Partners' Interests American Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X: No
--- ---
================================================================================
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION (unaudited):
Condensed Consolidated Balance Sheets - 3
September 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations - 4
Three and nine months ended September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows - 5
Nine months ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of 9
Operations and Financial Condition
PART II. OTHER INFORMATION AND SIGNATURE 12
</TABLE>
2
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
------
Property and equipment, net................................ $ 96,988 $ 99,615
Deferred financing costs, net.............................. 887 1,144
Restricted cash............................................ 4,546 2,452
Cash and cash equivalents.................................. 6,216 6,459
-------- --------
Total assets.......................................... $108,637 $109,670
======== ========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Debt....................................................... $ 45,931 $ 46,854
Deferred income taxes...................................... 1,870 --
Due to Host Marriott Corporation........................... 2,566 --
Due to/(from) Marriott International....................... (1,515) 3,909
Other liabilities.......................................... 621 678
General partner's equity in subsidiary partnership......... 299 262
Deferred management fees due to parent of general partner.. 15,780 15,780
-------- --------
Total liabilities..................................... 65,552 67,483
-------- --------
Partners' equity:
General partner.......................................... 537 528
Limited partners (15,285 units issued and outstanding)... 42,548 41,659
-------- --------
Total partners' equity................................ 43,085 42,187
-------- --------
Total liabilities and partners' equity................ $108,637 $109,670
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 1998 and 1997
(unaudited, in thousands, except per unit data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES.......................................................... $ 5,125 $ 4,332 $14,856 $13,915
------- ------- ------- -------
OPERATING COSTS AND EXPENSES
Depreciation and amortization................................... 957 1,006 2,867 2,784
Base management fees to MSLS.................................... 1,283 1,142 3,781 3,489
Property taxes.................................................. 330 352 743 1,278
Insurance and other............................................. 117 424 213 458
------- ------- ------- -------
Total operating costs and expenses............................ 2,687 2,924 7,604 8,009
------- ------- ------- -------
OPERATING PROFIT BEFORE PARTNERSHIP EXPENSES
AND INTEREST.................................................... 2,438 1,408 7,252 5,906
General and administrative...................................... (80) (45) (254) (350)
Interest expense................................................ (1,231) (1,269) (3,717) (3,839)
Interest income................................................. 145 112 371 253
------- ------- ------- -------
Income before general partner's interest in income of
subsidiary partnership.......................................... 1,272 206 3,652 1,970
General partners' interest in income of subsidiary partnership.... 13 2 37 20
------- ------- ------- -------
INCOME BEFORE INCOME TAXES........................................ 1,259 204 3,615 1,950
Provision for income taxes resulting from change in tax status
(see Note 5)................................................. -- -- (1,271) --
Provision for income taxes for current operations (see Note 5).. (503) -- (1,446) --
------- ------- ------- -------
Total provision for income taxes.............................. (503) -- (2,717) --
------- ------- ------- -------
NET INCOME........................................................ $ 756 $ 204 $ 898 $ 1,950
======= ======= ======= =======
General partner's interest in net income.......................... $ 8 $ 2 $ 9 $ 20
======= ======= ======= =======
Limited partners' interest in net income.......................... $ 748 $ 202 $ 889 $ 1,930
======= ======= ======= =======
Number of limited partner units................................... 15,285 15,285 15,285 15,285
======= ======= ======= =======
Earnings per limited partner unit................................. $0.05 $0.01 $0.06 $0.13
======= ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
(unaudited, in thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................... $ 898 $ 1,950
Adjustments to reconcile to cash from operations
Depreciation....................................... 2,867 2,784
Amortization of deferred financing costs........... 257 278
Increase in deferred income taxes.................. 1,870 --
Change in other operating accounts................. (4,254) (953)
------- -------
Cash provided by operations.......................... 1,638 4,059
------- -------
INVESTING ACTIVITIES
Capital expenditures............................... (1,117) (3,139)
Decrease in capital improvement reserve............ (596) --
Other.............................................. 877 --
------- -------
Cash used in investing activities.................... (836) (3,139)
------- -------
FINANCING ACTIVITIES
Repayments of debt................................. (923) (837)
Principal payments on note due to general partner.. (26) (68)
Decrease in debt service reserve................... (96) --
------- -------
Cash used in financing activities.................... (1,045) (905)
------- -------
(Decrease)/increase in cash and cash equivalents..... (243) 15
Cash and cash equivalents, beginning of period....... 6,459 6,199
------- -------
Cash and cash equivalents, end of period............. $ 6,216 $ 6,214
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The accompanying condensed consolidated financial statements of Forum
Retirement Partners, L.P. (the "Partnership") and subsidiary partnership
have been prepared by the Partnership without audit. Certain information
and footnote disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles have
been condensed or omitted. The Partnership believes the disclosures made
are adequate to make the information presented not misleading. However, the
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K for the year ended December
31, 1997.
In the opinion of the Partnership, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position of the Partnership as of September 30, 1998 and December
31, 1997, and the results of its operations for the three and nine months
ended September 30, 1998 and 1997 and cash flows for the nine months ended
September 30, 1998 and 1997. Interim results are not necessarily indicative
of fiscal year performance because of the impact of seasonal and short-term
variations.
The Partnership's balance sheet has been presented in a non-classified
format to conform to industry practice. Accordingly, information as
reported in prior filings has been reclassified to conform to current
presentation.
2. Forum Retirement, Inc., a wholly-owned subsidiary of Forum Group, Inc.
("Forum Group"), is the general partner of the Partnership (the "General
Partner") and owns a one percent interest in the Partnership and a one
percent interest in a subsidiary operating partnership in which the
Partnership owns a ninety-nine percent limited partnership interest. The
General Partner's interest in the subsidiary operating partnership is
reflected in the accompanying condensed consolidated statements of
operations as a reduction of the income of the Partnership. Forum Group
beneficially owns approximately 93% of the outstanding Preferred Depository
Units (the "Units") representing a preferred limited partner interest in
the Partnership.
On June 21, 1997, Crestline Capital Corporation ("Crestline" formerly HMC
Senior Communities, Inc.), a wholly-owned subsidiary of Host
Marriott Corporation ("Host Marriott"), acquired all of the outstanding
stock of Forum Group from Marriott Senior Living Services, Inc. ("MSLS"), a
subsidiary of Marriott International, Inc. ("MI"). In connection with the
acquisition, Forum Group assigned to MSLS its interest as manager under a
long-term management agreement (the "Management Agreement") for the nine
communities owned by the Partnership.
On April 16, 1998, the Board of Directors of Host Marriott approved a plan
to reorganize Host Marriott's current business operations by spinning-off
Host Marriott's senior living business and distributing (the
"Distribution") the stock of Crestline. The Distribution is part of a
series of transactions pursuant to which Host Marriott intends to convert
into a real estate investment trust for federal income tax purposes (the
"REIT Conversion"). As part of the REIT Conversion, Host Marriott will
contribute its hotels and certain other assets and liabilities to a newly
formed Delaware limited parntership, Host Marriott, L.P., whose sole
general partner will be HMC Merger Corporation which, for tax purposes will
qualify as a Maryland Real Estate Investment Trust ("REIT"). After the
proposed reorganization, Crestline will lease hotels from Host Marriott,
L.P. The Distribution and REIT Conversion, if consummated, will not have a
material impact on the operations of the Partnership.
Consummation of the REIT Conversion is subject to significant
contingencies, including final Host Marriott Board approval, consent of
shareholders, other limited partners, bondholders, lenders and ground
lessors of Host Marriott, its affiliates and other third parties.
Accordingly, there can be no assurance that the reorganization will be
completed.
3. Revenues represent house profit from the Partnership's senior living
communities. House profit reflects the net revenues flowing to the
Partnership as property owner and represents gross community operating
sales less property-level expenses excluding depreciation and amortization,
property taxes, insurance, management fees and certain other costs which
are classified as operating costs and expenses.
6
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
House profit generated by the Partnership's senior living communities consists
of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Community Sales
Routine.................... $13,862 $12,666 $40,832 $37,733
Ancillary.................. 2,179 1,611 6,430 5,883
------- ------- ------- -------
Total Community Sales... 16,041 14,277 47,262 43,616
------- ------- ------- -------
Department Costs
Routine.................... 9,347 8,518 27,174 25,054
Ancillary.................. 1,569 1,427 5,232 4,647
------- ------- ------- -------
Total Department Costs.. 10,916 9,945 32,406 29,701
------- ------- ------- -------
Department Profit
Routine.................... 4,515 4,148 13,658 12,679
Ancillary.................. 610 184 1,198 1,236
------- ------- ------- -------
Revenues................ $ 5,125 $ 4,332 $14,856 $13,915
======= ======= ======= =======
</TABLE>
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus on EITF 97-2,
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities and Certain Other Entities with Contractual
Management Arrangements." EITF 97-2 addresses the circumstances in which a
management entity may include the revenues and expenses of a managed entity
in its financial statements. The Partnership has considered the impact of
EITF 97-2 on its financial statements and has determined that EITF 97-2
requires the Partnership to include property-level sales and operating
expenses of its senior living communities in its statements of operations.
The Partnership will adopt EITF 97-2 in the fourth quarter of 1998 with
retroactive effect in prior periods to conform to the new presentation.
Application of EITF 97-2 to the consolidated financial statements for the
three months ended September 30, 1998 and 1997 would have increased both
revenues and operating expenses by approximately $10,916,000 and $9,945,000
respectively. For nine months ended September 30, 1998 and 1997, both
revenues and operating expenses would have increased by approximately
$32,406,000 and $29,701,000 respectively. There will be no impact on
operating profit, or net income by the application of EITF 97-2.
4. Restricted cash includes the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Debt service reserve fund..... $ 487 $ 391
Fixed asset reserve fund...... 864 268
Real estate tax reserve fund.. 1,128 627
Insurance reserve fund........ 2,067 1,166
------ ------
$4,546 $2,452
====== ======
</TABLE>
The debt service, fixed asset, real estate tax and insurance reserve funds
consist of monies transferred into segregated escrow accounts out of
revenues generated by the Partnership, pursuant to the Partnership's
secured loan facility. These funds are periodically disbursed by the
collateral agent to pay for debt service, capital expenditures, insurance
premiums and real estate taxes relating to the secured property. In some
cases, to ensure prompt payment, the Partnership utilizes its unrestricted
cash to pay for capital expenditures, insurance premiums and real estate
taxes and is thereafter reimbursed for such payments out of funds held in
the appropriate escrow account.
5. The Omnibus Budget Reconciliation Act of 1987, as amended by the Taxpayer
Relief Act of 1997 (the "Act"), provided that certain publicly traded
partnerships should be treated as corporations for federal income tax
purposes. A provision of the Act allows certain publicly traded partnerships
which would otherwise become subject to tax as a corporation beginning in
1998 to elect to be subject to a special tax on gross income from its active
conduct of a trade or business, and continue to avoid being treated as a
corporation for federal income tax purposes. The tax generally applies to a
partnership's gross income at the rate of three and one half percent,
effective for taxable years beginning after December 31, 1997.
The Partnership has elected not to pay the special tax on gross income and
began being treated as a corporation for federal income tax purposes
effective January 1, 1998. Included within the Partnership's tax provision
for the nine months ended September 30, 1998
7
<PAGE>
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
is a one time charge of approximately $1.3 million to record a net deferred
tax liability related to the change in tax status. The net deferred tax
liability represents the tax effect of the excess of the net assets
reported in the accompanying financial statements over the Partnership's
tax basis in the net assets. This difference is due primarily to the use,
for income tax purposes, of accelerated depreciation methods and shorter
depreciable lives for fixed assets and deferred management fees which have
been expensed under generally accepted accounting principles but are
generally not deductible for tax purposes until paid.
6. In connection with the formation of the Partnership, the Partnership
entered into a long-term Management Agreement with Forum Group which
requires fees of 8% of gross operating revenues. Through December 31, 1993,
the agreement provided for the deferral of the payment of the fees if net
cash flow was not adequate to make certain distributions to limited
partners. Cash flow was not adequate to make the distributions, and the
entire $15,780,000 of management fees earned from the formation of the
Partnership through December 31, 1993 was deferred. Management fees for
periods after December 31, 1993 are being paid quarterly, in arrears.
Deferred management fees are payable to Forum Group out of proceeds of
sales and refinancings after making distributions of those proceeds in an
amount sufficient to (i) meet limited partners' tax liabilities, (ii) repay
limited partners' capital contributions, and (iii) pay a 12% cumulative,
simple annual return on limited partners' unrecovered capital
contributions. Deferred management fees become immediately due and payable
in the event that the Management Agreement is terminated, which may occur
under certain conditions including, but not limited to, if Forum
Retirement, Inc. is removed as the General Partner and 80% of the limited
partners' interest vote to terminate such agreement. The Partnership is
unable to predict when or if management fees deferred prior to January 1,
1994 will become payable.
7. On June 15, 1995, The Russell F. Knapp Revocable Trust (the "Plaintiff")
filed a complaint in the United States District Court of the Southern
District of Indiana (the "Indiana Court") against the General Partner and
Forum Group alleging breach of the partnership agreement, breach of
fiduciary duty, fraud, insider trading and civil conspiracy/aiding and
abetting. On February 4, 1998, the Plaintiff, MSLS, the General Partner,
Forum Group and Host Marriott entered into a Settlement and Release
Agreement (the "Settlement Agreement"), pursuant to which Host Marriott
agreed to pay each limited partner electing to join in the Settlement
Agreement $4.50 per Unit in exchange for (i) the transfer of all
Partnership Units owned by a settling limited partner; (ii) an agreement by
each settling limited partner not to purchase additional Partnership Units;
(iii) a release of all claims asserted in the litigation; and (iv) a
dismissal of the litigation. Because of the derivative nature of the
allegations contained in the Plaintiff's complaint, the General Partner
invited all limited partners, in their sole discretion, to participate in
the Settlement Agreement, and detailed the requirements for participation
in two notices to unitholders, dated March 27, 1998, and May 6, 1998,
respectively. Initially, the period within which a limited partner could
elect to participate in the Settlement Agreement was scheduled to expire on
April 27, 1998. This period was extended to May 22, 1998. Host Marriott
also agreed to pay as much as an additional $1.25 per Unit to the settling
Limited Partners, under certain conditions, in the event that Host Marriott
within three years following the date of settlement initiates a tender
offer for the purchase of Units not presently held by Host Marriott or the
settling Limited Partners. On February 5, 1998, the Indiana Court entered
an order approving the dismissal of the Plaintiff's case.
In connection with the Settlement Agreement, Host Marriott acquired on
March 25, 1998, 1,000,894 Units from the Plaintiff and related parties for
$4,504,023 on March 25, 1998. Host Marriott subsequently acquired 1,140,901
additional Units from other limited partners electing to participate in the
Settlement Agreement for $5,134,055. As a result of these purchases, Host
Marriott's current ownership interests of the limited partnership in the
Partnership, directly or through affiliates, increased to approximately
93%.
8. On July 21, 1998, the General Partner announced it had received a proposal
from Host Marriott to acquire all remaining outstanding Partnership Units
for $4.50 per Unit (the "Merger Proposal"). The Board of Directors (the
"Board") of the General Partner appointed an advisory committee (the
"Advisory Committee") consisting of the independent members of the Board to
determine whether the terms of the Merger Proposal were fair to, and in
the best interests of, the public unitholders. The Advisory Committee
recommended that the price in the Merger Proposal be increased from $4.50
per Unit to $5.75 per Unit. On October 5, 1998, the Advisory Committee
recommended to the Board that the Merger Proposal with a $5.75 per Unit
price was fair to, and in the best interests of, the public unitholders,
and the Board approved the transaction based on the Advisory Committee's
recommendation. The Advisory Committee's conclusion was based, in part,
on a fairness opinion (the "Fairness Opinion") from its financial advisor,
Robert A. Innamorati and Co., Inc. On October 5, 1998, an Agreement and
Plan of Merger ("Merger Agreement") was executed under which unitholders
would receive a price of $5.75 per Unit. Completion of the transaction is
contingent upon, but not limited to, several items including shareholder
and various regulatory approvals. Host Marriott presently anticipates
completion of the merger transaction on December 31, 1998, but such
a result cannot be assured because of the various contigencies. Assuming a
closing on December 31, 1998 or sometime before the end of the first
quarter of 1999, Host Marriott would be required to pay a total of
$6,517,894 under the terms of the Merger Agreement, as well as an
approximate amount ranging from $683,000 to $491,000 to the settling
Limited Partners under the terms of the Settlement Agreement.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q include forward-looking statements
within the meaning of the Private Litigation Reform Act of 1995, including
without limitation, statements related to Host Marriott's proposed REIT
conversion, the terms, structure and timing thereof, and the expected effects of
the proposed REIT conversion. All forward-looking statements involve known and
unknown risks, uncertainties, and other factors, many of which are not within
the control of the Partnership, that may cause actual transactions, results,
performance or achievements to be materially different from any future
transactions, results performance or achievements expressed or implied by such
forward-looking statements. The cautionary statements set forth in reports filed
under the Securities Act of 1934 contain important factors with respect to such
forward-looking statements, including the following factors that could affect
such forward-looking statements: (i) national and local economic and business
conditions that will, among other things, affect demand for senior living
facilities and other properties, the level of rates and occupancy that can be
achieved by such properties and the availability and terms of financing; (ii)
the ability to maintain the properties in a first-class manner; (iii) the
ability to compete effectively; (iv) the ability to acquire or develop
additional properties and the risk that potential acquisitions or developments
may not perform in accordance with expectations; (v) changes in travel patterns,
taxes and government regulations; (vi) governmental approvals, actions and
initiative, and (vii) the effects of tax legislative action. While the
Partnership believes that the expectations reflected in these forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its performance or other expectations will be attained, that the transactions
described herein will be consummated or that the terms of the transactions or
the timing or effects thereof will not differ materially from those described
herein. The Partnership undertakes no obligation to publicly release the result
of any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
RESULTS OF OPERATIONS
REVENUES. Revenues represent gross property routine and ancillary sales less
property-level expenses. Routine service revenues are generated from monthly
charges for independent living units and daily charges for assisted living
suites and nursing beds which are recognized monthly based on the terms of the
residents' agreements. Ancillary service revenues are generated on a "fee for
service" basis for supplementary items requested by residents and are recognized
as the services are provided. Revenues for the three months ended September 30,
1998 increased by $793,000 or 18% to $5,125,000 compared to 1997. Revenues for
the nine months ended September 30, 1998 increased by $941,000 or 7% to
$14,856,000 compared to 1997. The increase in revenues is primarily the result
of increases in residency fees and charges in the independent living, assisted
living and nursing components, the favorable impact of the expansion units and
increases in therapy and other ancillary healthcare services. However, these
increases were slightly offset by increased market competition for communities
in Delaware and Texas and increased wage cost from engaging and maintaining
qualified nursing staff. Combined average occupancy (calculated based on the
number of units occupied during the respective period) at the nine senior living
communities was approximately 94% for the three and nine months ended September
30, 1998. This represents an increase of four percentage points from the three
months ended September 30, 1997 and a one percentage point increase from the
nine months ended September 30, 1997.
OPERATING COSTS AND EXPENSES. Operating costs and expenses consist of
depreciation and amortization, base management fees, property taxes, insurance
and certain other costs. The Partnership's operating costs and expenses
decreased $237,000 or 8%, to $2,687,000 for the three months ended and decreased
$405,000, or 5%, to $7,604,000 for nine months ended September 30, 1998, due
primarily to an overall decrease in real estate taxes, insurance and other
expenses during the year. As a percentage of revenues, operating costs and
expenses decreased 15 percentage points to 52% for the three months ended
September 30, 1998 as compared to 67% for the same period in 1997. For the nine
months ended September 30, 1998, operating costs and expenses, as a percentage
of revenues, decreased 7 percentage points to 51% compared to 58% for the same
period in 1997.
OPERATING PROFIT. As a result of the changes in revenues and operating costs
and expenses discussed above, the Partnership's operating profit increased by
$1,030,000, or 73%, to $2,438,000 for the three months ended September 30,
1998. Operating profit increased by 23% or $1,346,000, to $7,252,000 for the
nine months ended September 30, 1998.
INTEREST EXPENSE. For the three months ended September 30, 1998, interest
expense decreased $38,000 to $1,231,000 from $1,269,000 during the same period
in 1997 as a result of principal amortization. Interest expense year-to-date
decreased by $122,000 to $3,717,000 for the nine months ended September 30,
1998.
INCOME TAXES. The Partnership began being taxed as a corporation effective
January 1, 1998. The resulting one-time charge of approximately $1.3 million
was included in the tax provision for the first quarter of 1998. An income tax
provision of $503,000 for the three months ended September 30, 1998 and
$2,717,000 for the nine months ended September 30, 1998 has been included in
this quarter's statements.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
NET INCOME (LOSS). Net income increased $552,000 to $756,000 for the three
months ended September 30, 1998 compared to 1997. The increase in net income
for the third quarter is due to decreases in both operating and non-operating
expenses. Net income for the nine months ended September 30, 1998, decreased
from $1,950,000 in 1997 to $898,000 due to the impact of the approximate $1.3
million one-time tax charge and 1998 income tax expense related to current
operations. For the three months ended September 30, 1998, net income per
limited partner unit increased to $.05 per unit compared to $.01 in 1997. For
the nine months ended September 30, 1998 net income per limited partner unit
decreased to $.06 per unit, compared to $.13 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Partnership had cash and cash equivalents of
$6,216,000 and restricted cash of $4,546,000.
The Partnership's long-term financing needs have historically been funded
through loan agreements with independent financial institutions. The General
Partner believes that the Partnership will have sufficient capital resources and
liquidity to continue to conduct its operations in the ordinary course of
business, although there can be no assurance of the Partnership's ability to do
so.
The Partnership's principal source of cash is from operations. Its principal
uses of cash are operating expenses, debt service, property replacement and
renewals as well as to fund the expansions discussed below.
The Partnership has an on-going expansion program related to its communities in
an effort to further improve the Partnership's results of operations. The
expansions are designed to add capacity to and/or modify the uses of existing
facilities to increase earnings without incurring substantial land acquisition
and common area build-out costs. Certain expansions will require additional
regulatory approvals. The expansion program consists of eleven separate projects
at eight communities expected to increase the total number of units by 280, or
17% of total units, at an estimated cost of $22 million. Seven expansion
projects have been completed increasing the total number of units by 119 at a
total cost of $7.9 million. Two expansion projects currently under construction
are expected to increase the total number of units by an additional 74 at a
total cost of $6.2 million; one of these projects is expected to be completed in
the fourth quarter of 1998 and the other project is expected to be completed in
1999. The two remaining expansion projects and a portion of one of the completed
expansion projects are undergoing a feasibility analysis. As a result of
increased construction costs and deteriorating market conditions, the
Partnership may determine that it would not be economically feasible to proceed
with these remaining expansions projects.
The Partnership is currently financing and intends to continue to finance this
expansion program with cash from operations. If cash flow from operations is
insufficient to complete future expansions on a timely basis, the expansion may
be delayed, reduced in scope or discontinued. The terms of the Partnership's
current debt agreement restrict the Partnership from incurring additional third-
party financing (other than $1 million of equipment financing) and prohibit the
imposition of liens on the Partnership's assets. There can be no assurance that
a waiver can be obtained from the lender to permit any third-party financing, or
whether, when and on what terms, any such financing may be available. As a
result of the capital required to fund the expansion program, the Partnership
does not expect to make distributions to the limited partners in the foreseeable
future.
The implementation of the expansion program and its impact on the value of an
investment in the Partnership is subject to a number of variables, including
without limitation, the availability of cash flow from operations, the ability
to obtain required zoning variances and permits from local government
authorities and the timing thereof, whether development and construction costs
are higher or lower than anticipated, whether construction is completed faster
or slower than anticipated and whether operating costs are higher or lower than
anticipated.
Cash provided by operating activities was $1,638,000 for the nine months ended
September 30, 1998, compared to $4,059,000 for the same period in 1997 due
principally to changes in working capital and amounts due to MI for
reimbursement of operating costs and management fees.
Cash used in investing activities was $836,000 for the nine months ended
September 30, 1998, compared to $3,139,000 for the same period in 1997 due to a
decrease in capital expenditures from the completion of some expansion projects.
Cash used in financing activities was $1,045,000 for the nine months ended
September 30, 1998, compared to $905,000 for the same period in 1997 due to
increases in repayments of debt and contributions into the debt service reserve
offset by payments on note due to general partner.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
On April 16, 1998, the Board of Directors of Host Marriott approved a plan to
reorganize Host Marriott's current business operations by spinning-off Host
Marriott's senior living business and distributing the stock of Crestline. The
Distribution is part of a series of tranactions pursuant to which Host Marriott
intends to convert into a real estate investment trust for federal income tax
purposes. As a part of the REIT Conversion, Host Marriott will contribute to its
hotels and certain other assets and liabilities to a newly formed Delaware
limited partnership, Host Marriott, L.P., whose sole general partner will be HMC
Merger Corporation which, for tax purposes will qualify as a Maryland Real
Estate Investment Trust. After the proposed reorganization, Crestline, will
lease hotels from Host Marriott L.P. The Distribution and REIT Conversion, if
consummated, will not have a material impact on the operations of the
Partnership.
Consummation of the REIT Conversion is subject to significant contingencies,
including final Host Marriott Board approval, consent of shareholders, partners,
bondholders, lenders and ground lessors of Host Marriott, its affiliates and
other third parties. Accordingly, there can be no assurance that the
reorganization will be completed.
On July 21, 1998, the General Partner announced it had received a proposal from
Host Marriott to acquire all remaining outstanding Units not currently held by
Host Marriott or its subsidiaries for $4.50 per Unit. The Board of the General
Partner appointed an Advisory Committee consisting of the independent members of
the Board to determine whether the terms of the Merger Proposal were fair to,
and in the best interests of, the public unitholders. The Advisory Committee
recommended that the price in the Merger Proposal be increased from $4.50 per
Unit to $5.75 per Unit. On October 5, 1998 the Advisory Committee recommended to
the Board that the Merger Proposal with a $5.75 per Unit price was fair to, and
in the best interests of, the public unitholders, and the Board approved the
transaction based on the Advisory Committee's recommendation. The Advisory
Committee's conclusion was based, in part, on the Fairness Opinion from its
financial advisor, Robert A. Innamorati and Co., Inc. On October 5, 1998, the
Merger Agreement was executed under which unitholders would receive a price of
$5.75 per Unit. Completion of the transaction is contingent upon, but not
limited to, several items including shareholder and various regulatory
approvals. Host Marriott presently anticipates completion of the merger
transaction on December 31, but such a result cannot be assured because of the
various contingencies. Assuming a closing on December 31, or the end of the
first quarter of 1999, Host Marriott would be required to pay a total of
$6,157,894 under the terms of the Merger Agreement, as well as an approximate
amount ranging from $683,000 to $491,000 to the settling Limited Partners under
the terms of the Settlement Agreement.
YEAR 2000 PROBLEM
The year 2000 problem ("Year 2000") has arisen because many existing computer
programs and chip-based embedded technology systems use only the last two digits
to refer to a year, and therefore do not properly recognize a year that begins
with "20" instead of the familiar "19." If not corrected, many computer
applications could fail or create erroneous results. The following disclosure
provides information regarding the current status of the Partnership's Year 2000
compliance program.
The Partnership has adopted the compliance program because it recognizes the
importance of minimizing the number and seriousness of any disruptions that may
occur as a result of the Year 2000 issue. The Partnership's compliance program
includes an assessment of the Partnership's hardware and software computer
systems and embedded systems, as well as an assessment of the Year 2000 issues
relating to third parties with which the Partnership has a material relationship
or whose systems are material to the operations of the Partnership's senior
living properties. The Partnership's efforts to ensure that its computer
systems are Year 2000 compliant has been segregated into two separate phases:
in-house systems and third-party systems.
IN-HOUSE SYSTEMS. Since the distribution of the stock MI to the shareholders of
Host Marriott on October 8, 1993, the Host Marriott has invested in
implementation and maintenance accounting and reporting systems and equipment
that are intended to enable the Host Marriott and its subsidiaries, including
the General Partner and the Partnership, to provide adequately for its
information and reporting needs and which are also Year 2000 compliant.
Substantially all of the Partnership's in-house systems have already been
certified as Year 2000 compliant through testing and other mechanisms and the
Partnership has not d elayed any systems projects due to the Year 2000 issue.
The Partnership is in the process of engaging a third party to review its Year
2000 in-house compliance. Management believes that future costs associated with
Year 2000 issues for its in-house systems will be insignificant and therefore
not impact the Partnership's business, financial condition and results of
operations. The Partnership has not developed, and does not plan to develop, a
separate contingency plan for its in-house systems due to their current Year
2000 compliance. However, the Partnership does have detailed contingency plans
for its in-house systems covering a variety of possible events, including
natural disasters, interruption of utility service and similar events.
THIRD-PARTY SYSTEMS. The Partnership relies upon operational and accounting
systems provided by third parties, primarily the manager of its senior living
properties, MI, to provide the appropriate property-specific operating systems
(including, phone, elevator, security, HVAC and other systems) and to provide it
with financial information. Based on discussions with the third parties that are
critical to the Partnership's business, including the manager of its senior
living facilities, the Partnership believes that these parties are in the
process of studying their systems and the systems of their respective vendors
and service providers and, in many cases, have begun to implement changes to
ensure that they are Year 2000 compliant. To the extent these changes impact
property-level systems, the Partnership may be required to fund capital
expenditures for upgraded equipment and software. The Partnership does not
expect these charges to be material, but is committed to making these
investments as required. To the extent that these changes relate to a third
party managers' centralized systems (including accounting, purchasing,
inventory,
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
personnel and other systems), the Partnership's management agreements generally
provide for these costs to be charged to the Partnership's properties subject to
annual limitations. The Partnership expects that its third party manager will
incur Year 2000 costs in lieu of costs for its centralized systems related to
system projects that otherwise would have been pursued and therefore, its
overall level of centralized systems charges allocated to the properties will
not materially increase as a result of the Year 2000 compliance effort. The
Partnership believes that this deferral of certain system projects will not have
a material impact on its future results of operations, although it may delay
certain productivity enhancements at its properties. The Partnership will
continue to monitor the efforts of these third parties to become Year 2000
compliant and will take appropriate steps to address any non-compliance issues.
The Partnership believes that in the event of material Year 2000 non-compliance,
the Partnership may have the right to seek recourse against the manager under
its third party management agreements. The management agreements generally do
not specifically address the Year 2000 compliance issue. Therefore, the amount
of any recovery in the event of Year 2000 non-compliance at a property, if any,
is not determinable at this time.
The Partnership will work with the third parties to ensure that appropriate
contingency plans will be developed to address the most reasonably likely worst
case Year 2000 scenarios, which may not have been identified fully. In
particular, the Partnership has had extensive discussions regarding the Year
2000 problem with MI, the manager of all of its senior living communities. Due
to the significance of MI to the Partnership's business, a detailed description
of MI's state of readiness follows.
MI has adopted an eight-step process toward Year 2000 readiness, consisting of
the following: (i) Awareness: fostering understanding of, and commitment to,
----------
the problem and its potential risks; (ii) Inventory: identifying and locating
----------
systems and technology components that may be affected; (iii) Assessment:
-----------
reviewing these components for Year 2000 compliance, and assessing the scope of
Year 2000 issues; (iv) Planning: defining the technical solutions and labor and
---------
work plans necessary for each particular system; (v) Remediation/Replacement:
------------------------
completing the programming to renovate or replace the problem software or
hardware; (vi) Testing and Compliance Validation: conducting testing, followed
----------------------------------
by independent validation by a separate internal verification team; (vii)
Implementation: placing the corrected systems and technology back into the
- ---------------
business environment; and (viii) Quality Assurance: utilizing a dedicated
------------------
audit team to review significant projects for adherence to quality standards and
program methodology.
MI has grouped its systems and technology into three categories for purposes of
Year 2000 compliance: (i) information resource applications and technology (IT
Applications) -- enterprise-wide systems supported by MI's centralized
information technology organization ("IR"); (ii) Business-initiated Systems
("BIS") - systems that have been initiated by an individual business unit, and
that are not supported by MI's IR organization; and (iii) Building Systems -non-
IT equipment at properties that use embedded computer chips, such as elevators,
and HVAC equipment. MI is prioritizing its efforts based on how severe an effect
noncompliance would have on customer service, core business processes or
revenues, and whether there are viable, non-automated fallback procedures
(System Criticality).
MI measures the completion of each phase based on documented and quantified
results, weighted for System Criticality. As of the end of 1998 third quarter,
the awareness and inventory phases were complete for IT Applications and nearly
complete for BIS and Building Systems. For IT Applications, the Assessment,
Planning and Remediation/Replacement phases were each over 80 percent complete,
and Testing and Compliance Validation had been completed for a number of key
systems, with most of the remaining work in its final stage. For BIS and
Building Systems, Assessment and Planning were in the mid- to upper-range of
completion, with a substantial amount of work in process, while the progress
level for Remediation/Replacement and Testing and Compliance Validation had not
yet been documented and quantified. Quality Assurance is also in progress for
IT Applications and is scheduled to begin for BIS and Business Systems in the
near future. MI's goal is to substantially complete the Remediation/Replacement
and Testing phases for its System Critical IT Applications by the end of 1998,
with 1999 reserved for unplanned contingencies and for Compliance Validation and
Quality Assurance. For System Critical BIS and Business Systems, the same level
of substantial completion is targeted for June 1999 and September 1999,
respectively.
MI has initiated Year 2000 compliance communications with its significant third
party suppliers, vendors and business partners, including its franchisees. MI is
focusing its efforts on the business interfaces most critical to its customer
service and revenues, including those third parties that support the most
critical enterprise-wide IT Applications, franchisees generating the most
revenues, suppliers of the most widely used Building Systems and BIS, the top
100 suppliers, by dollar volume, of non-IT products, and financial institutions
providing the most critical payment processing functions. Responses have been
received from a majority of the firms in this group.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
MI is also establishing a common approach for testing and addressing Year 2000
compliance issues for its managed and franchised properties. This includes a
guidance protocol for operated properties, and a Year 2000 "Toolkit" for
franchisees containing relevant Year 2000 compliance information. MI is also
utilizing a Year 2000 best-practices sharing system.
RISKS. There can be no assurances that Year 2000 remediation by the Partnership
or third parties will be properly and timely completed, and failure to do so
could have a material adverse effect on the Partnership, its business and its
financial condition. The Partnership cannot predict the actual effects to it of
the Year 2000 problem, which depends on numerous uncertainties such as: (i)
whether significant third parties, properly and timely address the Year 2000
issue; and (ii) whether broad-based or systemic economic failures may occur. The
Partnership is also unable to predict the severity and duration of any such
failures, which could include disruptions in passenger transportation or
transportation systems generally, loss of utility and/or telecommunications
services, and errors or failures in financial transactions or payment processing
systems such as credit cards. Due to the general uncertainty inherent in the
Year 2000 problem and the Partnership's dependence on third parties, the
Partnership unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Partnership. The Partnership's
Year 2000 compliance program is expected to significantly reduce the level of
uncertainty about the Year 2000 problem and management believes that the
possibility of significant interruptions of normal operations should be reduced.
13
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PART II. OTHER INFORMATION
---------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
ITEM 1. LEGAL PROCEEDINGS
7. On June 15, 1995, The Russell F. Knapp Revocable Trust filed a complaint in
the United States District Court of the Southern District of Indiana
against the General Partner and Forum Group alleging breach of the
partnership agreement, breach of fiduciary duty, fraud, insider trading and
civil conspiracy/aiding and abetting. On February 4, 1998, the Plaintiff,
MSLS, the General Partner, Forum Group and Host Marriott entered into a
Settlement Agreement pursuant to which Host Marriott agreed to pay each
limited partner electing to join in the Settlement Agreement $4.50 per Unit
in exchange for (i) the transfer of all Partnership Units owned by a
settling limited partner; (ii) an agreement by each settling limited
partner not to purchase additional Partnership Units; (iii) a release of
all claims asserted in the litigation; and (iv) a dismissal of the
litigation. Because of the derivative nature of the allegations contained
in the Plaintiff's complaint, the General Partner invited all limited
partners, in their sole discretion, to participate in the Settlement
Agreement, and detailed the requirements for participation in two notices
to unitholders, dated March 27, 1998, and May 6, 1998, respectively.
Initially, the period within which a limited partner could elect to
participate in the Settlement Agreement was scheduled to expire on April
27, 1998. This period was extended to May 22, 1998. Host Marriott also
agreed to pay as much as an additional $1.25 per Unit to the settling
Limited Partners, under certain conditions, in the event that Host Marriott
within three years following the date of settlement initiates a tender
offer for the purchase of Units not presently held by Host Marriott or the
settling Limited Partners. On February 5, 1998, the Indiana Court entered
an order approving the dismissal of the Plaintiff's case.
In connection with the Settlement Agreement, Host Marriott initially
acquired on March 25, 1998, 1,000,894 units from the Plaintiff and related
parties for $4,504,023. Host Marriott subsequently acquired 1,140,901
additional Units from other limited partners electing to participate in the
Settlement Agreement for $5,134,055. As a result of these purchases, Host
Marriott's current limited partnership ownership interests in the
Partnership, directly or through affiliates, increased to approximately
93%. On October 5, 1998, a definitive merger agreement was signed whereby
Host Marriott will acquire by merger all the remaining outstanding Units
not currently held by Host Marriott or its subsidiaries for $5.75 per Unit.
As a result of the Merger Agreement, Host Marriott would be required to pay
a total amount ranging from $683,000 to $491,000 to the settling Limited
Partners under the terms of the Settlement Agreement.
On July 22, 1998, Harbor Finance Partners, LTD. ("Harbor Finance"), a
Partnership unitholder, filed a purported class action lawsuit in Delaware
State Chancery Court relating to the Merger Proposal against Host Marriott,
FRI, two of their affiliates, the Partnership, and FRI's directors. Harbor
Finance alleges in the complaint that these defendants breached their
fiduciary duties to the unitholders by offering an inadequate price for the
Units, attempting to improperly influence the market price of the Units,
and failing to provide for a mechanism that would establish a fair price
for the units. Harbor Finance is seeking certification of a class, an
injunction to prevent completion of the proposed transaction or, in the
alternative, rescission of the transaction, and compensatory damages.
Punitive damages are not sought in the action. FRI believes that there is
no merit to the allegations contained in the complaint, and that this
litigation will not have a material, adverse effect on the financial
performance of the Partnership. The Partnership believes that the
appointment of the Board's Advisory Committee and the Fairness Opinion will
ensure that the Merger Proposal is fair to the unitholders and that an
appropriate price will be paid.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
14
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SIGNATURE
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FORUM RETIREMENT PARTNERS, L.P.,
a Delaware Limited Partnership
By: FORUM RETIREMENT, INC., GENERAL PARTNER
--------------------------------------------
November 12, 1998 By: /s/ Donald D. Olinger
- ----------------- ---------------------------
Date Donald D. Olinger
Vice President
15
<PAGE>
Annex F
FORM OF
CONSENT FORM
FORUM RETIREMENT PARTNERS, L.P.
THE CONSENTS OF THE LIMITED PARTNERS OF FORUM RETIREMENT
PARTNERS, L.P. ARE SOLICITED ON BEHALF OF FORUM RETIREMENT
PARTNERS, L.P.
The undersigned Unitholder of Forum Retirement Partners, L.P. (the
"Partnership") acknowledges receipt of the Consent Solicitation Statement dated
_____________, 1999, and the undersigned.
All Consent Forms that are properly executed and returned to American Stock
Transfer & Trust Company (the "Agent"), at 40 Wall Street, New York, New York
10005 by _______________, 1999 prior to the expiration of the date that is
twenty (20) days after the date of this Consent Solicitation Statement (the
"Solicitation Period") will be voted in accordance with the instructions
contained therein. If no specification is made, this Consent Form will be
counted as a CONSENT to the Proposal below, provided that you have signed and
dated the Consent Form.
Consent Forms will be effective only when actually received by the Agent at
the address set forth above. Subsequent to submitting a Consent Form,
Unitholders may not revoke or otherwise change their vote.
PLEASE MARK, SIGN AND DATE THIS CONSENT FORM AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
X Please mark your votes as in this example
----------
-----------------------------------------------
The General Partner of the Partnership recommends that the Unitholders "CONSENT"
to the Proposal.
------------------------------------------------------------
F-1
<PAGE>
THE PROPOSAL:
THE MERGER. To approve, adopt and consent to the Agreement and Plan of Merger,
dated as of October 5, 1998, by and among the Partnership, the General Partner,
Forum Group, Inc. and Forum Merger Limited Partnership, a subsidiary of Forum
Group, Inc., as described in the accompanying Consent Solicitation Statement,
and the transactions contemplated thereby, including the Merger.
______ CONSENT
______ WITHHOLD CONSENT
_____ ABSTAIN
Please Mark, Sign, Date and Mail This Consent Form Promptly, Using the Enclosed
Postage-Paid Envelope.
Dated: ____________, 1999
_____________________________________________
Signature of Unitholder (Title, if any)
_____________________________________________
Signature of Unitholder (if held jointly)
Please sign exactly as your name or names appear hereon. If units are held
jointly, each Unitholder should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or authorized
officers. If a partnership, please sign in partnership name by authorized
person.
F-2
