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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
COMMUNITY CARE OF AMERICA, INC.
(NAME OF ISSUER)
COMMUNITY CARE OF AMERICA, INC.
IHS ACQUISITION XXVI, INC.
INTEGRATED HEALTH SERVICES, INC.
(NAME OF PERSONS FILING STATEMENT)
COMMON STOCK, PAR VALUE $.0025 PER SHARE
(TITLE OF CLASS OF SECURITIES)
20363B 10
(CUSIP NUMBER OF CLASS OF SECURITIES)
----------------
MARSHALL A. ELKINS, ESQ. DEBORAH A. LAU
EXECUTIVE VICE PRESIDENT CHIEF EXECUTIVE OFFICER
AND GENERAL COUNSEL COMMUNITY CARE OF AMERICA, INC.
IHS ACQUISITION XXVI, INC. 3050 NORTH HORSESHOE DRIVE
INTEGRATED HEALTH SERVICES, INC. SUITE 260
10065 RED RUN BOULEVARD NAPLES, FLORIDA 34104
OWINGS MILLS, MARYLAND 21117 (941) 435-0085
(410) 998-8400
(410) 998-8719
(NAMES, ADDRESSES AND TELEPHONE NUMBERS OF PERSONS AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF PERSONS FILING STATEMENT)
COPIES TO:
<TABLE>
<S> <C> <C>
CARL E. KAPLAN, ESQ. LESLIE A. GLEW, ESQ. J. ALLEN MILLER, ESQ.
FULBRIGHT & JAWORSKI L.L.P. SENIOR VICE PRESIDENT CHADBOURNE & PARKE LLP
666 FIFTH AVENUE AND ASSOCIATE 30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10103 GENERAL COUNSEL NEW YORK, NEW YORK 10112
(212) 318-3000 INTEGRATED HEALTH (212) 408-5100
(212) 752-5958 SERVICES, INC. (212) 541-5369
10065 RED RUN BOULEVARD
OWINGS MILLS, MARYLAND 21117
(410) 998-8400
(410) 998-8719
</TABLE>
--------------
AUGUST 7, 1997
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)
THIS STATEMENT IS FILED IN CONNECTION WITH A TENDER OFFER.
CALCULATION OF FILING FEE
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TRANSACTION VALUATION AMOUNT OF FILING FEE
$30,391,204* $6,078.24**
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* For purposes of calculating fee only. This amount assumes the purchase of
7,597,801 shares of Common Stock at $4.00 per share. Such number of shares
represents all outstanding shares as of August 4, 1997.
** The amount of the filing fee, calculated in accordance with Regulation
240.0-11 of the Securities Exchange Act of 1934, equals 1/50 of 1% of the
value of the shares to be purchased.
[x] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2).
<TABLE>
<S> <C>
Amount Previously Paid: $6,078.24 Filing Parties: IHS Acquisition XXVI, Inc., Integrated Health Services, Inc.
Form or Registration No.: Schedule 14D-1 Date Filed: August 7, 1997
</TABLE>
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<PAGE>
INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule
13E-3") is being filed by (i) Integrated Health Services, Inc., a Delaware
corporation ("Parent"), (ii) IHS Acquisition XXVI, Inc., a Delaware corporation
and a wholly owned subsidiary of Parent ("Purchaser"), and (iii) Community Care
of America, Inc., a Delaware corporation (the "Company"), pursuant to Section
13(e) of the Securities Exchange Act of 1934, as amended, and Rule 13e-3
thereunder in connection with the tender offer by Purchaser to purchase all
outstanding shares of common stock, par value $.0025 per share (the "Shares"),
of the Company, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated August 7, 1997 (the "Offer to Purchase") and the related
Letter of Transmittal (which together constitute the "Offer"), copies of which
are filed as Exhibits (d)(1) and (d)(2) hereto, respectively. The Offer is being
made pursuant to an Agreement and Plan of Merger, dated as of August 1, 1997, by
and among Parent, Purchaser and the Company, which provides, among other things,
that as promptly as practicable after the satisfaction or, if permissible,
waiver of the conditions set forth therein, Purchaser will be merged with and
into the Company (the "Merger"), with the Company continuing as the surviving
corporation, and each issued and outstanding Share (other than any Shares held
in the treasury of the Company or owned by Purchaser, Parent or any subsidiary
of Parent or the Company, and other than Shares held by stockholders who shall
not have voted in favor of the Merger or consented thereto in writing and who
shall have demanded properly in writing appraisal for such Shares in accordance
with Section 262 of the General Corporation Law of the State of Delaware) will
be converted into the right to receive in cash, without interest, an amount
equal to the price paid per Share in the Offer.
The information contained in this Schedule 13E-3 concerning the Company,
including, without limitation, information concerning the background of the
transaction, the deliberations, approvals and recommendations of the Special
Committee (as defined in the Offer to Purchase) and the Board of Directors of
the Company in connection with the transaction, the opinion of the Special
Committee's financial advisors, and the Company's capital structure and
historical and projected financial information, was supplied by the Company.
Parent and Purchaser take no responsibility for the accuracy of such
information.
The following Cross Reference Sheet, prepared pursuant to General
Instruction F to Schedule 13E-3, shows the location in the Tender Offer
Statement on Schedule 14D-1 filed by Parent and Purchaser (the "Schedule 14D-1")
with the Securities and Exchange Commission (the "SEC") on the date hereof of
the information required to be included in this Schedule 13E-3. The information
set forth in the Schedule 14D-1, including all exhibits thereto, is hereby
expressly incorporated herein by reference as set forth in the Cross Reference
Sheet and the responses in this Schedule 13E-3, and such responses are qualified
in their entirety by reference to the information contained in the Offer to
Purchase and the annexes thereto.
<PAGE>
CROSS REFERENCE SHEET
ITEM IN WHERE LOCATED IN
SCHEDULE 13E-3 SCHEDULE 14D-1
- ---------------------------- --------------------
Item 1(a)-(c) ...... Item 1(a)-(c)
Item 1(d) ......... *
Item 1(e) ......... *
Item 1(f) ......... *
Item 2 ............ Item 2, Schedule II
Item 3(a) ......... Item 3(a)-(b)
Item 3(b) ......... Item 3(b)
Item 4 ............ *
Item 5 ............ Item 5
Item 6(a) ......... Item 4(a)-(b)
Item 6(b) ......... *
Item 6(c) ......... Item 4(b)
Item 6(d) ......... **
Item 7(a) ......... Item 5
Item 7(b) ......... *
Item 7(c) ......... *
Item 7(d) ......... *
Item 8 ............ *
Item 9 ............ *
Item 10(a) ......... Item 6(a)
Item 10(b) ......... *
Item 11 ............ Item 7
Item 12 ............ *
Item 13(a) ......... *
Item 13(b) ......... **
Item 13(c) ......... **
Item 14(a) ......... *
Item 14(b) ......... **
Item 15(a) ......... *
Item 15(b) ......... Item 8
Item 16 ............ Item 10(f)
Item 17 ............ Item 11
- ----------
* The Item is located in the Schedule 13E-3 only.
** The Item is inapplicable or the answer thereto is in the negative.
3
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a)-(c) The response to Item 1(a)-(c) of the Schedule 14D-1 and the
information in the Offer to Purchase set forth under "THE OFFER -- Effect of the
Offer on the Market for Shares, Margin Regulations and Registration under the
Exchange Act" is incorporated herein by reference.
(d) The information set forth in the Offer to Purchase under "THE OFFER --
Price Range of Shares; Dividend Information" is incorporated herein by
reference.
(e) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer and the Merger" is incorporated herein by
reference.
(f) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer and the Merger" and "THE OFFER -- Certain
Information Concerning the Purchaser and the Parent" is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) This Statement is being filed by Purchaser, Parent and the Company.
The response to Item 2 of the Schedule 14D-1 and the information in the Offer to
Purchase set forth under "THE OFFER -- Certain Information Concerning the
Company" and Schedule II is incorporated herein by reference.
(e)-(f) The response to Item 2 of the Schedule 14D-1 is incorporated herein
by reference with respect to Parent and Purchaser. During the last five years,
neither the Company nor, to the best knowledge of the Company, any director or
executive officer of the Company has been (i) convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting activities subject
to, federal or state securities laws or finding any violation of such laws.
(g) The response to Item 2 of the Schedule 14D-1 is incorporated herein by
reference with respect to Parent and Purchaser. The citizenship of the directors
and executive officers of the Company set forth in Schedule II to the Offer to
Purchase is incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)-(b) The response to Item 3 of the Schedule 14D-1 is incorporated herein
by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the Offer to Purchase on the cover page
thereof and under "INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer
and the Merger," "SPECIAL FACTORS -- Rights of Stockholders in the Merger,"
"SPECIAL FACTORS -- The Merger Agreement," "THE OFFER -- Terms of the Offer;
Expiration Date," "THE OFFER -- Procedure for Accepting the Offer and Tendering
Shares," "THE OFFER -- Acceptance for Payment and Payment for Shares," "THE
OFFER -- Withdrawal Rights," "THE OFFER -- Price Range of Shares; Dividend
Information," "THE OFFER -- Certain Conditions of the Offer," "THE OFFER --
Certain Legal Matters" and "THE OFFER -- Miscellaneous" is incorporated herein
by reference.
(b) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer and the Merger," "SPECIAL FACTORS -- Purpose
and Structure of the Offer and the Merger; Reasons of Parent and Purchaser for
the Offer and the Merger" and "SPECIAL FACTORS -- Interests of Certain Persons
in the Offer and the Merger" is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(e) The response to Item 5(a)-(e) of the Schedule 14D-1 is incorporated
herein by reference.
(f)-(g) The response to Item 5(f)-(g) of the Schedule 14D-1 is incorporated
herein by reference.
4
<PAGE>
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The response to Item 4(a)-(c) of the Schedule 14D-1 is incorporated
herein by reference.
(b) The information set forth in the Offer to Purchase under "THE OFFER --
Fees and Expenses" is incorporated herein by reference.
(c) The information set forth in the Offer to Purchase under "THE OFFER --
Source and Amount of Funds" is incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The response to Item 5 of the Schedule 14D-1 is incorporated herein by
reference.
(b) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer and the Merger," "SPECIAL FACTORS --
Recommendations of the Special Committee and the Company Board; Fairness of the
Offer and the Merger" and "SPECIAL FACTORS -- Purpose and Structure of the Offer
and the Merger; Reasons of Parent and Purchaser for the Offer and the Merger" is
incorporated herein by reference.
(c)-(d) The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer and the Merger,"
"SPECIAL FACTORS -- Recommendations of the Special Committee and the Company
Board; Fairness of the Offer and the Merger," "SPECIAL FACTORS -- Purpose and
Structure of the Offer and the Merger; Reasons of Parent and Purchaser for the
Offer and the Merger," "SPECIAL FACTORS -- Plans for the Company After the Offer
and the Merger; Certain Effects of the Offer and the Merger," "THE OFFER --
Certain Federal Income Tax Consequences of the Offer" and "THE OFFER -- Effect
of the Offer on the Market for Shares, Margin Regulations and Registration under
the Exchange Act" is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(f) The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer and the Merger,"
"SPECIAL FACTORS -- Recommendations of the Special Committee and the Company
Board; Fairness of the Offer and the Merger," "SPECIAL FACTORS -- Opinions of
the Company's Financial Advisors," "SPECIAL FACTORS -- Purpose and Structure of
the Offer and the Merger; Reasons of Parent and Purchaser for the Offer and the
Merger" and "SPECIAL FACTORS -- Interests of Certain Persons in the Offer and
the Merger" is incorporated herein by reference. In recognition of Parent's
interest in the Offer and the Merger, directors Robert N. Elkins, the Chairman
of the Board and Chief Executive Officer of Parent, and John L. Silverman, a
director of Parent and chief executive officer of a subsidiary of Parent,
abstained from voting or did not attend the meeting at which the Company Board
voted on the Offer and the Merger.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer and the Merger," "SPECIAL FACTORS --
Recommendations of the Special Committee and the Company Board; Fairness of the
Offer and the Merger," "SPECIAL FACTORS -- Opinions of the Company's Financial
Advisors," "SPECIAL FACTORS -- Position of Parent and Purchaser Regarding the
Fairness of the Offer and the Merger" and in Annexes A and B is incorporated
herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The response to Item 6(a)-(b) of the Schedule 14D-1 and the information
set forth in the Offer to Purchase under "SPECIAL FACTORS -- Interests of
Certain Persons in the Offer and the Merger," "SPECIAL FACTORS -- Share
Ownership by Parent, Purchaser and Their Affiliates" and "SPECIAL FACTORS --
Beneficial Ownership of Shares" are incorporated herein by reference.
5
<PAGE>
(b) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer and the Merger" is incorporated herein by
reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The response to Item 7 of the Schedule 14D-1 is incorporated herein by
reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a)-(b) The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer and the Merger,"
"SPECIAL FACTORS -- Recommendations of the Special Committee and the Company
Board; Fairness of the Offer and the Merger," "SPECIAL FACTORS -- Interests of
Certain Persons in the Offer and the Merger" and "SPECIAL FACTORS -- Beneficial
Ownership of Shares" is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Rights of Stockholders in the Merger," "SPECIAL FACTORS -- The Merger
Agreement" and Annex C is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in the Offer to Purchase under "THE OFFER --
Certain Information Concerning the Company" is incorporated herein by reference.
In addition, the Company's audited financial statements for the fiscal years
ended December 31, 1994, 1995 and 1996 and the unaudited financial statements
for the three months ended March 31, 1996 and 1997 are attached to the Offer to
Purchase as Schedule III thereto, and are incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer and the Merger," "SPECIAL FACTORS --
Recommendations of the Special Committee and the Company Board; Fairness of the
Offer and the Merger," "SPECIAL FACTORS -- Plans for the Company After the Offer
and the Merger; Certain Effects of the Offer and the Merger" and "THE OFFER --
Effect of the Offer on the Market for Shares, Margin Regulations and
Registration under the Exchange Act" is incorporated herein by reference.
(b) The response to Item 8 of the Schedule 14D-1 is incorporated herein by
reference.
ITEM 16. ADDITIONAL INFORMATION.
The response to Item 10(f) of the Schedule 14D-1 is incorporated herein by
reference.
6
<PAGE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Revolving Credit Agreement, dated as of May 15, 1996, as amended, among
Integrated Health Services, Inc., the lenders named therein, and
Citibank, N.A., as administrative agent (incorporated herein by
reference to Exhibit (b)(1) to the Schedule 14D-1).
(b)(1) Opinion of Smith Barney Inc., dated August 1, 1997 (included as Annex A
to Exhibit(d)(1)).
(b)(2) Presentation of Smith Barney Inc., dated July 31, 1997.
(b)(3) Opinion of Wheat, First Securities, Inc., dated August 1, 1997 (included
as Annex B to Exhibit(d)(1)).
(b)(4) Presentation of Wheat, First Securities, Inc., dated July 31, 1997.
(b)(5) Presentation of Shattuck Hammond Partners Inc., dated June 11, 1997.
(b)(6) Opinion of Shattuck Hammond Partners Inc., dated July 3, 1997.
(c)(1) Agreement and Plan of Merger, dated as of August 1, 1997, among Parent,
the Purchaser and the Company (incorporated herein by reference to
Exhibit (c)(1) to the Schedule 14D-1).
(c)(2) Voting and Tender Agreement, dated as of August 1, 1997, among the
Purchaser, Parent and Dr. Robert N. Elkins (incorporated herein by
reference to Exhibit (c)(2) to the Schedule 14D-1).
(c)(3) Voting and Tender Agreement, dated as of August 1, 1997, among the
Purchaser, Parent and Equity-Linked Investors L.P. and Equity-Linked
Investors-II, L.P. (incorporated herein by refer- ence to Exhibit (c)(3)
to the Schedule 14D-1).
(c)(4) Stockholders Agreement dated June 30, 1993 among Robert N. Elkins,
Robert N. Elkins, as voting trustee, Equity-Linked Investors, L.P.,
Equity-Linked Investors-II, L.P. and the Compa- ny.*
(c)(5) Voting Agreement dated January 26, 1996 among Robert N. Elkins and
certain stockholders of the Company.+
(c)(6) Warrant Acquisition Agreement dated as of January 13, 1997, between the
Company and the Parent, including Form of Series A Warrants, Form of
Series B Warrants and Registration Rights Agreement. +
(c)(7) Warrant Acquisition Agreement dated April 14, 1997 between the Company
and the Parent.+
(c)(8) Guaranty Agreement, dated August 1, 1997, made by Robert N. Elkins to
Parent (incorporated herein by reference to Exhibit (c)(8) to the
Schedule 14D-1).
(d)(1) Offer to Purchase, dated August 7, 1997 (incorporated herein by
reference to Exhibit (a)(1) to the Schedule 14D-1).
(d)(2) Form of Letter of Transmittal (incorporated herein by reference to
Exhibit (a)(2) to the Schedule 14D-1).
(d)(3) Form of Notice of Guaranteed Delivery (incorporated herein by reference
to Exhibit (a)(3) to the Schedule 14D-1).
(d)(4) Form of Letter from Shattuck Hammond Partners Inc. to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees (incorporated
herein by reference to Exhibit (a)(4) to the Schedule 14D-1).
(d)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees to their Clients (incorporated herein by reference to
Exhibit (a)(5) to the Schedule 14D-1).
(d)(6) Form of Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 (incorporated herein by reference to Exhibit
(a)(6) to the Schedule 14D-1).
(d)(7) Text of Joint Press Release dated August 1, 1997, issued by Integrated
Health Services, Inc. and Community Care of America, Inc. (incorporated
herein by reference to Exhibit (a)(7) to the Schedule 14D-1).
(e) Description of Appraisal Rights (included as Annex C to Exhibit (d)(1)).
(f) Not applicable.
- ----------
* Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 33-92692.
+ Incorporated by reference to the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1996.
7
<PAGE>
SIGNATURES
After due inquiry and to the best of his knowledge and belief, each of the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
COMMUNITY CARE OF AMERICA, INC.
By: /s/ Deborah Lau
-----------------------------------------------
Name: Deborah Lau
Title: Chief Executive Officer
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Brian Davidson
-------------------------------------------------
Name: Brian Davidson
Title: Executive Vice President -- Development
IHS ACQUISITION XXVI, INC.
By: /s/ Brian Davidson
-------------------------------------------------
Name: Brian Davidson
Title: Executive Vice President -- Development
Dated: August 7, 1997
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
(a) Revolving Credit Agreement, dated as of May 15, 1996, as amended, among
Integrated Health Services, Inc., the lenders named therein, and
Citibank, N.A., as administrative agent (incorporated herein by
reference to Exhibit (b)(1) to the Schedule 14D-1).
(b)(1) Opinion of Smith Barney Inc., dated August 1, 1997 (included as Annex A
to Exhibit(d)(1)).
(b)(2) Presentation of Smith Barney Inc., dated July 31, 1997.
(b)(3) Opinion of Wheat, First Securities, Inc., dated August 1, 1997 (included
as Annex B to Exhibit(d)(1)).
(b)(4) Presentation of Wheat, First Securities, Inc., dated July 31, 1997.
(b)(5) Presentation of Shattuck Hammond Partners Inc., dated June 11, 1997.
(b)(6) Opinion of Shattuck Hammond Partners Inc., dated July 3, 1997.
(c)(1) Agreement and Plan of Merger, dated as of August 1, 1997, among Parent,
the Purchaser and the Company (incorporated herein by reference to
Exhibit (c)(1) to the Schedule 14D-1).
(c)(2) Voting and Tender Agreement, dated as of August 1, 1997, among the
Purchaser, Parent and Dr. Robert N. Elkins (incorporated herein by
reference to Exhibit (c)(2) to the Schedule 14D-1).
(c)(3) Voting and Tender Agreement, dated as of August 1, 1997, among the
Purchaser, Parent and Equity-Linked Investors L.P. and Equity-Linked
Investors-II, L.P. (incorporated herein by refer- ence to Exhibit (c)(3)
to the Schedule 14D-1).
(c)(4) Stockholders Agreement dated June 30, 1993 among Robert N. Elkins,
Robert N. Elkins, as voting trustee, Equity-Linked Investors, L.P.,
Equity-Linked Investors-II, L.P. and the Compa- ny.*
(c)(5) Voting Agreement dated January 26, 1996 among Robert N. Elkins and
certain stockholders of the Company.+
(c)(6) Warrant Acquisition Agreement dated as of January 13, 1997, between the
Company and the Parent, including Form of Series A Warrants, Form of
Series B Warrants and Registration Rights Agreement. +
(c)(7) Warrant Acquisition Agreement dated April 14, 1997 between the Company
and the Parent.+
(c)(8) Guaranty Agreement, dated August 1, 1997, made by Robert N. Elkins to
Parent (incorporated herein by reference to Exhibit (c)(8) to the
Schedule 14D-1).
(d)(1) Offer to Purchase, dated August 7, 1997 (incorporated herein by
reference to Exhibit (a)(1) to the Schedule 14D-1).
(d)(2) Form of Letter of Transmittal (incorporated herein by reference to
Exhibit (a)(2) to the Schedule 14D-1).
(d)(3) Form of Notice of Guaranteed Delivery (incorporated herein by reference
to Exhibit (a)(3) to the Schedule 14D-1).
(d)(4) Form of Letter from Shattuck Hammond Partners Inc. to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees (incorporated
herein by reference to Exhibit (a)(4) to the Schedule 14D-1).
(d)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees to their Clients (incorporated herein by reference to
Exhibit (a)(5) to the Schedule 14D-1).
(d)(6) Form of Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 (incorporated herein by reference to Exhibit
(a)(6) to the Schedule 14D-1).
(d)(7) Text of Joint Press Release dated August 1, 1997, issued by Integrated
Health Services, Inc. and Community Care of America, Inc. (incorporated
herein by reference to Exhibit (a)(7) to the Schedule 14D-1).
(e) Description of Appraisal Rights (included as Annex C to Exhibit (d)(1)).
(f) Not applicable.
- ----------
* Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 33-92692.
+ Incorporated by reference to the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1996.
Confidential
- --------------------------------------------------------------------------------
Community Care of America, Inc.
Presentation to the Board of Directors
July 31, 1997
SMITH BARNEY INC.
- --------------------------------------------------------------------------------
<PAGE>
Confidential
Materials Presented to the Board of Directors
of
Community Care of America, Inc.
The following pages contain material provided to the Board of Directors of
Community Care of America, Inc. ("CCA" or the "Company") by Smith Barney Inc.
("Smith Barney") in the context of meetings of the Board of Directors held to
evaluate the potential transaction involving Integrated Health Services ("IHS").
The accompanying material was compiled or prepared on a confidential basis
solely for the use of the Board of Directors of CCA and not with a view toward
public disclosure under state and federal securities laws or otherwise. The
information contained in this material was obtained from CCA, IHS and other
sources. Any estimates and projections for CCA and IHS contained herein have
been prepared by the respective managements, or are based upon estimates and
projections, and involve numerous and significant subjective determinations,
which may or may not be correct. No representation or warranty, expressed or
implied, is made as to the accuracy or completeness of such information and
nothing contained herein is, or shall be relied upon as, a representation,
whether as to the past or the future. Neither CCA nor Smith Barney nor their
respective legal or financial advisors or accountants take any responsibility
for the accuracy of completeness of any of the material when used by persons
other than the Board of Directors of CCA.
<PAGE>
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CONFIDENTIAL PROJECT FLORIDA
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Table of Contents
TAB
---
Overview
Overview of Transaction .............................................. 1
Current Situation Overview............................................ 2
CCA Trading Analysis.................................................. 3
Process Overview / Financing History ................................. 4
Valuation Summary
CCA Stand Alone Model................................................. 5
CCA Valuation Summary................................................. 6
Valuation Matrix...................................................... 7
Appendix
Comparable Companies Trading Analysis ................................ 8
Precedent Transactions Analysis....................................... 9
Ownership Information................................................. 10
Profile of Integrated Health Services................................. 11
<PAGE>
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Overview of Transaction
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<PAGE>
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CONFIDENTIAL PROJECT FLORIDA
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Overview of Transaction
Community Care of America, Inc. (NASDAQ: CCAI) ("CCA" or the "Company"), a
$131.0 million revenues operator of skilled nursing facilities in rural
communities, intends to be acquired by Integrated Health Services (collectively
with its subsidiaries and affiliates, "IHS"), a publicly traded post acute care
company. The transaction is described below:
<TABLE>
<CAPTION>
<S> <C>
Purchaser: Integrated Health Services
Purchase Price: $4.00 per Share
Transaction Structure: Cash Tender Offer
Closing Conditions: Minimum tender offer acceptance of a majority of the Company's voting shares
Regulatory approvals (i.e. Hart Scott Rodino) and other customary conditions
No material adverse changes
Option Treatment: Holders of CCA options entitled to receive a
cash amount equal to the spread between the offer price
and the exercise price of such options and such options
will be canceled.
Break-up Fee: $1 million payable by CCA to IHS under certain circumstances (representing 1% of transaction
value)
</TABLE>
<PAGE>
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Current Situation Overview
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<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Accounts Payable Overview
The following are contingent obligations which occurred under previous
management and must be satisfied to prevent a significant disruption to
CCA's business. Although management is working to secure additional
financing, CCA does not currently have the resources to meet these
obligations.
<TABLE>
<CAPTION>
Item Description Status
- ---------------------------------- ---------------------------------------- -----------------------------------------------------
<S> <C> <C>
CMS Therapies - $650,000 Provider of therapy services Has rejected CCA's payment proposals and has won
the legal right to seize full amount from CCA's bank
account.
Merrill Corporation - $300,000 Provider of corporate printing services Has rejected CCA's payment proposals and has won
the legal right to seize full amount from CCA's bank
account.
Sandy River Group - $1,000,000 Owners of long-term care facilities in Full amount due by September 1997 with no extension
Maine with which CCA terminated its opportunities.
management agreement.
Parker, Chapin - $450,000 Former corporate counsel Currently 18 months past due.
</TABLE>
In addition, most of CCA's vendors are stretched to the maximum capacity and
will not offer the company additional credit.
2
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Monthly Cash Receipts and Disbursements
(In Millions)
<TABLE>
<CAPTION>
Actual Projected (1)
-------------------------------------------- ---------------------------------------------------------------
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
-------- -------- -------- -------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Cash Balance $1,709.0 $1,191.0 $1,089.0 $611.0 $582.0 $2,331.0 $2,231.0 $1,940.0 $2,990.0 $2,934.0 $2,123.0 $1,903.0
Cash Receipts
Facility Collections 10,227.0 9,398.0 10,136.0 10,549.0 10,093.0 10,478.0 10,578.0 11,328.0 11,328.0 10,578.0 10,578.0 10,578.0
Revolver 0.0 1,000.0 0.0 1,500.0 500.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
HRPT Lease Forgiveness 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Miscellaneous 184.0 231.0 336.0 282.0 867.0 735.0 389.0 389.0 389.0 389.0 389.0 389.0
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Receipts 10,411.0 10,629.0 10,472.0 12,331.0 11,460.0 11,213.0 10,967.0 11,717.0 11,717.0 10,967.0 10,967.0 10,967.0
Disbursements
Payroll & Related 5,645.0 5,109.0 5,022.0 5,180.0 5,076.0 5,054.0 5,645.0 5,054.0 5,054.0 5,645.0 5,054.0 5,645.0
Accounts Payable 2,465.0 4,262.0 4,238.0 4,199.0 2,888.0 4,819.0 4,233.0 4,233.0 4,819.0 4,233.0 4,233.0 4,819.0
Employee Benefits 627.0 273.0 318.0 410.0 476.0 421.0 421.0 421.0 421.0 421.0 421.0 421.0
Capital Expenditures 603.0 19.0 482.0 46.0 20.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Lease/Interest Expense 1,213.0 183.0 185.0 1,214.0 709.0 719.0 659.0 659.0 1,179.0 1,179.0 1,179.0 1,179.0
Other 171.0 224.0 105.0 161.0 92.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
One-time Payments 205.0 661.0 600.0 1,150.0 450.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Disbursements 10,929.0 10,731.0 10,950.0 12,360.0 9,711.0 11,313.0 11,258.0 10,667.0 11,773.0 11,778.0 11,187.0 12,364.0
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Ending Cash Balance $1,191.0 $1,089.0 $611.0 $582.0 $2,331.0 $2,231.0 $1,940.0 $2,990.0 $2,934.0 $2,123.0 $1,903.0 $506.0
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(1) Based on Management estimates.
3
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Performance vs Budget Analysis (1)
(Dollars in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
For fiscal year ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Actual Budget Actual 1996 Budget as of: Actual 1997 Budget as of:
- ------------------------------------------------------------------------------------------------------------------------------------
Dec Aug Dec Feb 96 May 96 Aug 96 Nov 96 Dec Feb 96 Jan 97 Jun 97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 57.5 $ 97.1 $ 94.1 $ 169.5 $152.5 $140.5 $ 139.2 $128.8 $238.5 $133.0 $ 115.5
EBITDAR 8.5 16.7 15.7 34.4 28.7 28.1 24.5 23.0 48.2 23.5 18.5
EBITDA 4.7 10.1 9.3 25.9 19.7 19.3 16.0 14.6 38.7 14.2 9.7
EBIT 3.3 8.0 7.3 19.3 16.3 16.1 13.0 11.9 28.7 11.2 6.5
Net Income 0.4 2.3 2.4 8.2 6.6 14.0 12.5 4.4 11.7 3.6 0.4
EPS(Bef.Ext.items) $ 0.19 $ 0.42 $ 0.42 $ 0.89 $ 0.86 $ 0.86 $ 0.68 $ 0.61 $ 1.15 $ 0.47 $ 0.05
EPS $(0.13) $ 0.20 $ 0.22 $ 0.89 $ 0.86 $(0.69) $ (0.88) $(1.87) $ 1.15 $ 0.47 $(1.55)
</TABLE>
(1) Based on Management projections.
4
<PAGE>
- --------------------------------------------------------------------------------
CCA Trading Analysis
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
CCA Annotated Stock Price / Volume Traded Analysis
[PLOT POINTS TO COME]
Daily Prices: August 10, 1995 to July 29, 1997
5
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
CCA LTM Stock Price / Volume Traded Analysis
[PLOT POINTS TO COME]
Daily Prices: July 30, 1996 to July 29, 1997
Source: IDD Information Services/Tradeline
Source: IDD Information Services/Tradeline
6
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
CCA LTM Traded Volume Analysis
Percent of Total Volume Traded at Specified Prices
July 30, 1996 to July 29, 1997
[PLOT POINTS TO COME]
Graph shows 10,498,700 cumulative shares, 142% of the 7,378,000 shares
outstanding as reported on 7/29/97.
Source: IDD Information Services/Tradeline
7
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
CCA Indexed Stock Price Comparison
[PLOT POINTS TO COME]
Daily: July 30, 1996 to July 29, 1997
Comparable Companies is a composite of: AVC, BEV, GC, HBR, LCA, MRNR, RHS,
RCA, SUMC, SHG, UNHC
Source: IDD Information Services/Tradeline
8
<PAGE>
- --------------------------------------------------------------------------------
Process Overview / Financing History
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Process Overview
===================================================================================================================
First Process Second Process Third Process
Event Spring 1996 Fall/Winter 1996 Spring/Summer 1997
===================================================================================================================
<S> <C> <C> <C>
Parties Contacted 34* 40 38
- -------------------------------------------------------------------------------------------------------------------
Confidentiality Agreements 6* 22 27
Signed
- -------------------------------------------------------------------------------------------------------------------
Submitted Initial Indications 4* 5 4
of Interest
- -------------------------------------------------------------------------------------------------------------------
Conducted Due Diligence 4* 3 4
- -------------------------------------------------------------------------------------------------------------------
Submitted Final Bids 0 0 4
- -------------------------------------------------------------------------------------------------------------------
Result No viable offers provided No viable offers provided Final negotiations
for the Company for the Company
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* 22 of the groups contacted represented financial buyers / investors who
considered making minority equity investments in the Company. Of those, 3 signed
confidentiality agreements, indicated interest and conducted due diligence.
9
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Community Care of America Financing History
[THE FOLLOWING WAS REPRESENTED BY A CHART IN THE PRINTED MATERIAL.]
11/93 $60 Million
HRPT REIT
Financing
11/93 $8 Million Desai Capital
Preferred Equity Investment
11/93 $2 Million of Seed
Capital from
Bob Elkins and
other investors
11/93 $70 Million
LBO of Merit
West
3/94 $17.5 Million
Quality
Acquisition with
HRPT Financing
8/94 $7.5 Million
Heller Loan
5/95 3 Million Share
Initial Public
Offering at $9.50
5/95 $15 Million Working
Capital Line with
NationsBank
10/95 3.2 Million Share
Secondary
Offering Pulled
3/96 High Yield Offering
pulled
3/96-8/96 $10 Million
HRPT Loan
3/96-8/96 $15.8 Million Southern
Acquisition with HRPT
Financing
3/96-8/96 Failed Private Placement
Effort
3/96-8/96 Failed Strategic
Alternative Effort
3/96-6/96 Bridge Loan
Rejected
7/96-9/96 $75 Million High
Yield Offering
Canceled
8/96-2/97 Revolving Credit and
Management agreement
with IHS
10/96-2/97 Failed Strategic
Alternative Effort
2/97-7/97 Third Strategic
Alternative Effort
Four Final Offers
10
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Community Care of America Financing History
12/93 $70 million leveraged buy-out of MeritWest:
$2.3 million seed capital from Bob Elkins and other founders
$8.2 million preferred equity investment by Desai Capital
(obtain warrants for 1.3 million shares of common stock
at IPO)
$6.0 million lease in Health and Retirement Properties Trust
(HRPT)
4/94 $17.5 million acquisition of Quality Care $3.3 million debt
provided by HRPT $14.2 million lease financing provided by
HRPT
7/94 $7.5 million loan from Heller
8/95 $33 million initial public offering:
To repay Desai Capital preferred stock (Still hold 1.3
million shares of common)
To repay Heller and HRPT indebtedness To fund cash purchase
option deposit for acquisition No excess proceeds
8/95 $15 million working capital line arranged with Nations Bank
8/95 - 3/96 CCA stock outperforms the market reaching as high as $16 in
February
9/95 - 11/95 William Fillipone, COO, fired and replaced by Debbie Lau
3/96 3.2 million secondary equity offering attempted and pulled due
to:
Medicare Recertification of a nursing facility in Iowa
Disclosure of a significant writedown risk related to a
management agreement for ten long-term care facilities in
Maine (Sandy River Agreement).
4/96 Ken Creasman, President and CEO, fired and replaced by Gary
Singleton
11
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Community Care of America Financing History
4/96 $10 million loan from HRPT
4/96 - 5/96 Financial/strategic alternative effort failed
Discussions with 22 financial investors results in no
proposals for investment
Discussions with 12 likely strategic buyers results in no
proposals for acquisitions
Effort to obtain bridge financing rejected
5/96 $15.8 million acquisition of Southern Care
$15.8 million lease financing provided by HRPT
6/96 $19.2 million writedown to clean-up balance sheet
$8.9 million to write off the lost purchase option deposit and
uncollectable management fees from the Sandy River
Agreement
$4.4 million in FASB 121 write downs related to impaired
assets from shut down operations
$5.9 million in write downs relates restructuring and exit
costs related to other closed facilities
7/96 High yield offering attempted and canceled
8/96 - 9/96 High yield offering attempted and canceled
Smith Barney and Bankers Trust began process to raise $75
million
Further due diligence exposed lack of operating cash flows to
support additional indebtedness. Offering canceled.
11/96 - 12/96 Attempts to sell CCA to strategic or financial players
fails 40 parties contacted Due diligence by interested parties
resulted in no viable
proposals
12/96 Desai Capital vacates its two seats on the board of directors
Replaces Nations Bank working capital facility with Daiwa
Securities
$5 million revolving credit facility with Integrated Health
Services secured
5/97 - 7/97 Third strategic alternative efforts 38 parties
contacted Four final bids received
12
<PAGE>
- --------------------------------------------------------------------------------
CCA Stand Alone Model
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Florida Income Statement
(In Million, Except Per Share Data)
<TABLE>
<CAPTION>
Actual Projected (1)
---------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year End 12/31 1995 1996 1997 1998 1999 2000 2001 2002
----- ------ ------ ------ ------ ------ ------ ------
Sales $94.2 $127.5 $115.5 $117.4 $129.2 $142.1 $156.3 $171.9
Cost of Goods Sold 73.7 111.2 94.7 91.9 101.1 111.2 122.3 134.5
----- ------ ------ ------ ------ ------ ------ ------
Gross Profit 20.5 16.3 20.7 25.5 28.1 30.9 34.0 37.4
SG&A 4.8 5.2 2.2 2.5 2.8 3.0 3.3 3.7
----- ------ ------ ------ ------ ------ ------ ------
EBITDAR 15.7 11.1 18.5 23.0 25.3 27.9 30.7 33.7
Lease/Rent Expense 6.4 9.0 8.8 7.7 7.8 7.8 7.8 7.8
----- ------ ------ ------ ------ ------ ------ ------
EBITDA 9.3 2.1 9.7 15.3 17.6 20.1 22.9 25.9
Depreciation 2.0 3.0 2.7 2.4 2.6 2.7 2.8 2.9
Amortization 0.0 0.0 0.6 0.6 0.6 0.6 0.6 0.6
----- ------ ------ ------ ------ ------ ------ ------
EBIT 7.3 (0.9) 6.5 12.3 14.5 16.9 19.5 22.4
Interest Expense (net) 3.8 5.3 5.8 5.4 4.9 4.2 3.1 2.2
Minority Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other Non-Operating Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ------ ------ ------ ------ ------ ------ ------
Pre-Tax Income 3.5 (6.2) 0.6 6.9 9.6 12.7 16.4 20.2
Provision for Taxes 1.0 (2.4) 0.2 2.6 3.6 4.8 6.2 7.7
----- ------ ------ ------ ------ ------ ------ ------
Net Income 2.4 (3.8) 0.4 4.3 6.0 7.9 10.2 12.6
Preferred Dividends 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ------ ------ ------ ------ ------ ------ ------
Net Income to Common $2.0 ($3.8) $0.4 $4.3 $6.0 $7.9 $10.2 $12.6
===== ====== ====== ====== ====== ====== ====== ======
Number of Shares Outstanding 4.8 7.4 8.1 8.1 8.1 8.1 8.1 8.1
Fully Diluted E.P.S $0.42 ($0.52%) $0.05 $0.53 $0.73 $0.97 $1.25 $1.55
Margin & Growth Rate Analysis
- -----------------------------
Revenue Growth NM 35.4% (9.4%) 1.7% 10.0% 10.0% 10.0% 10.0%
COGS as a % of Sales 78.2% 87.2% 82.0% 78.2% 78.2% 78.2% 78.2% 78.2%
Cross Margin 21.8% 12.8% 18.0% 21.8% 21.8% 21.8% 21.8% 21.8%
SC&A as a % of Sales 5.1% 4.1% 1.9% 2.1% 2.1% 2.1% 2.1% 2.1%
Lease/Rent Expense as a % of Sales 6.8% 7.1% 7.6% 6.6% 6.0% 5.5% 5.0% 4.5%
EBITDAR Margin 16.7% 8.7% 16.1% 19.6% 19.6% 19.6% 19.6% 19.6%
EBITDA Margin 9.9% 1.7% 8.4% 13.0% 13.6% 14.2% 14.6% 15.1%
EDIT Margin 7.7% NM 5.6% 10.5% 11.2% 11.9% 12.5% 13.1%
Effective Tax Rate 30.0% NM 38.0% 38.0% 38.0% 38.0% 38.0% 38.0%
Pre-Tax Margin 3.7% NM 0.6% 5.8% 7.4% 8.9% 10.5% 11.8%
Net Margin 2.2% NM 0.3% 3.6% 4.6% 5.5% 6.5% 7.3%
Net Income Growth NM (288.9%) NM 979.6% 39.8% 32.0% 29.4% 23.5%
</TABLE>
(1) Based on Company projections, excludes extraordinary items and one-time
charges.
13
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Florida Cash Flow Statement
(In Millions)
<TABLE>
<CAPTION>
Projected (1)
----------------------------------------------------------------
Fiscal Year End 12/31 1997 1998 1999 2000 2001 2002
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cash Flow From Operations
Net Income ($11.8) $4.3 $6.0 $7.9 $10.2 $12.6
Depreciation 2.7 2.4 2.6 2.7 2.8 2.9
Amortization of Existing Goodwill 0.4 0.4 0.4 0.4 0.4 0.4
Amortization of Intangible Assets 0.1 0.1 0.1 0.1 0.1 0.1
Deterred Taxes 0.0 0.0 0.0 0.0 0.0 0.0
Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0
Change in Working Capital (4.3) (0.6) 0.1 0.2 0.2 0.2
Change in Other Assets 4.0 0.0 0.0 0.0 0.0 0.0
Change in Other Liabilities 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- -----
Cash Provided/(Used) by Operating Activities ($8.8) $6.6 $9.2 $11.2 $13.7 $16.2
Cash Flow From Investing Activities
Capital Expenditures 10.7 (2.2) (2.3) (2.4) (2.5) (2.6)
Goodwill 1.0 0.0 0.0 0.0 0.0 0.0
Intangible Assets 0.1 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- -----
Cash Provided / (Used) by Investing Activities $11.9 ($2.2) ($2.3) ($2.4) ($2.5) ($2.6)
Cash Flow From Financing Activities
Change in Existing Senior Debt Florida 2.9 (1.5) (1.3) (8.3) (11.3) (5.7)
Change in Existing Subordinated Debt Florida 0.0 0.0 0.0 0.0 0.0 0.0
Change in Existing Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0
Dividend Paid to Common Shareholders 0.0 0.0 0.0 0.0 0.0 0.0
Change in Common Equity 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- -----
Cash Provided/(Used) by Financing Activities 2.9 (1.5) (1.3) (8.3) (11.3) (15.7)
----- ----- ----- ----- ----- -----
(Deficiency)/Excess Cash 6.0 3.0 5.7 0.6 (0.1) 7.9
(Payments) / Borrowings on Revolver (6.0) (3.0) (5.0) (0.5) 0.0 0.0
----- ----- ----- ----- ----- -----
Total Change In Cash ($0.0) ($0.0) $0.7 $0.1 ($0.1) $7.9
===== ===== ===== ===== ===== =====
Beginning Cash Balance 1.7 1.7 1.6 2.3 2.4 2.3
Change In Cash (0.0) (0.0) 0.7 0.1 (0.1) 7.9
----- ----- ----- ----- ----- -----
Ending Cash Balance $1.7 $1.6 $2.3 $2.4 $2.3 $10.1
===== ===== ===== ===== ===== =====
</TABLE>
14
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Florida Balance Sheet
(In Millions)
<TABLE>
<CAPTION>
Actual Projected (1)
---------------- ---------------------------------------------------
Fiscal Year End 12/31 1995 1996 1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and Cash Equivalents $2.5 $1.7 $1.7 $1.6 $2.3 $2.4 $2.3 $10.1
Accounts Receivable 12.9 16.4 14.9 14.5 15.9 17.5 19.3 21.2
Inventory 1.5 1.8 1.6 1.6 1.8 2.0 2.2 2.4
Other Current Assets 3.7 1.1 1.0 1.0 1.1 1.2 1.3 1.5
----- ------ ----- ----- ----- ----- ----- -----
Total Current Assets 20.6 21.0 19.2 18.7 21.1 23.1 25.0 35.2
Net Property, Plant & Equipment 54.3 58.4 45.0 44.7 44.4 44.1 43.9 43.6
Existing Goodwill 3.3 13.7 12.2 11.8 11.4 11.0 10.5 10.1
Other Intangible Assets 0.9 1.1 0.8 0.7 0.5 0.4 0.3 0.1
Other Assets 14.1 8.0 4.0 4.0 4.0 4.0 4.0 4.0
----- ------ ----- ----- ----- ----- ----- -----
Total Assets $93.3 $102.1 $81.2 $79.9 $81.4 $82.5 $83.7 $93.0
===== ====== ===== ===== ===== ===== ===== =====
Liabilities and Shareholders' Equity
Bank Revolver $8.4 $14.5 $8.5 $5.5 $0.5 $0.0 $0.0 $0.0
Accounts Payable 8.9 15.6 12.5 11.3 12.5 13.7 15.1 16.6
Other Current Liabilities 6.0 10.0 7.1 7.2 7.9 8.7 9.6 10.5
----- ------ ----- ----- ----- ----- ----- -----
Total Current Liabilities 23.3 40.1 28.0 24.0 20.9 22.4 24.6 27.1
Other Liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred Tax 9.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Existing Senior Debt Florida 27.3 45.9 48.8 47.3 46.0 37.7 26.4 20.7
Existing Subordinated Debt Florida 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ------ ----- ----- ----- ----- ----- -----
Total Tong Term Debt 27.3 45.9 48.8 47.3 46.0 37.7 26.4 20.7
----- ------ ----- ----- ----- ----- ----- -----
Total Liabilities 59.9 86.1 76.9 71.4 67.0 60.3 51.2 48.0
Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Existing Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Common Equity 33.4 16.0 4.2 8.5 14.4 22.3 32.4 45.0
----- ------ ----- ----- ----- ----- ----- -----
Total Liabilities and Equity $93.3 $102.1 $81.2 $79.9 $81.4 $82.5 $83.7 $93.0
===== ====== ===== ===== ===== ===== ===== =====
Total Debt $35.7 $60.4 $57.3 $52.8 $46.5 $37.7 $26.4 $20.7
Total Debt, Preferred & Minority Interest 35.7 60.4 57.3 52.8 46.5 37.7 26.4 20.7
Net Debt, Preferred & Minority Interest 68.8 58.7 55.6 51.1 44.2 35.3 24.2 10.6
Total Book Equity 33.4 16.0 4.2 8.5 14.4 22.3 32.4 45.0
Total Book Capitalization 69.1 76.4 61.5 61.2 60.9 60.0 58.9 65.7
Balance Sheet Check 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
15
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Florida Working Capital Analysis
(In Millions)
<TABLE>
<CAPTION>
Actual Projected (1)
--------------- -------------------------------------------------------
Fiscal Year End 12/31 1995 1996 1997 1998 1999 2000 2001 2002
----- ----- ----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Statistics
Days Receivables (Days) 50.1 47.0 47.1 45.0 45.0 45.0 45.0 45.0
Inventory Turns (Times) 48.0x 63.1x 59.4x 56.6x 56.6x 56.7x 56.7x 56.7x
Other Current Assets / Sales 3.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9%
Days Payables (Days) 43.9 51.2 48.0 45.0 45.0 45.0 45.0 45.0
Other Current Liabilities/ Sales 6.4% 7.8% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1%
Change in Working Capital
Increase (Decrease) in Accounts Receivable $3.5 ($1.5) ($0.4) $1.4 $1.6 $1.8 $1.9
Increase (Decrease) in Inventory 0.2 (0.2) 0.0 0.2 0.2 0.2 0.2
Increase (Decrease) in Other Current Assets (2.6) (0.1) 0.0 0.1 0.1 0.1 0.1
Decrease (Increase) in Accounts Payable (6.7) 3.1 1.1 (1.1) (1.2) (1.4) (1.5)
Decrease (increase) in Other Current Liabilities (4.0) 2.9 (0.1) (0.7) (0.8) (0.9) (1.0)
----- ----- ----- ----- ----- ----- ------
Increase (Decrease) in Net Working Capital ($9.6) $4.3 $0.6 ($0.1) ($0.2) ($0.2) ($0.2)
===== ===== ===== ===== ===== ===== ======
</TABLE>
16
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Florida Debt & Preferred
(In Millions)
<TABLE>
<CAPTION>
Actual Projected (1)
--------------- --------------------------------------------
Fiscal Year End 12/31 1996 1997 1998 1999 2000 2001 2002
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Bank Revolver
Beginning Balance $8.4 $14.5 $8.5 $5.5 $0.5 $0.0 $0.0
Less: (Payments) / Borrowings 6.1 (6.0) (3.0) (5.0) (0.5) 0.0 0.0
----- ----- ----- ----- ----- ----- -----
Ending Balance $14.5 $8.5 $5.5 $0.5 $0.0 $0.0 $0.0
===== ===== ===== ===== ===== ===== =====
Interest Expense @ 7.5% $0.6 $0.4 $0.0 $0.0 $0.0
Commitment Fee Expense @ 0.0% $0.0 $0.0 $0.0 $0.0 $0.0
Existing Senior Debt Florida
Beginning Balance $27.3 $45.9 $48.8 $47.3 $46.0 $37.7 $26.4
Less: (Payments) / Borrowings 18.6 2.9 (1.5) (1.3) (8.3) (11.3) (5.7)
----- ----- ----- ----- ----- ----- -----
Ending Balance $45.9 $48.8 $47.3 $46.0 $37.7 $26.4 $20.7
===== ===== ===== ===== ===== ===== =====
Actual Rate 10.3% 9.9% 10.5% 10.5% 10.3%
Interest Expense @ $5.0 $4.6 $4.4 $3.4 $2.4
Existing Subordinated Debt Florida
Beginning Balance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Less: (Payments) / Borrowings 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- -----
Ending Balance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
===== ===== ===== ===== ===== ===== =====
Interest Expense @ 9.0% $0.0 $0.0 $0.0 $0.0 $0.0
Existing Preferred Stock
Beginning Balance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Less: (Payments) / Borrowings 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- -----
Ending Balance $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
===== ===== ===== ===== ===== ===== =====
Preferred Dividends @ 0.0% $0.0 $0.0 $0.0 $0.0 $0.0
Cash and Cash Equivalents
Beginning Balance $2.5 $1.7 $1.7 $1.6 $2.3 $2.4 $2.3
Change in Cash (0.8) (0.0) (0.0) 0.7 0.1 (0.1) 7.9
----- ----- ----- ----- ----- ----- -----
Ending Balance $1.7 $1.7 $1.6 $2.3 $2.4 $2.3 $10.1
===== ===== ===== ===== ===== ===== =====
Interest Income @ 10.0% ($0.2) ($0.2) ($0.2) ($0.2) ($0.2)
Interest Expense
Total Senior Debt Cash Interest Expense $5.6 $5.0 $4.4 $3.4 $2.4
Total Subordinated Debt Cash Interest Expense 0.0 0.0 0.0 0.0 0.0
Interest Cash and Cash Equivalents (0.2) (0.2) (0.2) (0.2) (0.2)
----- ----- ----- ----- -----
Net Interest Expense (Income) $5.4 $4.9 $4.2 $3.1 $2.2
===== ===== ===== ===== =====
Dividends
Dividends to Common Shareholders $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Existing Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- -----
Total Dividends $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
===== ===== ===== ===== ===== ===== =====
Fixed Charges
Net Interest Expense (Income) $3.0 $5.3 $5.4 $4.9 $4.2 $3.1 $2.2
Total Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- -----
Total Fixed Charges $3.0 $5.3 $5.4 $4.9 $4.2 $3.1 $2.2
===== ===== ===== ===== ===== ===== =====
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
CCA Valuation Summary
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Valuation Summary - Florida
(Dollars in Millions, Except Per Share Data)
[THE FOLLOWING WAS REPRESENTED BY A CHART IN THE PRINTED MATERIAL]
Comparable Company Valuation $1.17 - $2.67
Precedent Transaction Valuation $0.73 - $3.35
Discounted Cash Flow (1) $2.74 - $5.45
Discounted Cash Flow (2) $2.07 - $4.56
Discounted Cash Flow (3) $1.46 - $3.78
Current Price Offer Price
$3.25 $4.00
(1) Based on sales growth of 10% in 1999-2002.
(2) Based on sales growth of 8% in 1999-2002
(3) Based on sales growth of 6% in 1999-2002.
18
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Valuation Summary - Florida
(Dollars in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
Comparable Company Analysis
- ------------------------------------------------------------------------------------------------------------------------------------
Adj. Multiple Range Enterprise Value Equity Value Per Share Amount
Financial ------------------- ---------------- ------------ ----------------
Statistic Low High Low High Low High Low High
--------- --- ---- --- ---- --- ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Revenues (1) $131.3 1.Ox 1.4x $126.0 $189.0 NM $44.5 $0.00 $5.55
LTM EBITDAR (1) 10.1 7.6 11.4 77.0 115.4 NM NM 0.00 0.00
LTM EBITDA 0.3 7.7 11.5 2.0 3.0 NM NM 0.00 0.00
LTM Net Income (5.7) 18.0 26.5 -- -- NM NM 0.00 0 00
1997E Net Income $0.4 13.7x 20.5x -- -- $5.4 $8.1 $0.67 $1.01
1998E Net Income 4.3 11.9 17.9 -- -- 50.7 76.1 6.32 9.49
-----------------------------------------------------------
Valuation Range $1.17 $2.67
-----------------------------------------------------------
<CAPTION>
Precedent Transaction Analysis
- ----------------------------------------------------------------------------------------------------------------------------------
Adj. Multiple Range Enterprise Value Equity Value Per Share Amount
Financial ------------------- ---------------- ------------ ----------------
Statistic Low High Low High Low High Low High
--------- --- ---- --- ---- --- ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Revenues (1) $131.3 1.3x 1.9x $168.0 $252.0 $23.5 $107.5 $2.93 $13.40
LTM EBITDAR (1) 10.1 7.8 11.6 78.6 117.9 NM NM 0.00 0.00
LTM EBITDA 0.3 8.1 12.1 2.1 3.1 NM NM 0.00 0.00
LTM Net Income (5.7) 17.8 26.8 -- -- NM NM 0.00 0.00
-----------------------------------------------------------
Valuation Range $0.73 $3.35
-----------------------------------------------------------
</TABLE>
(1) Muliples are based on Adjusted Enterprise Value, equal to equity plus net
debt and capitalized rents (8 x rent/lease).
19
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Discounted Cash Flow Analysis
(Dollars in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
Estimated Projected
--------- -------------------------------------------------------------
Fiscal Year End 12/31 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues $115.5 $117.4 $129.2 $142.1 $156.3 $171.9
EBITDA 9.7 15.3 17.6 20.1 22.9 25.9
Less: Depreciation & Amortization (3.3) (3.0) (3.1) (3.2) (34) (3.5)
------ ------ ------ ------ ------ ------
EBIT 6.5 12.3 14.5 16.9 19.5 22.4
Less: Income Taxes @ 38.0% (2.5) (4.7) (5.5) (6.4) (7.4) (3.5)
------ ------ ------ ------ ------ ------
Unlevered After-Tax Income 4.0 7.6 9.0 10.5 12.1 13.9
Plus: Depreciation & Amortization 3.3 3.0 3.1 3.2 3.4 3.5
Less: Capital Expenditures (1.8) (2.2) (2.3) (2.4) (2.5) (2.6)
Less: Working Capital Investment (4.3) (0.6) 0.1 0.2 0.2 0.2
------ ------ ------ ------ ------ ------
Free Cash Flow $1.2 $7.8 $10.0 $11.5 $13.1 $15.0
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Terminal Value Based on EBITDA Multiple ------------------------- ------------------------- ----------------------------
Exit Multiple in Year 5 (2002) 5.0 x EBITDA 6.0 x EBITDA 7.0 x EBITDA
------------------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
18.0% 19.0% 20.0% 18.0% 19.0% 20.0% 18.0% 19.0% 20.0%
----- ----- ----- ----- ----- ----- ----- ----- -----
Discounted Free Cash Flows 1998 - 2002 $34.1 $33.2 $32.4 $34.1 $33.2 $32.4 $34.1 $33.2 $32.4
Discounted Terminal Value 56.7 54.3 52.1 68.0 65.2 62.5 79.3 76.1 73.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Enterprise Value 90.7 87.5 84.5 102.1 98.4 94.9 113.4 109.3 105.4
Less: Debt, Preferred &
Minority Interest (1) @ 03/31/97 (66.2) (66.2) (66.2) (66.2) (66.2) (66.2) (66.2) (66.2) (66.2)
Plus: Cash @ 03/31/97 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Implied Equity Value $25.2 $22.0 $18.9 $36.5 $32.9 $29.4 $47.8 $43.7 $39.8
===== ===== ===== ===== ===== ===== ===== ===== =====
- ---------------------------
Shares Outstanding 8.0
- ---------------------------
</TABLE>
- --------------------------------------------------------------------------------
Equity Value Based on EBITDA Multiple
- --------------------------------------------------------------------------------
EBITDA Terminal Multiple
Discount ---------------------------------------
Rate 5.0x 6.0x 7.0x
---- ---- ---- ----
18.0% $3.14 $4.55 $5.96
19.0% $2.74 $4.09 $5.45
20.0% $2.36 $3.66 $4.96
- --------------------------------------------------------------------------------
** Based on Company Estimates
(1) Debt includes $6.0MM that would be required to bring accounts payable to 60
days.
20
<PAGE>
- --------------------------------------------------------------------------------
Valuation Matrix
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Valuation Matrix
(Dollars in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
Florida
Fiscal Year End 12/31 07/30/97 Purchase Price Per Share
--------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Price Per Share $3.25 $2.00 $3.00 $4.00 $5.00 $6.00
Premium -- (38.5%) (7.7%) 23.1% 53.8% 84.6%
Florida Equity Value $26.1 $16.0 $24.1 $32.1 $40.1 $48.1
Plus: Debt, Preferred & MI 66.2 66.2 66.2 66.2 66.2 66.2
Less: Cash (0.6) (0.6) (0.6) (0.6) (0.6) (0.6)
------ ------ ------ ------ ------ ------
Florida Enterprise Value $91.6 $81.6 $89.6 $97.7 $105.7 $113.7
Plus: Captalized Rents 78.9 78.9 78.9 78.9 78.9 78.9
------ ------ ------ ------ ------ ------
Adjusted Florida Enterprise Value (1) $170.6 $160.6 $168.6 $176.6 $184.6 $192.6
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Financial
Statistic Multiples of Enterprise Value
--------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue (2) LTM $131.3 1.3x 1.2x 1.3x 1.3x 1.4x 1.5x
1996 127.5 1.3 1.3 1.3 1.4 1.4 1.5
1997E 115.5 1.5 1.4 1.5 1.5 1.6 1.7
1998E 117.4 1.5 1.4 1.4 1.5 1.6 1.6
EBITDAR (2) LTM $10.1 6.8x 15.9x 16.6x 17.4x 18.2x 19.0x
1996 11.1 15.3 14.4 15.2 15.9 16.6 17.3
1997E 18.5 9.2 8.7 9.1 9.5 10.0 10.4
1998E 23.0 7.4 7.0 7.3 7.7 8.0 8.4
EBITDA LTM $0.3 NM NM NM NM NM NM
1996 2.1 43.3 38.6 42.4 46.2 49.9 53.7
1997E 9.7 9.4 8.4 9.2 10.0 10.9 11.7
1998E 15.3 6.0 5.3 5.9 6.4 6.9 7.4
EBIT LTM ($3.0) NM NM NM NM NM NM
1996 (0.9) NM NM NM NM NM NM
1997E 6.5 14.2 12.6 13.9 15.1 16.4 17.6
1998E 12.3 7.5 6.6 7.3 7.9 8.6 9.2
Multiples of Equity Value
--------------------------
Net Income LTM ($5.7) NM NM NM NM NM NM
Cal. E.P.S 1996 ($0.52) NM NM NM NM NM NM
Cal. E.P.S 1997E $0.05 66.1 40.7 61.0 81.4 101.7 122.1
Cal. E.P.S 1998E $0.53 6.1 3.8 5.7 7.5 9.4 11.3
</TABLE>
(1) Adjusted Enterprise Value includes capitalized rent (8 x rent/lease).
(2) Multiples of Adjusted Enterprise Value.
21
<PAGE>
- --------------------------------------------------------------------------------
Appendices
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Comparable Companies Trading Analysis
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
================================================================================
COMPARABLE COMPANY ANALYSIS - LONG-TERM CARE COMPANIES (In Thousands, Except Per
Share Items)
<TABLE>
<CAPTION>
Price/ Fully Dil. Fully Dil. Adj.
Price 52 Week Shares Market Market
Company Name Ticker 7/30/97 High Outs. Value Value (1)
- ----------------------------------- ------ ------- ---- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Advocat, Inc. AVC $11.63 93.9% 5,448 $67,083 $88,848
Arbor Health Care Company AHCC 35.50 86.6 7,070 281,921 382,441
Beverly Enterprises, Inc. BEV 15.63 91.6 100,480 1,500,916 2,593,006
Extendicare, Inc. (5) EXE 14.25 87.0 74,977 1,068,422 1,367,883
Genesis Health Ventures, Inc. (6) GHV 33.94 90.5 36,347 1,233,532 1,844,754
GranCare (7) GC 7.75 80.9 23,816 184,572 499,934
Harborside Healthcare Corp. HBR 16.00 95.5 8,000 129,500 196,992
Health Care & Retirement Corp. HCR 35.69 97.4 48,041 1,690,433 1,958,326
Horizon/CMS Healthcare Corp. (8) HHC 14.25 51.1 52,121 742,723 1,446,639
Integrated Health Services (9) IHS 34.63 88.5 36,362 1,265,867 2,031,624
Living Centers of America (10) LCA 32.13 81.9 19,788 635,682 952,559
Manor Care, Inc. MNR 33.25 78.7 65,208 2,139,647 2,650,815
Mariner Health Group Inc. MRNR 12.75 64.6 29,575 399,267 825,648
Multicare Companies Inc. (11) MUL 25.68 94.2 36,390 934,305 1,236,795
National Healthcare L.P. (12) NHC 49.88 98.5 10,974 537,727 714,891
Regency Health Services, Inc. (13) RHS 16.38 76.4 16,414 268,785 472,170
Retirement Care Associates Inc. (14) RCA 9.00 65.5 13,861 124,751 275,253
Summit Care Corporation SUMC 15.00 61.2 6,773 102,439 222,448
Sun Healthcare Group (15) SHG 21.38 91.0 50,620 1,066,188 1,830,736
Unison Healthcare Group UNHC 2.50 16.5 6,044 13,600 38,918
Vencor (16) VC 41.31 91.5 72,100 2,820,926 4,691,032
- ------------------------------------------------------------------------------------------------------------------------------
Community Care of America (4) CCAI 3.75 39.5 7,598 28,492 88,053
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Market Value Divided by:
-------------------------------------- Cal. 97 P/E
Cal. 96(E) Cal. 97(E) Cal. 98(E) as a % of
Company Name Net Inc. Net Inc. Net Inc. 5-Yr. Gr.
- ----------------------------------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C>
Advocat, Inc. 13.2x 10.9x 9.5x 72%
Arbor Health Care Company 24.1 20.6 17.7 103%
Beverly Enterprises, Inc. 20.6 17.4 15.0 116%
Extendicare, Inc. (5) 23.0 19.8 16.8 132%
Genesis Health Ventures, Inc. (6) 24.4 19.7 16.0 79%
GranCare (7) 10.2 10.9 9.6 87%
Harborside Healthcare Corp. 25.4 18.8 15.7 94%
Health Care & Retirement Corp. 28.8 24.0 20.2 120%
Horizon/CMS Healthcare Corp. (8) 13.9 13.4 11.4 89%
Integrated Health Services (9) 15.7 13.5 11.5 75%
Living Centers of America (10) 13.9 12.0 10.4 75%
Manor Care, Inc. 23.6 20.5 17.9 146%
Mariner Health Group Inc. 14.0 13.3 11.7 76%
Multicare Companies Inc. (11) 25.9 18.5 14.7 92%
National Healthcare L.P. (12) 27.9 23.3 19.2 111%
Regency Health Services, Inc. (13) 21.0 18.0 15.9 103%
Retirement Care Associates Inc. (14) - - - -
Summit Care Corporation 15.7 15.9 12.8 63%
Sun Healthcare Group (15) 16.7 14.5 13.0 91%
Unison Healthcare Group - - - -
Vencor (16) 22.8 19.5 16.2 97%
---------------------------------------------------------------------------------------
Mean 20.0x 17.1x 14.9x 96%
Median 21.0 18.0 15.3 92%
High 28.8 24.0 20.2 146%
Low 10.2 10.9 9.5 63%
---------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Community Care of America (4) - - - -
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Adjusted Market Value (1)(2)
-----------------------------------------------------------------------------------------
Net Revenue EBITDA EBITDAR
--------------------------- -------------------------- ----------------------
Latest Qtr. Latest Qtr. Latest Qtr.
Company Name LTM (3) Annualized LTM (3) Annualized LTM (3) Annualized
- ----------------------------------- ----------- ----------- ------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Advocat, Inc. 0.5x 0.5x 7.4x 7.1x 7.7x 7.4
Arbor Health Care Company 1.7 1.6 10.8 10.8 10.5 10.5
Beverly Enterprises, Inc. 0.8 0.8 8.2 8.4 8.1 8.3
Extendicare, Inc. (5) 1.3 1.2 9.9 9.6 9.7 9.5
Genesis Health Ventures, Inc. (6) 2.0 1.7 13.1 11.3 12.3 10.7
GranCare (7) 0.7 0.6 6.9 6.6 7.3 7.1
Harborside Healthcare Corp. 1.1 1.0 12.6 10.4 10.8 9.5
Health Care & Retirement Corp. 2.4 2.3 14.9 13.7 14.4 13.3
Horizon/CMS Healthcare Corp. (8) 0.8 0.8 7.1 7.1 7.4 4.6
Integrated Health Services (9) 1.0 1.1 10.3 7.5 9.6 7.4
Living Centers of America (10) 0.8 0.8 7.3 6.6 7.5 6.9
Manor Care, Inc. 1.9 1.9 11.3 10.7 11.2 10.7
Mariner Health Group Inc. 1.3 1.2 9.0 7.4 8.9 7.5
Multicare Companies Inc. (11) 2.0 1.8 8.4 10.8 7.4 10.4
National Healthcare L.P. (12) 1.8 1.7 12.9 - 11.4 11.6
Regency Health Services, Inc. (13) 0.8 0.7 8.0 8.0 8.0 8.0
Retirement Care Associates Inc. (14) 1.2 1.0 6.6 4.3 6.8 4.6
Summit Care Corporation 1.1 1.1 10.9 8.7 10.6 8.6
Sun Healthcare Group (15) 1.1 1.1 10.6 9.3 11.2 8.0
Unison Healthcare Group 0.3 0.3 5.4 6.2 3.1 3.2
Vencor (16) 1.3 1.4 10.1 10.3 9.8 9.9
---------------------------------------------------------------------------------------------------------------------
Mean 1.2x 1.1x 9.6x 8.9x 9.5x 8.5
Median 1.1 1.1 9.9 8.6 9.6 8.3
High 2.4 2.3 14.9 13.7 14.4 13.3
Low 0.3 0.3 5.4 4.3 3.1 3.2
---------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Community Care of America (4) 0.7 0.7 - 12.3 16.5 9.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted Market Value = Fully Diluted Market Value + Debt Outstanding -
Cash.
(2) For EBITDAR Calculations, Adjusted Market Value = Fully Diluted Market
Value + Debt Outstanding +Capitalized Rents- Cash.
(3) LTM = Last Twelve Months.
(4) Community Care of America's net income figure reflects a tax benefit of $9
million in FY1996. CCA figures excluded from summary statistics.
(5) Extendicare EPS reduced by US$0.10 per share and stock price by US$0.75 to
take out insurance business. Exchange Rate at Can$1.39=US$1.00
(6) LTM numbers are not proforma for the acquisition of Multicare announced
June 16, 1997.
(7) LTM numbers are proforma for TeamCare divestiture. Current price fixed as
of the May 8, 1997 announced merger with Living Centers of America.
(8) Horizon stock price fixed as of February 14, 1997, prior to the announced
acquisition by Healthsouth.
(9) Pro forma for the sale of its pharmacy division, the sale of a majority
interest in ILC, the acquisition of First American and the acquisition of
other Long Term Care facilities, Home Health Care and Rehabilitation
companies.
(10) LCA price fixed as of March 4, 1997, the day it announced exploration of
strategic alternatives.
(11) Multicare figures are pro forma for the A-D-S acquisition. Current price
fixed as of June 13, 1997, prior to announcement of acquisition by Genesis
Health Ventures.
(12) National Healthcare L.P. EPS figures are adjusted to reflect an assumed tax
rate of 40%.
(13) Regency Health Services stock price fixed as of February 28, 1997, prior to
announcement of acquisition by Sun Healthcare Group.
(14) Retirement Care associates stock price is fixed as of February 1, 1997,
prior to announcement of acquisition by Sun Healthcare Group.
(15) Not Pro forma for the acquisition of Retirement Care Associates and Regency
Health Services
(16) Vencor figures are not pro forma for TheraTx and Transitional Hospitals
acquisitions.
22
<PAGE>
================================================================================
================================================================================
COMPARABLE COMPANY ANALYSIS - LONG-TERM CARE COMPANIES (In Thousands, Except Per
Share Items)
<TABLE>
<CAPTION>
SGA/Net Reserves EBIT EBITDAR Margin EBITDA Margin
---------------- ---------------- ---------------- -----------------
Company Name LTM(1) LQA LTM(1) LQA LTM(1) LQA LTM(1) LQA
- ------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advocat, Inc. 5.2% 5.3% 5.6% 5.7% 15.8% 16.2% 7.1% 7.3%
Arbor Health Care Company 4.4% 5.1% 11.4% 10.5% 17.7% 16.7% 15.7% 14.9%
Beverly Enterprises, Inc. NA NA 6.4% 6.1% 13.3% 13.0% 9.7% 9.4%
Extendicare, Inc. NA NA 9.2% 9.5% 13.8% 13.9% 12.7% 12.8%
Genesis Health Ventures, Inc. 3.7% 3.6% 11.6% 11.1% 18.3% 17.6% 15.3% 14.9%
GranCare NA NA 7.3% 6.0% 15.3% 13.1% 9.8% 8.6%
Harborside Healthcare Corp. 4.8% 5.0% 6.9% 8.1% 14.6% 15.5% 8.8% 10.0%
Health Care & Retirement Corp. 4.0% 3.6% 12.2% 12.6% 17.5% 17.8% 16.3% 16.7%
Horizon/CMS Healthcare Corp. 5.4% 5.4% 8.1% 8.0% 16.2% 25.8% 11.5% 11.5%
Integrated Health Services 4.0% 3.7% 6.8% 11.4% 13.9% 19.9% 9.8% 14.7%
Living Centers of America 14.8% 14.0% 8.0% 9.1% 15.5% 16.5% 11.6% 12.6%
Manor Care, Inc. 4.8% 4.6% 11.6% 12.1% 17.5% 18.0% 16.9% 17.4%
Mariner Health Group Inc. 7.7% 6.8% 10.7% 12.2% 16.1% 17.4% 14.5% 15.9%
Multicare Companies Inc. 4.3% 4.9% 19.7% 13.0% 29.7% 19.5% 23.8% 17.0%
National Healthcare L.P. NA NA 10.2% 9.2% 19.9% 18.7% 13.7% 12.8%
Regency Health Services, Inc. 4.6% 5.5% 7.2% 6.3% 14.3% 13.1% 10.0% 9.2%
Retirement Care Associates Inc. 18.1% 16.2% 16.0% 22.1% 21.5% 26.7% 18.8% 24.5%
Summit Care Corporation NA NA 6.9% 8.6% 11.9% 13.6% 10.5% 12.3%
Sun Healthcare Group 6.6% 4.6% 8.4% 9.4% 13.6% 19.3% 10.7% 12.3%
Unison Healthcare Group NA NA 3.8% 2.7% 16.0% 13.5% 5.5% 4.2%
Vencor NA NA 9.1% 9.5% 15.9% 16.0% 13.3% 13.4%
====================================================================================================================================
Mean 6.6% 6.3% 9.4% 9.7% 16.6% 17.2% 12.7% 13.0%
Median 4.8% 5.1% 8.4% 9.4% 15.9% 16.7% 11.6% 12.8%
High 18.1% 16.2% 19.7% 22.1% 29.7% 26.7% 23.8% 24.5%
Low 3.7% 3.6% 3.8% 2.7% 11.9% 13.0% 5.5% 4.2%
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Community Care of America 3.7% 3.2% -2.3% 2.8% 7.7% 13.5% 0.2% 5.5%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Pre Tax Margin Net Margin Projected Cal EPS Growth
------------------- ------------------- --------------------------------
Company Name LTM(1) LQA LTM(1) LQA 1997(E) 1998(E) 5 Yr. (E)
- ------------------------------- ------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Advocat, Inc. 4.7% 4.6% 3.0% 2.9% 21.6% 14.0% 15.0%
Arbor Health Care Company 8.2% 7.1% 5.0% 4.3% 17.0% 16.9% 20.0%
Beverly Enterprises, Inc. 4.1% 3.8% 1.7% 2.3% 18.4% 16.1% 15.0%
Extendicare, Inc. 6.7% 7.4% 4.8% 5.2% 16.3% 18.0% 15.0%
Genesis Health Ventures, Inc. 8.3% 7.8% 5.3% 4.9% 23.9% 23.4% 25.0%
GranCare 3.5% 2.9% 2.5% 3.1% -6.6% 14.1% 12.5%
Harborside Healthcare Corp. 4.0% 5.2% 2.7% 3.2% 34.9% 20.0% 20.0%
Health Care & Retirement Corp. 11.0% 11.0% 7.8% 7.6% 20.2% 18.8% 20.0%
Horizon/CMS Healthcare Corp. 4.7% 4.3% 2.5% 2.3% 3.8% 17.7% 15.0%
Integrated Health Services 2.5% 6.4% 1.6% 3.7% 16.4% 17.6% 18.0%
Living Centers of America 6.7% 7.5% 3.7% 4.3% 16.0% 15.6% 16.0%
Manor Care, Inc. 10.8% 9.5% 6.4% 5.7% 15.1% 14.5% 14.0%
Mariner Health Group Inc. 5.8% 6.9% 3.4% 3.9% 5.5% 13.5% 17.5%
Multicare Companies Inc. 14.6% 8.2% 11.6% 5.2% 40.4% 25.9% 20.0%
National Healthcare L.P. 7.6% 6.6% 4.6% 3.9% 19.8% 21.0% 21.0%
Regency Health Services, Inc. 3.9% 3.2% 2.3% 2.0% 16.7% 13.2% 17.5%
Retirement Care Associates Inc. 10.8% 16.9% 9.4% 15.1% -- -- --
Summit Care Corporation 2.9% 4.6% 1.8% 2.8% -1.0% 23.8% 25.0%
Sun Healthcare Group 4.5% 6.6% 2.4% 4.0% 14.8% 12.2% 16.0%
Unison Healthcare Group 1.8% 0.3% 1.0% 0.2% -- -- --
Vencor 5.2% 5.6% 2.5% 3.4% 17.1% 20.3% 20.0%
====================================================================================================================================
Mean 6.3% 6.5% 4.1% 4.3% 16.3% 17.7% 18.0%
Median 5.2% 6.6% 3.0% 3.9% 16.7% 17.6% 17.5%
High 14.6% 16.9% 11.6% 15.1% 40.4% 25.9% 25.0%
Low 1.8% 0.3% 1.0% 0.2% -6.6% 12.2% 12.5%
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Community Care of America -6.9% -2.0% 1.1% -1.5% -- 27.0% 27.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) LTM = Last Twelve Months.
23
<PAGE>
================================================================================
================================================================================
COMPARABLE COMPANY ANALYSIS - LONG-TERM CARE COMPANIES (In Thousands, Except Per
Share Items)
<TABLE>
<CAPTION>
Net Revenues EBITDAR EBITDA
-------------------------- ------------------------- -------------------------
Company Name LTM(1) Lt Q Ann. LTM(1) Lt Q Ann. LTM(1) Lt Q Ann.
- ------------------------------- ----------- ---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Advocat, Inc. $169,990 $173,624 $26,790 $28,080 $12,041 $12,596
Arbor Health Care Company 225,825 238,096 39,923 39,800 35,514 35,460
Beverly Enterprises, Inc. 3,272,858 3,266,864 434,401 424,734 317,683 308,016
Extendicare, Inc. 1,084,840 1,106,774 149,843 153,347 138,220 141,799
Genesis Health Ventures, Inc. 915,759 1,093,052 167,927 192,300 140,423 163,324
GranCare 738,252 891,704 113,173 117,090 72,372 76,288
Harborside Healthcare Corp. 177,865 189,536 25,953 29,464 15,653 18,976
Health Care & Retirement Corp. 808,290 855,648 141,120 152,397 131,759 143,036
Horizon/CMS Healthcare Corp. 1,774,401 1,774,940 287,517 457,558 203,283 204,856
Integrated Health Services 2,014,863 1,843,772 279,926 366,160 196,594 270,124
Living Centers of America 1,131,575 1,141,272 175,106 188,188 130,906 143,988
Manor Care, Inc. 1,382,319 1,416,704 242,118 254,824 234,118 246,824
Mariner Health Group Inc. 630,043 697,652 101,332 121,251 91,261 111,180
Multicare Companies Inc. 618,059 675,168 183,362 131,600 147,221 114,996
National Healthcare L.P.(2) 402,368 423,452 80,259 79,124 55,223 54,088
Regency Health Services, Inc. 588,524 637,788 84,040 83,696 59,084 58,740
Retirement Care Associates Inc. 220,709 262,655 47,361 70,178 41,471 64,288
Summit Care Corporation 193,859 208,048 23,015 28,200 20,359 25,544
Sun Healthcare Group 1,615,362 1,594,544 220,184 306,960 173,386 196,368
Unison Healthcare Group 130,377 150,368 20,920 20,308 7,169 6,271
Vencor 3,484,472 3,408,672 552,716 546,569 463,775 457,628
====================================================================================================================================
Mean $1,027,648 $1,050,016 $161,761 $180,563 $127,977 $135,923
Median 738,252 855,648 141,120 131,600 130,906 114,996
High 3,484,472 3,408,672 552,716 546,569 463,775 457,628
Low 130,377 150,368 20,920 20,308 7,169 6,271
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Community Care of America 131,261 130,776 10,126 17,664 258 7,136
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Adj.
EBIT Net Income Calendar EPS Mkt.
---------------------- ---------------------- ---------------------- Val/
Company Name LTM(1) Lt Q Ann. LTM(1) Lt Q Ann. 1996E 1997E 1998E Beds Beds(3)
- ------------------------------- -------- --------- -------- --------- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advocat, Inc. $9,604 $9,952 $5,090 $5,076 $0.88 $1.07 $1.22 7,399 28.0
Arbor Health Care Company 25,814 25,088 11,245 10,332 1.47 1.72 2.01 3,578 116.7
Beverly Enterprises, Inc. 210,190 199,692 56,793 73,852 0.76 0.90 1.05 71,245 49.5
Extendicare, Inc. 100,284 104,783 51,816 57,033 0.62 0.72 0.85 27,029 54.0
Genesis Health Ventures, Inc. 106,183 120,844 48,222 53,976 1.39 1.72 2.13 20,014 103.2
GranCare 53,861 53,284 18,641 27,976 0.76 0.71 0.81 15,109 54.7
Harborside Healthcare Corp. 12,241 15,288 4,866 6,008 0.63 0.85 1.02 3,700 75.5
Health Care & Retirement Corp. 98,521 107,692 62,836 65,296 1.24 1.49 1.77 16,534 123.0
Horizon/CMS Healthcare Corp. 144,252 142,864 44,543 40,720 1.02 1.06 1.25 34,841 60.9
Integrated Health Services 137,680 209,408 32,013 67,780 2.20 2.56 3.01 15,738 171.4
Living Centers of America 90,592 103,336 41,815 48,816 2.31 2.68 3.10 23,271 56.1
Manor Care, Inc. 159,838 170,816 89,121 81,002 1.41 1.62 1.86 26,448 102.6
Mariner Health Group Inc. 67,637 84,996 21,402 27,012 0.91 0.96 1.09 10,668 84.9
Multicare Companies Inc. 121,905 87,516 71,677 35,040 0.99 1.39 1.75 15,673 86.9
National Healthcare L.P.(2) 40,889 39,148 18,467 16,699 1.79 2.14 2.59 14,072 65.0
Regency Health Services, Inc. 42,521 40,356 13,588 12,624 0.78 0.91 1.03 11,977 56.1
Retirement Care Associates Inc. 35,227 57,983 20,657 39,626 -- -- -- 9,276 34.8
Summit Care Corporation 13,406 17,972 3,544 5,792 0.96 0.95 1.17 4,939 49.3
Sun Healthcare Group 136,179 149,804 39,119 63,748 1.28 1.47 1.65 33,739 73.2
Unison Healthcare Group 4,995 4,056 1,296 268 -- -- -- 6,040 10.8
Vencor 315,847 322,432 85,619 114,833 1.81 2.12 2.55 42,467 127.2
======================================================================================
Mean $91,794 $98,443 $35,351 $40,643
Median 90,592 87,516 32,013 39,626
High 315,847 322,432 89,121 114,833
Low 4,995 4,056 1,296 268
======================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Community Care of America (2,975) 3,708 1,394 (1,908) ($0.09) $0.05 $0.06 5,413 30.9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) LTM = Last Twelve Months.
(2) Net Income assumed to be taxed at 40%
(3) Adjusted Market Value = Fully Diluted Market Value + Debt Outstanding
+Capitalized Rents- Cash. Beds figures are for total owned and leased beds.
<PAGE>
================================================================================
================================================================================
COMPARABLE COMPANY ANALYSIS - LONG-TERM CARE COMPANIES (In Thousands, Except Per
Share Items)
<TABLE>
<CAPTION>
Balance Sheet Items
--------------------------------------------------------------------------- 1996E
Cash & Total Adjusted Total Total Adjusted Return on
Company Name Equivalents Debt Debt Equity Capital Capital Equity
- ----------------------------------- ----------- ---------- ----------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Advocat, Inc. $1,992 $23,757 $141,749 $28,583 $52,350 $170,332 17.8%
Arbor Health Care Company 4,885 105,405 140,677 68,678 174,083 209,355 16.4%
Beverly Enterprises, Inc. 64,136 1,156,226 2,089,970 881,327 2,037,553 2,971,297 6.4%
Extendicare, Inc. 60,456 359,917 452,901 346,689 706,606 799,590 14.9%
Genesis Health Ventures, Inc. 13,835 625,057 845,089 582,966 1,208,023 1,428,055 8.3%
GranCare 10,627 325,989 652,402 140,076 466,065 792,478 13.3%
Harborside Healthcare Corp. 7,755 75,247 157,647 46,382 121,629 204,029 10.5%
Health Care & Retirement Corp. 8,106 275,999 350,887 399,559 675,558 750,446 15.7%
Horizon/CMS Healthcare Corp. 23,595 727,511 1,401,383 648,049 1,375,560 2,049,432 6.9%
Integrated Health Services 40,504 1,065,011 1,731,667 556,539 1,621,550 2,288,206 5.8%
Living Centers of America 10,351 327,228 680,828 352,809 680,037 1,033,637 11.9%
Manor Care, Inc. 44,213 555,381 619,381 665,908 1,221,289 1,285,289 13.4%
Mariner Health Group Inc. 6,942 433,323 513,891 331,852 765,175 845,743 6.4%
Multicare Companies Inc. 4,398 382,138 507,530 225,493 607,631 733,023 31.8%
National Healthcare L.P. 1,570 207,600 407,888 135,182 342,782 543,070 13.7%
Regency Health Services, Inc. 34,569 237,954 437,602 82,991 320,945 520,593 16.4%
Retirement Care Associates Inc. 356 152,658 199,778 41,139 193,797 240,917 50.2%
Summit Care Corporation 2,218 122,227 143,475 83,250 205,477 226,725 4.3%
Sun Healthcare Group 24,866 789,414 1,428,630 585,333 1,374,747 2,013,963 6.7%
Unison Healthcare Group 812 26,130 136,140 21,765 47,895 157,905 6.0%
Vencor 97,438 1,967,780 2,679,308 833,483 2,801,263 3,512,791 10.3%
====================================================================================================================================
Mean $22,077 $473,426 $748,515 $336,098 $809,524 $1,084,613 13.7%
Median 10,351 327,228 507,530 331,852 675,558 792,478 11.9%
High 97,438 1,967,780 2,679,308 881,327 2,801,263 3,512,791 50.2%
Low 356 23,757 136,140 21,765 47,895 157,905 4.3%
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Community Care of America 611 60,172 139,116 15,526 75,698 154,642 9.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Leverage Ratios Coverage Ratios
------------------------------------------------- ---------------------------------------
Total EBITDA+
ST Debt Total Debt Total Debt Adj. Debt EBITDA/ EBITDA/ Debt/ 1/3 Rent/
as % of as Mult.of as % of as % of LTM Gross LTM Net LTM Int+1/3
Company Name Total Debt Total Equity Total Cap. Adj. Cap. Interest Interest EBITDA Rent(1)
- --------------------------------- ---------- ------------ ---------- --------- --------- -------- ------ -------
Advocat, Inc. 3.1% 0.8x 45.4% 83.2% 6.7x 7.3x 2.0x 2.6x
Arbor Health Care Company 7.9% 1.5 60.5% 67.2% NA 4.7 3.0 4.1
Beverly Enterprises, Inc. 3.1% 1.3 56.7% 70.3% 3.5 4.1 3.6 3.1
Extendicare, Inc. 2.3% 1.0 50.9% 56.6% NA 5.0 2.6 4.5
Genesis Health Ventures, Inc. 1.0% 1.1 51.7% 59.2% NA 4.7 4.5 3.8
GranCare 0.9% 2.3 69.9% 82.3% NA 2.6 4.5 2.1
Harborside Healthcare Corp. 5.3% 1.6 61.9% 77.3% NA 3.1 4.8 2.2
Health Care & Retirement Corp. 0.9% 0.7 40.9% 46.8% 11.2 11.4 2.1 9.0
Horizon/CMS Healthcare Corp. 1.7% 1.1 52.9% 68.4% 3.9 3.9 3.6 2.9
Integrated Health Services 1.5% 1.9 65.7% 75.7% 2.4 2.2 5.4 1.9
Living Centers of America 4.9% 0.9 48.1% 65.9% 5.8 8.8 2.5 4.9
Manor Care, Inc. 4.3% 0.8 45.5% 48.2% 6.2 23.1 2.4 5.9
Mariner Health Group Inc. 1.8% 1.3 56.6% 60.8% 2.9 2.9 4.7 2.7
Multicare Companies Inc. 0.2% 1.7 62.9% 69.2% 5.1 4.8 2.6 4.3
National Healthcare L.P. 3.7% 1.5 60.6% 75.1% NA 5.5 3.8 3.4
Regency Health Services, Inc. 1.4% 2.9 74.1% 84.1% NA 3.0 4.0 2.4
Retirement Care Associates Inc. 13.9% 3.7 78.8% 82.9% 5.2 4.0 3.7 3.5
Summit Care Corporation 3.7% 1.5 59.5% 63.3% NA 2.6 6.0 2.4
Sun Healthcare Group 4.5% 1.3 57.4% 70.9% NA 4.0 4.6 2.9
Unison Healthcare Group 11.1% 1.2 54.6% 86.2% NA 2.7 3.6 1.6
Vencor 1.0% 2.4 70.2% 76.3% 3.1 3.3 4.2 2.9
====================================================================================================================================
Mean 3.7% 1.6x 58.3% 70.0% 5.1x 5.4x 3.7x 3.5x
Median 3.1% 1.3 57.4% 70.3% 5.1 4.0 3.7 2.9
High 13.9% 3.7 78.8% 86.2% 11.2 23.1 6.0 9.0
Low 0.2% 0.7 40.9% 46.8% 2.4 2.2 2.0 1.6
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Community Care of America 7.3% 3.9 79.5% 90.0% NA NM NM 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Manor Care and Health Care Retirement utilize Gross Interest Expense for
the coverage calculations. All others utilize Net Interest Expense.
<PAGE>
- --------------------------------------------------------------------------------
Precedent Transactions Analysis
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Project Florida
====================================================================================================================================
Precedent Transactions Analysis - Long Term Care Industry (figures in thousands,
except per share amounts)
Adjusted Transaction Value/ Transaction Value/
Adjusted --------------------------- ------------------
Date of Acquiror / Transaction Transaction Equity LTM LTM LTM LTM
Ann. Target Value (1) Value (2) Value Revenues EBITDAR EBITDA EBIT
- -------- ---------------------------------- ----------- ----------- ---------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
06/16/97 Genesis Health Ventures Inc.* $1,518,759 $1,395,847 $1,036,914 2.3x 12.0x 13.4 17.7
Multicare Companies
05/08/97 Apollo & Living Centers of America 1,467,826 1,124,596 807,749 1.3 8.6 8.7 12.7
Living Centers of America
05/08/97 Living Centers ofAmenca 894,565 568,152 251,152 1.2 7.6 7.4 9.8
GranCare
05/06/97 Vencor Inc. 621,052 608,552 655,663 1.4 12.2 12.4 21.1
Transitional Hospitals Corp.
O2/18/97 Sun Healthcare Group 353,800 287,700 146,500 1.9 19.7* 13.1 17.5
Retirement Care Associates
02/17/97 HealthSouth Corp. 2,338,800 1,669,100 974,000 1.3 8.0 8.4 11.8
Horizon/CMS Healthcare Group
02/10/97 Vencor, Inc. 612,181 531,661 370,249 1.7 9.5 9.8 11.9
TheraTx, Inc.
07/11/96 Genesis Health Ventures, Inc. 223,000 223,000 91,000 1.1 7.4 7.4 10.5
Geriatric & Medical Co., Inc.
06/18/96 The MulticareCompanies,lnc 100,259 100,259 73,300 1.3 9.6 10.7 12.8
ADS Group
02/16/96 Mariott International, Inc. 600,487 600,487 313,592 3.4* 13.2 13.2 17.0
Forum Group, Inc. (3)
01/16/96 The Multicare Companies 117,228 117,228 74,085 2.6 13.9 13.9 18.2
Concord Health Group
09/06/95 Manor Care Inc. (4) NA 74,300 21,500 NA NA NA NA
Beverly Enterprises
05/03/95 Grancare 339,536 203,144 159,902 1.9 9.2 10.1 13.6
Evergreen Healthcare
04/24/95 Vencor 2,270,124 1,766,860 1,320,086 1.3 8.6 8.8 12.6
Hillhaven (5)
03/23/95 Living Centers of America 280,916 236,692 181,629 1.3 9.4 9.7 12.6
Brian Care Centers
02/28/95 Hillhaven(6) 226,912 170,232 128,150 1.9 9.0 9.4 11.2
Nationwide Care
01/09/95 Mariner Health Care $165,512 $141,512 $105,512 NA NA NA NA
Convalescent Services, Inc.
<CAPTION>
Premium
1-day
Equity Value / prior to Premium
----------------------- announce- 4 weeks
Date of Acquiror / LTM ment prior to
Ann. Target Net Income Book Value date ann. date
- -------- ----------------------------------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
06/16/97 Genesis Health Ventures Inc.* 23.3x 4.6 9.3% 34.9%
Multicare Companies
05/08/97 Apollo & Living Centers of America 18.1 2.4 17.8% 41.5%
Living Centers of America
05/08/97 Living Centers of America 13.0 1.8 29.0% 21.2%
GranCare
05/06/97 Vencor Inc 35.3 1.8 60.0% 85.5%
Transitional Hospitals Corp.
O2/18/97 Sun Healthcare Group 54.3* 3.5 28.9% 30.8%
Retirement Care Associates
02/17/97 HealthSouth Corp. 20.2 1.5 27.6% 36.1%
Horizon/CMS Healthcare Group
02/10/97 Vencor, Inc. 18.7 2.3 30.3% 59.1%
TheraTx, Inc.
07/11/96 Genesis Health Ventures, Inc. 19.2 0.5 43.8% 100.0%
Geriatric & Medical Co., Inc.
06/18/96 The Multicare Companies, Inc 21.5 5.8 NA NA
ADS Group
02/16/96 Mariott International, Inc. 57.0* 3.8 4.0% 44.4%
Forum Group, Inc. (3)
01/16/96 The Multicare Companies 30.1 0.2 25.1% 58.9%
Concord Health Group
09/06/95 Manor Care Inc. (4) NA NA NA NA
Beverly Enterprises
05/03/95 Grancare 19.1 2.8 -1.9% 3.0%
Evergreen Healthcare
04/24/95 Vencor 16.9 3.2 31.6% 21.6%
Hillhaven (5)
03/23/95 Living Centers of America 22.6 8.3 NA NA
Brian Care Centers
02/28/95 Hillhaven(6) 23.5 19.4 NA NA
Nationwide Care
01/09/95 Mariner Health Care NA NA NA NA
Convalescent Services, Inc.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Project Florida
====================================================================================================================================
Precedent Transactions Analysis - Long Term Care Industry (figures in thousands,
except per share amounts)
Adjusted Transaction Value/ Transaction Value/
Adjusted --------------------------- ------------------
Date of Acquiror / Transaction Transaction Equity LTM LTM LTM LTM
Ann. Target Value (1) Value (2) Value Revenues EBITDAR EBITDA EBIT
- -------- ---------------------------------- ----------- ----------- ---------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/29/95 Horizon Healthcare 120,037 119,517 66,506 2.4x 9.3x 9.3x 11.0x
PeopleCARE HERITAGE
05/06/94 TheraTX 95,607 93,119 38,787 1.5 9.8 13.8 21.9
PersonaCare
03/07/94 Regency Health Services 232,135 176,439 146,684 1.2 10.2 11.2 16.6
Care Enterprises
02/01/94 The Multicare Companies 61,941 56,417 28,223 2.2 6.0* 5.9* 6.8*
Providence Health Care
06/01/94 Mariner Health Group 112,701 110,437 85,000 1.4 10.0 10.0 13.0
Pinnacle Care
01/04/94 Sun Healthcare 805,507 472,635 331,329 2.0 10.0 12.3 15.2
Mediplex
10/27/93 Integrated Health Services 199,992 186,792 86,000 1.3 NA NA NA
Central Park Lodges
09/20/93 Genesis Health 266,960 205,000 153,114 1.9 9.5 9.6 13.2
Meridian
08/02/93 Horizon Healthcare 193,155 93,571 47,669 1.1 9.8 13.0 NA
Greenery Rehabilitation
07/27/93 Living Centers of America 68,813 64,388 44,136 1.1 7.2* 7.1* 9.0*
Vari-Care
----------------------------------------------------------------------------------------------------------------------
Median: 1.4x 9.4x 9.7x 12.6x
Mean: 1.6 9.7 10.1 13.5
Max: 2.6 19.7 13.9 21.9
Min: 1.1 7.4 7.4 9.8
======================================================================================================================
<CAPTION>
Premium
1-day
Equity Value / prior to Premium
----------------------- announce- 4 weeks
Date of Acquiror / LTM ment prior to
Ann. Target Net Income Book Value date ann. date
- -------- ----------------------------------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
07/29/95 Horizon Healthcare 10.7x* 5.8 NA NA
PeopleCARE HERITAGE
05/06/94 TheraTX NA 1.7 NA NA
PersonaCare
03/07/94 Regency Health Services 29.1 5.8 40.5% 49.3%
Care Enterprises
02/01/94 The Multicare Companies NA 2.4 122.2% 130.8%
Providence Health Care
06/01/94 Mariner Health Group 23.5 3.5 NA NA
Pinnacle Care
01/04/94 Sun Healthcare 18.0 1.5 14.1% 20.8%
Mediplex
10/27/93 Integrated Health Services NA 1.4 NA NA
Central Park Lodges
09/20/93 Genesis Health 17.2 NA NA NA
Meridian
08/02/93 Horizon Healthcare NA 1.7 52.6% 52.6%
Greenery Rehabilitation
07/27/93 Living Centers of America 13.7 3.3 39.1% 18.5%
Vari-Care
----------------------------------------------------------------------------------
Median: 18.7x 2.4 25.1% 21.2%
Mean: 22.3 3.7 37.4% 48.7%
Max: 54.3 19.4 122.2% 130.8%
Min: 13.0 1.4 -1.9% 0.0%
==================================================================================
</TABLE>
- ----------
1) Adjusted Transaction value is equal to the equity value of the transaction
plus debt, minus cash, plus capitalized rents at 12.5%.
2) Total Transaction value is equal to the equity value of the transaction
plus debt minus cash.
3) Forum Group's Revenues, EBITDAR, EBITDA and EBIT numbers are adjusted for
amounts attributable to minority interest.
4) Manor Care acquired six retirement facilities and five associated skilled
nursing centers from Beverly Enterprises.
5) Hillhaven numbers, including shares outstanding, are pro forma for
acquisition of Nationwide Care.
6) Hillhaven stock price calculated for pooling exchange ratio is $27.50 @
03/16/95 to exclude impact of Vencor announcement.
* Denotes outlier which is excluded from summary calculations.
27
<PAGE>
- --------------------------------------------------------------------------------
Ownership Information
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
CONFIDENTIAL PROJECT FLORIDA
================================================================================
Ownership Summary
5% Owners and Other Insiders:
Robert N. Elkins 1,772.2 21.7%
Desai Capital Management 1,331.8 16.3%
Price T. Rowe Associates 1,111.8 13.6%
Integrated Health Services 752.2 9.2%
Putnam Investment Management 524.7 6.4%
Other Insiders 171.9 2.1%
------- -------
Total 5% Owners and Other Insiders 5,664.6 69.2%
Institutions:
Liberty Investment Management 227.5 2.8%
Barclays Bank PLC 119.6 1.5%
Massachusetts Financial Services 100.0 1.2%
AWM Investment Company 48.1 0.6%
Fund Asset Management Inc. 35.0 0.4%
Travelers Inc. 5.5 0.1%
ANB Investment Management 4.3 0.1%
Guaranty Trust Co. 2.0 0.0%
------- -------
Total Institutions 542.0 6.6%
Total Retail: 1,391.2 17.0%
------- -------
0.0%
Total Shares Outstanding April 30, 1997: 7,597.8 92.8%
------- -------
Outstanding Warrants (1):
Exercise
Shares Price
------ -----
Daiwa 342.4 $2.25 149.8 1.8%
IHS Pool 1 794.0 $1.94 408.9 5.0%
IHS Pool 2 389.1 $3.84 15.6 0.2%
Employee Pool 1 150.7 $3.71 10.9 0.1%
------- -------
Total Outstanding Warrants 585.2 7.2%
------- -------
Total Fully Diluted Shares Outstanding: 8,183.0 100.0%
======= =======
(1) Treasury method adjustment made using purchase price of $4.00
28
<PAGE>
- --------------------------------------------------------------------------------
Profile of Integrated Health Services
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
================================================================================
Integrated Health Services - IHS
Owing Mills, Maryland
- --------------------------------------------------------------------------------
C0MPANY DESCRIPTION
- --------------------------------------------------------------------------------
Integrated Health Services provides a range of post-acute healthcare services
using geriatric facilities as platforms to deliver medical and rehabilitative
services typically offered in hospital settings. IHS provides subacute care
through medical specialty (MSUs), which typically have 20 to 75 beds with
physical identities, medical technology and staffs separate from the geriatric
care facilities in which they are located. MSUs are designed to provide care
similar to, but at per diem treatment costs believed by the company to be
generally 30% to 60% below, that in acute care hospitals. Ancillary services
include sub-acute care, home care, Alzheimer's care, specialty medical services
and pharmacy services.
- --------------------------------------------------------------------------------
PAYOR MIX
- --------------------------------------------------------------------------------
1996 1995 1994 1993
-------------- ------------- ------------- -----------
Private Pay 41% 45% 44% 55%
Medicare 37% 34% 34% 29%
Medicaid 22% 21% 22% 16%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FINANCIAL SUMMARY(1)
- ------------------------------------------------------------------------------------------------------------
Income Statement: 1995 1996 LTM LQ Ann.
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues $1,178,888 $1,881,193 $2,014,863 $1,843,772
Revenue Growth 65.6% 59.6% NM NM
Gross Profit Margin 24.6% 17.6% 17.9% 23.5%
EBITDA $168,196 $173,692 $196,594 $270,124
EBITDA Margin 14.3% 9.2% 9.8% 14.7%
Net Income Before Ext. $56,731 $28,869 $32,013 $67,780
Growth(Before Ext.) 53.9% -49.1% NM NM
Net Margin (Before Ext.) 4.8% 1.5% 1.6% 3.7%
<CAPTION>
Balance Sheet: Mar-97 Mar-97
----------------- -----------------
<S> <C> <C> <C>
Cash & Equiv. $40,504 Total Debt / Total Cap. 65.7%
Total Assets $2,075,204 Total Debt / Total Equity 191.4%
Total Debt $1,065,011 Total Debt / LTM EBITDA 5.4x
Total Equity 556,539 LTM EBITDA / Net Interest 2.2x
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
VALUATION(1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share Price $38.75 Cal. EPS P/E Multiple
------------------ -----------------
FD Shares Outs. 36,897 1996 $2.20 17.6x
FD Market Value $1,429,770 1997 $2.56 15.1x
1998 $3.01 12.9x
5-Yr Proj. EPS Growth 18.0%
1997 P/E Mul / 5 yr Growth Rate 84.1%
Enterprise Value $2,195,527 Enterprise Value / LTM Revenues 1.1x
Enterprise Value / LTM EBITDA 11.2x
Enterprise Value / LTM EBIT 15.9x
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
LTM WEEKLY PRICE / VOLUME GRAPH
- --------------------------------------------------------------------------------
[PLOT POINTS TO COME]
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RECENT NEWS
- -------------------------------------------------------------------------------
05/23/97 - IHS announced that it has entered into an agreement to issue
privately $450,000,000 aggregate principal amount of its 9 1/2% Senior
Subordinated Notes due 2007.
05/19/97 - IHS announced consent expiration on its tender offer for the
repurchase of its 10.75% and 9.625% Notes.
05/06/97 - IHS paid Coram Healthcare $21 million in breakup fees after dropping
its bid last month.
4/07/97 - IHS dropped its $584 million bid to acquire Coram Healthcare Corp.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
OWNERSHIP SUMMARY(2) KEY HOLDERS
- --------------------------------------------------------------------------------------------------
% Total Holder % Holdings
----------- ------------------ ------------
<S> <C> <C> <C> <C>
Shares Outstanding 24,882 100.0% Robert N. Elkins 1.0%
Insiders 485 1.9% Timothy Nicholson 0.6%
------------ -----------
Public Float 24,397 98.1% Lawrence P. Cirka 0.2%
Institutional Holding 20,736 83.3%
------------ -----------
Retail Holdings 3,661 14.7%
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS OPERATING DATA
- --------------------------------------------------------------------------------
Chairman/CEO Robert N. Elkins Beds 15,738
President Lawrence P. Cirka Facilities 174
COO C. Christian Winkle Occupancy(FYE) 90.5%
- --------------------------------------------------------------------------------
(1) Financial data / shares outstanding reported in thousands.
(2) Source: CDA Spectrum
SMITH BARNEY
------------
A Member of TravelersGroup[LOGO]
30
PROJECT NAPOLEON
Presentation to the Sepcial Committee of the Board of Directors
July 31, 1997
<PAGE>
TABLE OF CONTENTS
I. Proposed Transaction
II. Summary of Analyses Performed by Wheat
III. Valuation Summary
IV. Valuation Analysis
Appendices
A. Comparable Companies Analysis
B. Case Studies of Comparable Acquisitions
C. Information on Napoleon
D. Information on Terrapin
<PAGE>
I. PROPOSED TRANSACTION
<PAGE>
PROPOSED TRANSACTION
Transaction Overview and Timing
o Terrapin (the "Acquiror") has made an offer to purchase Napoleon (the
"Company") for $4.00 per share in cash. Napoleon and Terrapin plan to
execute a definitive agreement and plan of merger (the "Agreement") and
announce the transaction on or before Friday August 1, 1997. Within five
days of the announcement of the Agreement, Terrapin plans to commence a
cash tender offer to purchase all of the outstanding shares of Napoleon.
o The conditions of the offer include: (i) a tender of a majority of the
fully-diluted shares outstanding; and (ii) no material adverse changes to
the Company.
Purchase Price
o The $4.00 per share purchase price implies an equity value of $31.0 million
(assuming 7,758,401 fully-diluted shares outstanding) and an enterprise
value of $171.7 million (assuming $61.7 million of total net debt
outstanding and 8x annual rents of $9.9 million).
Financing
o Terrapin does not have a financing contingency and anticipates that it will
fund the equity portion of the purchase price from its existing line of
credit. Terrapin plans to assume the Company's existing obligations.
<PAGE>
II. SUMMARY OF ANALYSES PERFORMED BY WHEAT
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF ANALYSES PERFORMED BY WHEAT
<S> <C>
o Reviewed the auction process conducted by Smith Barney and the Company.
o Reviewed Sale Memorandum on Napoleon prepared by Smith Barney.
o Reviewed the offers of the competing bids for the Company.
o Performed due diligence at Napoleon's headquarters and conducted interviews
with Napoleon's senior management team.
o Reviewed projections ended March 31, 1997 on a facility-by-facility basis
and compared to management's forecasts for the quarter.
o Compared the premiums paid implied by the Terrapin offer to premiums paid
in recent, similar sized transactions.
o Analyzed Napoleon's financial performance and market valuation compared to
publicly traded comparable companies.
o Examined the mutiples paid in recent acquisitions of companies of a comparable size.
o Considered the prospects for Napoleon and its shareholders as a stand-alone entity.
o Reviewed the draft of the Definitive Merger Agreeement date August ___, 1997 as submitted by Terrapin.
</TABLE>
<PAGE>
III. VALUATION SUMMARY
<PAGE>
VALUATION SUMMARY
Multiple of Enterprise Value
---------------------------------------
Number
Revenue EBITDAR of Beds
----------- ------------- -----------
Terrapin Offer 1.3x 17.0x $38,589
Publicly Traded Comparable Companies:
Entire Universe 1.4x 8.8x $85,679
Most Comparable (1) 1.2x 8.2x $54,679
Comparable Acquisitions:
Seven Acquisitions 1.6x 8.6x $62,573
Three Most Comparable 1.9x 11.6x $44,050
Acquisitions (2)
Price Waterhouse Study (3) --- --- $33,800
- ---------------------
(1) Includes AVC, BEV, RHS, and UNHC.
(2) Includes Sun/Retirement Care, Multicare/Concord, and Sun/Regency
acquisitions.
(3) Per Price Waterhouse study, 1996 (information as of 1995).
<PAGE>
VALUATION SUMMARY
<PAGE>
VALUATION SUMMARY
Premium Analysis
o Terrapin's cash tender offer of $4.00 per share represents a 23.1% premium
to Napoleon's current stock price; a 33.3% premium to the week ago stock
price; a 8.5% premium to the four weeks ago stock price; a 88.2% premium to
the three months ago stock price; a 28.0% premium to the six months ago
stock price; and a 145.4% premium to the low price of the Company's stock
price which occurred on April 25, 1997. Premiums paid in similarly-sized
equity transactions were in the 20% to 30% range on average.
Comparison to Publicly Traded Comparable Companies
o Comparing certain implied multiples paid for Napoleon in the contemplated
merger with Terrapin to the publicly traded comparable companies, there are
several observations: (i) The implied Revenue multiple is below the
comparable median multiple of 1.4x but at a premium to median implied
multiple of EBITDAR for the comparable companies of 8.8x; (ii) the implied
Enterprise Value to the number of Beds is considerably lower than the
median Enterprise Value per Bed of $85,679. However, many of the publicly
traded comparable companies generate significant revenues and profitability
from ancillary services and businesses, and therefore this multiple for the
comparable companies is understandably considerably higher as compared to
Napoleon; (iii) in comparing the publicly traded comparable companies to
Napoleon, it should be noted that Napoleon is one of two companies
currently losing money. In addition, Napoleon's EBITDAR margin of 7.7% is
less than half of the median EBITDAR margin for the group of 16.1%.
Napoleon is also considerably smaller than most of the publicly traded
comparable companies based on revenues, number of facilities and number of
beds. In addition, Napoleon has a quality mix (revenues from payors other
than Medicaid) of 50.4% which is below the median of the comparable
companies of 64.6%. Of the comparable companies, the most comparable
include Advocat, Beverly Enterprises, Regency Healthcare, and Unison.
Comparison to Comprabale Acquisitions
o Comparing certain implied multiples paid for Napoleon in the contemplated
merger with Terrapin to certain recent comparable acquisitions, there are
several observations: (i) while we determined seven acquisitions were
generally comparable, we considered three of these acquisitions to be most
comparable based on their respective sizes and operations: the acquisition
of Retirement Care Associates by Sun Healthcare Group, the acquisition of
Concord Health Systems by Multicare, and the acquisition of Regency Health
Services by Sun Healthcare Group; (ii) the implied multiple of Enterprise
Value to Revenues is below the median comparable multiple of the comparable
acquisitions of 1.6x and below the Enterprise Value to Revenues of two of
the most comparable acquisitions of 1.9x and 2.2x, and above the other of
1.0x, respectively; (iii) the implied Enterprise Value as a multiple of
EBITDAR is a significant premium to the median multiple for the comparable
acquisitions of 8.6x and the three most comparable acquisitions of 12.3x,
11.6x, and 6.4x, respectively; (iv) the implied multiple of Enterprise
Value to number of Beds is considerably lower than the comparable median
multiple of the comparable acquisitions of $62,573. However, the comparable
acquisitions include transactions in which the targets generated
significant profitability from ancillary services and businesses which
increased these multiples. Analyzing the three most comparable acquisitions
which had fewer ancillary services and businesses, the multiple of
Enterprise Value to number of Beds is more in line with the multiple
implied by the Terrapin transaction. In addition, in a study recently
prepared by Price Waterhouse, it lists the average price per bed at a
skilled nursing facility as $33,800 per bed in 1995.
Prospects for the Company as a Stand-Alone Entity
o In evaluating the Terrapin offer, we also considered the prospects for the
Company as a stand-alone entity. Management's projections show the Company
slightly profitable in 1997 and earning $4.2 million in 1998 or
approximately $0.55 per share. In order to achieve these results,
management has assumed that it disposes of 12 facilities (sell seven and
close five) by July 1, 1997. While the Company has letters of interest for
the seven facilities it intends to sell, there is risk that the disposal of
these facilities would not occur as projected. In addition, in the closing
of the five facilities, the Company's primary lessor, HRPT, would have to
agree to assume approximately $6 million in additional liabilities. The
Company would also need to finance approximately $8.5 million of
liabilities in order to continue as a going concern. $5 million of the $8.5
million is past due to vendors. In remaining a stand-alone entity, the
Company is also dependent on Terrapin to continue to provide management
services, provide a credit line, and guarantee other debt outstanding. In
addition, if the Company remains as a stand-alone entity, it plans to
dispose of 12 facilities (sell seven and close five), and it will incur an
$8 million writeoff. This writeoff and the resulting impact on the
Company's tangible net worth could cause the Company to be delisted from
NASDAQ.
<PAGE>
IV
VALUATION ANALYSIS
9
<PAGE>
NAPOLEON STOCK PRICE & VOLUME GRAPH
(October 4, 1996 through July 30, 1997)
On October 9, 1996
the Company publicly
announced it engaged [GRAPHIC OMITTED]
Smith Barney to
evaluate its
strategic alternatives.
Current Price: $3.25
High/Low Range: $7.25 / $1.63
Average Daily Volume: 46,677
10
<PAGE>
PURCHASE PRICE PREMIUM ANALYSIS (1)
(Dollars in Millions)
<TABLE>
<CAPTION>
DATE EQUITY ONE DAY ONE WEEK
TARGET NAME ACQUIROR NAME ANNOUNCED VALUE PREMIUM (2) PREMIUM
- ----------------------------------- ----------------------------- ----------------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Frontier Airlines Western Pacific Airlines 06/30/97 $ 35.5 0.8 % -5.2 %
Cable Car Beverage Triarc Cos Inc 06/24/97 31.8 -11.4 -3.1
Howell Industries Inc Oxford Automotive Inc 05/21/97 23.0 28.7 30.4
Gateway Bancorp,KY Peoples Bancorp 04/25/97 20.6 10.3 15.4
Thermal Industries Inc Hicks Muse Tate & Furst 03/31/97 37.5 29.9 26.7
Strober Organization Inc Hamilton Acquisition LLC 03/27/97 32.1 - 3.2
CitiSave Finl Deposit Guaranty 03/26/97 20.3 46.4 50.5
Suburban Bancorporation Fifth Third Bancorp,OH 03/13/97 32.9 26.0 24.2
Skyline Chili Inc Meritage Hospitality Group 02/21/97 34.1 19.7 35.7
CleveTrust Realty Investors RM Crowe Co 02/20/97 33.0 14.1 11.7
First Patriot Bankshares United Bankshares Inc 02/19/97 35.4 15.3 9.7
Calnetics Corp Summa Industries Inc 02/14/97 24.3 6.9 17.0
Contour Medical(Retirement) Resources Corp(Uniwide) 02/13/97 30.2 -14.0 -18.4
MS Financial(MS Diversified) Search Capital Group Inc 02/07/97 20.9 45.5 77.8
McM Corp MCM Acquisition Co 02/04/97 29.0 27.2 19.5
American Recreation Centers AMF Bowling Centers 01/17/97 39.9 15.3 33.3
Thermal Industries Inc HIG Investment Group 01/07/97 30.3 18.8 25.0
USMX Inc Dakota Mining Corp 01/06/97 22.0 -26.2 -22.3
Partners Preferred Yield III Public Storage Inc 12/23/96 32.4 -9.0 -4.6
West Coast Bancorp Inc FNB Corporation 11/15/96 31.3 19.1 20.1
OSB Financial Corp FCB Financial Corp 11/14/96 31.2 12.4 12.4
Continental Materials Corp Investor Group 11/13/96 23.2 14.3 11.3
SJS Bancorp Inc Shoreline Financial Corp 11/07/96 26.5 18.7 13.7
Panatech R&D Harbour Group Ltd 11/05/96 29.2 55.6 55.6
Wireless Cable of Atlanta BellSouth Corp 10/28/96 34.3 89.9 80.8
Amedisys Inc Complete Management Inc 10/24/96 23.3 30.9 50.0
Software Publishing Corp Allegro New Media 10/02/96 25.2 14.9 10.9
Cosmetic Center Inc Prestige Fragrance & Cosm. 10/01/96 20.7 17.4 45.3
Sigma Circuits Inc Continental Circuits Corp 09/30/96 38.1 18.9 22.2
Corpus Christi Bancshares Inc Cullen/Frost Bankers Inc 09/30/96 32.4 17.8 17.8
<CAPTION>
FOUR WEEK THREE MONTH SIX MONTH
TARGET NAME PREMIUM PREMIUM PREMIUM
- ----------------------------------- ---------------- ------------------- ----------------
<S> <C> <C> <C>
Frontier Airlines 19.4 % 17.2 % 24.0 %
Cable Car Beverage 4.9 42.9 54.5
Howell Industries Inc 32.1 -22.9 -7.5
Gateway Bancorp,KY 25.0 30.4 31.6
Thermal Industries Inc 26.7 58.4 92.4
Strober Organization Inc 2.1 4.3 26.3
CitiSave Finl 46.4 46.4 45.1
Suburban Bancorporation 31.8 42.8 30.8
Skyline Chili Inc 43.4 83.1 133.8
CleveTrust Realty Investors 11.7 30.0 31.7
First Patriot Bankshares 4.6 30.8 44.7
Calnetics Corp 26.5 29.2 3.3
Contour Medical(Retirement) -2.4 0.0 -13.1
MS Financial(MS Diversified) 33.3 14.3 -60.0
McM Corp 18.1 11.5 24.0
American Recreation Centers 70.0 61.9 36.0
Thermal Industries Inc 25.0 58.9 67.8
USMX Inc -22.3 -44.2 -40.0
Partners Preferred Yield III -2.2 -1.0 8.6
West Coast Bancorp Inc 17.3 12.1 19.1
OSB Financial Corp 15.9 22.2 21.5
Continental Materials Corp 14.3 33.9 38.9
SJS Bancorp Inc 24.1 32.5 35.8
Panatech R&D 51.4 64.8 55.6
Wireless Cable of Atlanta 80.8 20.5 80.8
Amedisys Inc 38.5 56.5 9.1
Software Publishing Corp 60.8 -64.3 -44.5
Cosmetic Center Inc 103.5 52.6 42.0
Sigma Circuits Inc 46.1 29.2 -16.0
Corpus Christi Bancshares Inc 17.8 17.8 21.6
</TABLE>
11
<PAGE>
PURCHASE PRICE PREMIUM ANALYSIS (1)
(Dollars in Millions)
<TABLE>
<CAPTION>
DATE EQUITY ONE DAY ONE WEEK
TARGET NAME ACQUIROR NAME ANNOUNCED VALUE PREMIUM (2) PREMIUM
- ----------------------------------- ----------------------------- ----------------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Horizon Bancorp Inc Compass Bancshares Inc 09/19/96 $ 32.8 43.8 % 36.9 %
Troy Hill Bancorp PennFirst Bancorp 09/16/96 22.6 20.9 55.2
GreenStone Industries Inc Louisiana-Pacific Corp 09/10/96 32.3 33.3 52.7
LaTex Resources Inc Alliance Resources PLC 08/13/96 22.1 181.1 202.8
Interpoint Corp Crane Co 07/01/96 33.3 -70.4 -85.0
Scanforms Inc Big Flower Press Holdings 06/17/96 21.4 61.4 61.4
Cupertino National Bancorp Greater Bay Bancorp 06/06/96 34.5 23.0 20.8
Clinton Gas Systems Inc Joint Energy Development 05/24/96 38.1 3.8 14.9
Financing for Science Intl Inc Finova Group Inc 05/20/96 37.0 4.5 6.7
Open Environment Corp Borland International Inc 05/13/96 39.3 -37.6 -15.4
MDT Corp Getinge Industrier AB 05/13/96 37.3 12.8 22.2
Hometown Bancorporation Inc Hubco Inc 04/29/96 31.9 20.3 29.1
Allegiance Banc F&M National 04/22/96 27.5 33.3 46.3
Tucker Drilling Co Inc Patterson Energy Inc 04/17/96 23.3 4.7 7.1
Teletouch Communications Inc ProNet Inc 04/15/96 37.7 25.7 27.5
Workingmen's Capital Hldgs Inc Old Natl Bancorp 04/09/96 37.8 31.0 27.0
Sunrise Bancorp ValliCorp Holdings Inc 04/08/96 20.6 61.0 48.6
Home Federal F&M Bancorp 04/02/96 29.9 42.5 51.7
DeSoto Inc Keystone Consolidated Inds 03/13/96 36.1 65.4 53.0
Salton/Maxim Houswares Inc Windmere Corp 02/28/96 21.1 -0.2 12.8
LDI Corp NationsBank Corp 02/15/96 27.7 31.2 21.5
Medical Innovations Inc Horizon/CMS Healthcare 02/13/96 30.3 13.8 18.4
Citizens Security Group Inc Meridian Insurance Group 02/08/96 22.6 88.7 108.3
Mean 23.6 % 28.1 %
Median 18.9 22.2
Napoleon Terrapin - $ 31.0 23.1 % 33.3 %
<CAPTION>
FOUR WEEK THREE MONTH SIX MONTH
TARGET NAME PREMIUM PREMIUM PREMIUM
- ----------------------------------- ---------------- ------------------- ----------------
<S> <C> <C> <C>
Horizon Bancorp Inc 43.8 % 5.9 % 4.6 %
Troy Hill Bancorp 52.4 60.4 62.7
GreenStone Industries Inc 58.5 50.0 31.2
LaTex Resources Inc 181.1 228.0 180.8
Interpoint Corp -86.3 -19.0 -11.5
Scanforms Inc 58.6 68.0 104.4
Cupertino National Bancorp 23.0 20.8 30.1
Clinton Gas Systems Inc 31.7 12.5 38.4
Financing for Science Intl Inc 12.5 17.7 31.3
Open Environment Corp -1.0 -42.0 -52.8
MDT Corp 4.8 15.8 12.8
Hometown Bancorporation Inc 29.1 32.7 33.3
Allegiance Banc 46.3 48.1 90.4
Tucker Drilling Co Inc 10.1 26.2 26.2
Teletouch Communications Inc 35.4 46.7 51.7
Workingmen's Capital Hldgs Inc 36.2 31.0 33.0
Sunrise Bancorp 61.0 68.0 61.0
Home Federal 38.4 -32.8 -27.3
DeSoto Inc 80.0 135.4 61.1
Salton/Maxim Houswares Inc 3.8 -0.2 -0.2
LDI Corp 49.1 13.1 26.2
Medical Innovations Inc 5.7 5.7 -24.1
Citizens Security Group Inc 117.4 166.6 150.0
33.1 % 32.6 % 32.3 %
29.1 29.2 31.2
Napoleon 8.5 % 88.2 % 28.0 %
- ----------
</TABLE>
(1) Transactions with equity values between $20 and $40 million.
(2) One day premium for Napoleon represents change from current stock price.
12
<PAGE>
SUMMARY COMPARABLE COMPANIES ANALYSIS
Dollar amounts in millions except facilities and beds)
<TABLE>
<CAPTION>
ENTERPRISE VALUE/
-----------------------------------------------------------------------------
EQUITY ENTERPRISE NET PRICE/
COMPANY VALUE VALUE FACILITIES BEDS REVENUE EBITDAR EBIT LTM EPS
---------------------- ------------ ------------ --------------- ----------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advocat $61.8 $201.6 $2,316,706 $20,342 1.2x 7.5x 8.7x 12.1x
Arbor Health Care 245.5 381.3 12,710,240 106,570 1.7x 9.8x 13.7x 23.1x
Beverly Enterprises 1,547.5 3,573.3 5,653,958 50,155 1.1x 8.2x 12.6x 19.3x
Genesis Health 1,188.0 1,799.3 12,157,128 89,963 2.0x 10.8x 16.8x 23.4x
GranCare 285.8 1,056.7 8,386,277 69,568 1.1x 6.6x 7.8x 8.7x
Harborside Healthcare 128.0 898.9 29,962,733 242,941 0.9x 5.6x 5.7x 23.5x
Health Care and Rtrmt. 1,587.2 1,930.0 15,077,792 116,967 2.4x 13.6x 18.5x 27.4x
Horizon Healthcare 1,136.9 2,517.3 9,608,073 81,596 1.4x 8.8x 12.8x 23.2x
Integrated Health 858.4 2,589.5 21,944,619 167,538 1.7x 8.4x 10.9x 15.2x
Living Centers 756.2 1,426.7 6,925,851 60,696 1.3x 8.1x 11.8x 17.3x
Manor Care 2,108.4 2,683.5 13,417,643 101,464 1.9x 12.2x 19.0x 23.1x
Mariner Health 370.2 831.5 10,017,529 77,939 1.3x 8.8x 11.8x 13.6x
Multicare 841.2 1,368.8 9,065,043 87,336 2.4x 11.7x 16.1x 26.3x
Regency Health 339.9 785.5 6,771,183 68,342 1.3x 8.5x 12.2x 24.7x
Sun Healthcare 1,050.2 1,948.4 8,291,141 85,679 1.4x 12.4x 17.6x 16.3x
Unison Healthcare 16.1 292.5 5,849,305 59,203 1.7x NM NM NM
Vencor 2,864.2 4,702.3 15,023,445 118,689 1.7x 10.2x 14.8x 21.7x
Mean $11,363,451 $94,411 1.6x 9.5x 13.2x 19.9x
Median 9,608,073 85,679 1.4x 8.8x 12.7x 22.4x
Napoleon $31.0 $171.7 $3,179,993 $38,589 1.3x 17.0x NM NM
</TABLE>
------------------------------------
Companies in italics represent most comparable companies.
13
<PAGE>
Analysis of Recent Comparable Acquisitions
(Dollars in millions unless otherwise noted)
<TABLE>
<CAPTION>
ENTERPRISE VALUE/
-------------------------------------
DATE EQUITY ENTERPRISE
COMPLETED TARGET ACQUIROR VALUE VALUE (1) FACILITIES (2) BEDS (2)
- ----------- -------------------------- ------------------------- ----------- ------------ ----------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pending Regency Health Services Sun Healthcare Group $ 369.0 $ 589.0 $5,077,586 $ 51,249
Pending Multicare Companies Genesis Health Ventures 861.9 1,474.5 9,765,065 94,081
Pending Living Centers Grancare Inc. 800.0 1,470.5 7,138,238 62,573
Pending Horizon/CMS Healthsouth Corp. 949.0 2,276.2 8,687,656 73,779
Pending Retirement Care Sun Healthcare Group 146.5 364.7 3,921,847 39,892
3/18/97 Theratx Inc. Vencor Inc. 354.0 610.7 22,619,481 161,269
2/16/96 Concord Health Group Multicare Companies 70.7 114.5 7,635,267 44,050
Low $3,927,847 $ 39,892
Mean 9,263,592 75,270
Median 7,635,267 62,573
High 22,619,481 161,269
Pending Napoleon (3) Terrapin $ 31.0 $ 171.7 $3,179,993 $ 38,589
<CAPTION>
ENTERPRISE VALUE/
------------------------------------- EQUITY
DATE NET VALUE/NET
COMPLETED TARGET REVENUES EBITDAR EBIT INCOME
- ----------- -------------------------- ------------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
Pending Regency Health Services 1.0 x 6.4 x 13.2 x 26.3
Pending Multicare Companies 2.5 12.6 19.4 27.5
Pending Living Centers 1.3 8.4 16.2 19.2
Pending Horizon/CMS 1.3 7.8 15.3 11.9
Pending Retirement Care 1.9 12.3 22.2 38.4
3/18/97 Theratx Inc. 1.6 8.6 12.6 16.4
2/16/96 Concord Health Group 2.2 11.6 15.2 26.3
1.0 x 6.4 x 12.6 x 11.9
1.7 9.7 16.3 23.7
1.6 8.6 15.3 26.3
2.5 12.6 22.2 38.4
Pending Napoleon (3) 1.3 x 17.07x NM NM
</TABLE>
- ----------
(1) Defined as equity value plus net debt and 8x LTM lease payments.
(2) Enterprise value per facility and per bed shown on an actual dollar basis.
(3) Multiples for Napoleon are based on financial results for the twelve months
ended 3/31/97. Companies in italics represent most comparable acquisitions.
14
<PAGE>
APPENDICES
15
<PAGE>
A
COMPARABLE COMPANIES ANALYSIS
16
<PAGE>
Comparable Companies Analysis - Long-Term Care Industry
(Amounts in Millions, Except Per Share Data)
<TABLE>
<S> <C>
---------------------------------------------------------------- ------------------------------
MARKET DATA EARNINGS PER SHARE DATA
---------------------------------------------------------------- ------------------------------
7/30/97
COMPANY NAME PRICE SHARES MKT. ENTERPRISE
LATEST QTR.- FYE TICKER LOW-HIGH OUT. VALUE VALUE (1) LTM 1997E (2)
- ---------------------- --------- ------------------- ------------ ------------- -------------- ------------ -------------
Advocat AVC $11.63 5.3 $61.8 $201.6 $0.96 $1.07
03/31/97 Dec. 5.88 - 12.06
Arbor Health Care AHCC 35.50 6.9 245.5 381.3 1.54 1.72
03/31/97 Dec. 18.75 - 35.50
Beverly Enterprises BEV 15.63 99.0 1,547.5 3,573.3 0.81 0.89
03/31/97 Dec. 9.25 - 17.06
Genesis Health (6) GHV 33.94 35.0 1,188.0 1,799.3 1.45 1.72
03/31/97 Sept. 21.25 - 37.50
GranCare (5) GC 12.00 23.8 285.8 1,056.7 1.38 0.75
03/31/97 Dec. 7.50 - 21.63
Harborside Healthcare HBR 16.00 8.0 128.0 898.9 0.68 0.84
03/31/97 Dec. 9.00 - 16.75
Health Care and Rtrmt. HCR 35.63 44.6 1,587.2 1,930.0 1.30 1.49
03/31/97 Dec. 23.38 - 36.63
Horizon Healthcare (4) HHC 21.81 52.1 1,136.9 2,517.3 0.94 1.00
02/28/97 May 9.63 - 23.50
Integrated Health IHS 34.50 24.9 858.4 2,589.5 2.27 2.58
03/31/97 Dec. 21.88 - 39.13
Living Centers (5) LCA 38.69 19.5 756.2 1,426.7 2.23 2.65
03/31/97 Sept. 21.88 - 39.75
Manor Care MNR 33.25 63.4 2,108.4 2,683.5 1.44 1.62
02/28/97 May 21.88 - 42.25
Mariner Health MRNR 12.75 29.0 370.2 831.5 0.94 0.97
03/31/97 Dec. 6.75 - 19.75
Multicare (6) MUL 27.31 30.8 841.2 1,368.8 1.04 1.19
03/31/97 Dec. 17.25 - 27.50
Regency Health (7) RHS 21.25 16.0 339.9 785.5 0.86 0.92
03/31/97 Dec. 9.50 - 21.44
Sun Healthcare SHG 21.38 49.1 1,050.2 1,948.4 1.31 1.44
03/31/97 Dec. 11.50 - 23.50
Unison Healthcare UNHC 2.50 6.4 16.1 292.5 0.71 NA
3/31/97 Dec. 1.94 - 15.13
Vencor VC 41.31 69.3 2,864.2 4,702.3 1.90 2.12
06/30/97 Dec. 27.00 - 45.13
Napoleon CCAI $3.25 7.8 $25.2 $165.9 ($0.77) $0.05
03/31/97 Dec. 1.38 - 9.50
<PAGE>
--------------------------
EARNINGS PER SHARE DATA
-------------------------- P/E MULTIPLES ENTERPRISE VALUE/
GROWTH ----------------------------1997 P/E -------------------------------
COMPANY NAME 1997E- TO PROJ.
LATEST QTR.- FYE 1998E (2) 1998E LTM 1997E 1998E GROWTH SALES EBITDAR EBIT (3)
- ---------------------- ------------- -------------- -------- --------- ------- --------- -------- --------- ----------
ADVOCAT $1.21 13.1% 12.1x 10.9x 9.6x 83.0% 1.2x 7.5x 8.7x
03/31/97 Dec.
ARBOR HEALTH CARE 2.03 18.0% 23.1x 20.6x 17.5x 114.5% 1.7x 9.8x 13.7x
03/31/97 Dec.
BEVERLY ENTERPRISES 1.02 14.6% 19.3x 17.6x 15.3x 120.2% 1.1x 8.2x 12.6x
03/31/97 Dec.
GENESIS HEALTH (6) NA NA 23.4x 19.7x NA NA 2.0x 10.8x 16.8x
03/31/97 Sept.
GRANCARE (5) 0.84 12.0% 8.7x 16.0x 14.3x 133.3% 1.1x 6.6x 7.8x
03/31/97 Dec.
HARBORSIDE HEALTHCARE 0.99 17.9% 23.5x 19.0x 16.2x 106.7% 0.9x 5.6x 5.7x
03/31/97 Dec.
HEALTH CARE AND RTRMT. 1.77 18.8% 27.4x 23.9x 20.1x 127.2% 2.4x 13.6x 18.5x
03/31/97 Dec.
HORIZON HEALTHCARE (4) NA NA 23.2x 21.7x NA NA 1.4x 8.8x 12.8x
02/28/97 May
INTEGRATED HEALTH 3.02 17.1% 15.2x 13.4x 11.4x 78.4% 1.7x 8.4x 10.9x
03/31/97 Dec.
LIVING CENTERS (5) NA NA 17.3x 14.6x NA NA 1.3x 8.1x 11.8x
03/31/97 Sept.
MANOR CARE 1.89 16.7% 23.1x 20.5x 17.6x 123.1% 1.9x 12.2x 19.0x
02/28/97 May
MARINER HEALTH 1.10 13.4% 13.6x 13.1x 11.6x 98.1% 1.3x 8.8x 11.8x
03/31/97 Dec.
MULTICARE (6) 1.42 19.3% 26.3x 23.0x 19.2x 118.8% 2.4x 11.7x 16.1x
03/31/97 Dec.
REGENCY HEALTH (7) 1.04 13.0% 24.7x 23.1x 20.4x 177.1% 1.3x 8.5x 12.2x
03/31/97 Dec.
SUN HEALTHCARE 1.65 14.6% 16.3x 14.8x 13.0x 101.8% 1.4x 12.4x 17.6x
03/31/97 Dec.
UNISON HEALTHCARE NA NA NM NA NA NA 1.7x NM NM
3/31/97 Dec.
VENCOR 2.56 20.8% 21.7x 19.5x 16.1x 93.9% 1.7x 10.2x 14.8x
06/30/97 Dec.
----------------------------- ---------------------------------------------------------------------
Mean: 16.1% 19.9x 18.2x 15.6x 113.5% 1.6x 9.5x 13.2x
Median 16.7% 22.4x 19.3x 16.1x 114.5% 1.4x 8.8x 12.7x
----------------------------- ---------------------------------------------------------------------
NAPOLEON NA NA NM 65.0x NA NA 1.3x 16.4x NM
03/31/97 Dec.
- ----------
</TABLE>
* = Updated for most recent earnings release.
(1) Market value of equity plus net debt plus 8x rents.
(2) Estimates obtained from the First Call Network on July 30, 1997.
Calendarized to December year end where necessary.
(3) Enterprise value multiple does not include 8x rents in this calculation.
(4) On February 18, 1997, Healthsouth Corp announced that it entered into a
definitive merger agreement to acquire Horizon Healthcare.
(5) On May 8 1997, Living Centers of America, GranCare, and Apollo Management
announced a recapitalization and merger transaction valued at approximately
$1.8 billion.
(6) On June 16, 1997, Genesis Health Ventures made a cash offer of $28 per
share for Multicare. With assumed debt, the total transaction value is $1.4
billion.
(7) On July 27, 1997, Sun Healthcare Group made a cash offer of $22 per share
for Regency. With assumed debt, the total transaction value is $589.0
million.
Italics represent most comparable companies.
17
<PAGE>
COMPARABLE COMPANIES ANALYSIS - LONG-TERM CARE INDUSTRY
(Dollars in Millions)
<TABLE>
<S> <C>
------------------------------------------------------------- ----------------------------------------
INCOME STATEMENT DATA PROFITABILITY & RETURNS
------------------------------------------------------------- ----------------------------------------
LATEST TWELVE MONTHS PERCENT OF SALES
-------------------------------------------------------------------------------------------------------
NET NET
COMPANY NAME SALES EBITDAR EBITDA EBIT INCOME (1) EBITDAR EBITDA EBIT INCOME
- ------------------------- ----------- ----------- ----------- --------- ---------------------- -------- -------- --------
ADVOCAT $170.0 $26.8 $12.0 $9.6 $5.1 15.8% 7.1% 5.6% 3.0%
ARBOR HEALTH CARE 225.8 39.0 34.6 25.2 10.7 17.3% 15.3% 11.2% 4.8%
BEVERLY ENTERPRISES 3,272.9 434.4 (3) 317.7 210.2 56.8 13.3% 9.7% 6.4% 1.7%
GENESIS HEALTH 915.8 166.5 141.5 107.3 49.3 18.2% 15.5% 11.7% 5.4%
GRANCARE 971.9 159.7 (3) 102.8 77.2 32.8 16.4% 10.6% 7.9% 3.4%
HARBORSIDE HEALTHCARE 177.9 26.0 15.7 12.2 5.4 14.6% 8.8% 6.9% 3.0%
HEALTH CARE AND RTRMT. 808.3 141.8 (3) 132.4 100.2 61.8 17.5% 16.4% 12.4% 7.7%
HORIZON HEALTHCARE 1,774.4 287.6 203.0 144.0 41.8 16.2% 11.4% 8.1% 2.4%
INTEGRATED HEALTH 1,568.4 308.7 224.6 176.1 43.7 19.7% 14.3% 11.2% 2.8%
LIVING CENTERS 1,131.6 175.1 (3) 130.9 90.6 41.9 15.5% 11.6% 8.0% 3.7%
MANOR CARE 1,382.3 220.2 (3) 212.2 137.9 64.3 15.9% 15.4% 10.0% 4.7%
MARINER HEALTH 630.0 94.7 90.4 67.6 21.4 15.0% 14.3% 10.7% 3.4%
MULTICARE 581.0 116.8 102.4 77.9 31.8 20.1% 17.6% 13.4% 5.5%
REGENCY HEALTH 614.6 92.3 62.1 44.5 14.0 15.0% 10.1% 7.2% 2.3%
SUN HEALTHCARE 1,394.7 157.0 (3) 140.3 103.1 33.7 11.3% 10.1% 7.4% 2.4%
UNISON HEALTHCARE 169.6 (2.1) (18.6) (25.0) (25.7) NM NM NM NM
VENCOR 2,775.9 459.2 379.0 275.2 135.6 16.5% 13.7% 9.9% 4.9%
- -----------------------------------------------------------------------------------------------------------------------------------
MEAN: $1,092.1 $170.8 $134.3 $96.1 $36.7 16.1% 12.6% 9.3% 3.8%
MEDIAN $915.8 $157.0 $130.9 $90.6 $33.7 16.1% 12.6% 9.0% 3.4%
- -----------------------------------------------------------------------------------------------------------------------------------
NAPOLEON $131.3 $10.1 $0.3 ($3.0) ($7.5) 7.7% 0.2% NM NM
<CAPTION>
------------------------- -------------------------------- ----------------------------------
PROFITABILITY & RETURNS GROWTH CAPITALIZATION
------------------------- -------------------------------- ----------------------------------
RETURN SALES EBIT NET INCOME NET DEBT
ON 2 - YEAR 2 - YEAR 2 - YEAR TO TOTAL BOOK NET
COMPANY NAME EQUITY CAGR CAGR CAGR CAPITAL VALUE DEBT (2)
- ------------------------- --------- ---------- --------- --------- ---------- --------- -----------
ADVOCAT 17.8% 27.0% 10.7% 11.2% 43.2% $28.6 $21.8
ARBOR HEALTH CARE 15.6% 17.4% 24.7% 21.7% 59.4% 68.7 100.5
BEVERLY ENTERPRISES 6.4% 4.9% 10.9% (17.8%) 55.3% 881.3 1,092.1
GENESIS HEALTH 8.4% 31.4% 40.0% 46.4% 51.2% 583.0 611.2
GRANCARE 23.4% 18.0% 25.4% 22.4% 69.3% 140.1 315.7
HARBORSIDE HEALTHCARE 11.6% 38.4% 14.2% 49.9% 59.3% 46.4 67.5
HEALTH CARE AND RTRMT. 15.5% 12.8% 15.9% 18.9% 40.1% 399.6 267.9
HORIZON HEALTHCARE 6.5% 12.6% 27.5% 47.9% 52.1% 648.0 703.9
INTEGRATED HEALTH 7.6% 41.9% 42.3% 3.0% 64.8% 574.8 1,057.9
LIVING CENTERS 11.9% 18.5% 29.5% 38.4% 47.3% 352.8 316.9
MANOR CARE 9.7% 16.3% NM 3.6% 43.4% 665.9 511.2
MARINER HEALTH 6.4% 49.6% 91.9% 43.5% 56.2% 331.9 426.4
MULTICARE 14.1% 42.4% 33.1% 29.9% 64.7% 225.5 413.0
REGENCY HEALTH 16.2% 21.6% 26.3% 21.3% 70.1% 86.6 203.4
SUN HEALTHCARE 5.8% 39.8% 40.2% 22.3% 56.6% 585.3 764.5
UNISON HEALTHCARE NM 184.2% NM NM 94.1% 9.1 144.7
VENCOR 16.3% 12.6% 13.7% 17.7% 58.9% 833.5 1,196.0
- ---------------------------- ---------- ----------------------------------------------------- ---------
MEAN: 12.1% 34.7% 29.8% 23.8% 58.0% $380.1 $483.2
MEDIAN 11.7% 21.6% 26.3% 22.0% 56.6% $352.8 $413.0
- ---------------------------- ---------- ----------------------------------------------------- ---------
NAPOLEON NM 48.9% NM NM 79.9% $15.5 $61.7
- ----------
</TABLE>
(1) Before one-time charges.
(2) Equal to the sum of short-term debt, long-term debt and capital leases less
cash and marketable securities.
(3) Assumes rent remains constant at 1995 level.
Italics represent most comparable companies.
18
<PAGE>
COMPARABLE COMPANIES ANALYSIS - LONG-TERM CARE INDUSTRY
(Dollars in Millions, Except for Enterprise Value as a Multiple of Bed and
Facilities)
<TABLE>
<CAPTION>
AVERAGE
MARKET ENTERPRISE NO. OF NO. OF BEDS PER QUALITY
COMPANY NAME VALUE VALUE (1) FACILITIES BEDS FACILITY MIX % OWNED
--------------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advocat $61.8 $201.6 87 9,908 114 43.8% 9.2%
Arbor Health Care 245.5 381.3 30 3,578 119 68.8% 80.0%
Beverly Enterprises 1,547.5 3,573.3 632 71,245 113 31.0% 65.7%
Genesis Health 1,188.0 1,799.3 148 20,000 135 64.0% 50.0%
GranCare 285.8 1,056.7 126 15,189 121 63.0% 31.0%
Harborside Healthcare 128.0 898.9 30 3,700 123 58.8% 43.3%
Health Care and Rtrmt. 1,587.2 1,930.0 128 16,500 129 67.5% 93.0%
Horizon Healthcare 1,136.9 2,517.3 262 30,851 118 82.0% 16.8%
Integrated Health 858.4 2,589.5 118 15,456 131 80.7% 34.7%
Living Centers 756.2 1,426.7 206 23,506 114 57.4% 60.2%
Manor Care 2,108.4 2,683.5 200 26,448 132 77.0% 92.0%
Mariner Health 370.2 831.5 83 10,668 129 74.0% 62.7%
Multicare 841.2 1,368.8 151 15,673 104 65.0% 53.6%
Regency Health * 339.9 785.5 116 11,493 99 64.6% 36.2%
Sun Healthcare 1,050.2 1,948.4 235 22,741 97 66.0% NA
Unison Healthcare 16.1 292.5 50 4,940 99 48.3% 12.0%
Vencor 2,864.2 4,702.3 313 39,619 127 56.0% 69.3%
LOW 30 3,578 97 31.0% 9.2%
MEAN 171 20,089 118 62.8% 50.6%
MEDIAN 128 15,673 119 64.6% 51.8%
HIGH 632 71,245 135 82.0% 93.0%
Napoleon $25.2 $165.9 54 4,450 82 50.4% 31.5%
<PAGE>
<CAPTION>
ENTERPRISE VALUE/
------------------------------------------------
COMPANY NAME STATES OCCUPANCY BED FACILITY
--------------------- ------------ ------------- ---------------- ------------------------
<S> <C> <C> <C> <C>
Advocat 9 90.5% $20,342 $2,316,706
Arbor Health Care 5 81.4% 106,570 12,710,240
Beverly Enterprises 32 87.4% 50,155 5,653,958
Genesis Health 10 93.0% 89,963 12,157,128
GranCare 15 86.6% 69,568 8,386,277
Harborside Healthcare 6 92.0% 242,941 29,962,733
Health Care and Rtrmt. 16 90.0% 116,967 15,077,792
Horizon Healthcare 22 90.0% 81,596 9,608,073
Integrated Health 40 NA 167,538 21,944,619
Living Centers 14 83.9% 60,696 6,925,851
Manor Care 28 90.0% 101,464 13,417,643
Mariner Health 19 NA 77,939 10,017,529
Multicare 11 NA 87,336 9,065,043
Regency Health * 5 89.9% 68,342 6,771,183
Sun Healthcare 19 NA 85,679 8,291,141
Unison Healthcare 12 82.1% 59,203 5,849,305
Vencor 40 NA 118,689 15,023,445
Low 5 81.4% $20,342 $2,316,706
Mean 18 88.1% 94,411 11,363,451
Median 15 90.0% 85,679 9,608,073
High 40 93.0% 242,941 29,962,733
Napoleon 12 86.7% $37,281 $3,072,237
</TABLE>
-----------------------------------
* = Updated by most recent earnings announcement.
(1) Market value of equity plus net debt plus 8x rents.
Italics represent most comparable companies.
19
<PAGE>
B
CASE STUDIES OF COMPARABLE ACQUISITIONS
20
<PAGE>
MERGER CASE STUDY - SUN HEALTHCARE GROUP, INC. CONTEMPLATED ACQUISITION OF
REGENCY HEALTH SERVICES
(Dollars in millions unless otherwise noted)
<TABLE>
<S> <C>
----------------------------------------------------------------- -----------------------------------------------------------
TRANSACTION OVERVIEW MERGER HIGHLIGHTS
----------------------------------------------------------------- -----------------------------------------------------------
Announcement Date: July 27, 1997 o Post-acquisition of Retirement Care Associates
Completed Date: Pending and Regency, Sun will operate approximately 510
Equity Value: long-term care facilities.
$ 369.0 o Total revenues will exceed $3 billion.
Enterprise Value:
$ 589.0 o Acquisition price represents a 34% premium over
Regency's pre-announcement price.
Exchange Ratio: Cash Tender
Premium Paid (1): 34.4% o Closely follows Sun's announcement of its
Multiples of Enterprise Value: agreement to acquire Retirement Care Associates.
Facilities $ 5,077,586
Beds $ 51,249
Net Revenue (2) 0.96 x
EBITDAR (2) 6.38 x
EBIT (2) 13.24 x
Equity Value/Net Income (2): 26.27 x
Pro Forma Net Debt/Total Cap. 59.4%
----------------------------------------------------------------- -----------------------------------------------------------
----------------------------------------------------------------- -----------------------------------------------------------
DESCRIPTION OF ACQUIRER: SUN HEALTHCARE GROUP, INC. DESCRIPTION OF TARGET: REGENCY HEALTH SERVICES, INC.
----------------------------------------------------------------- -----------------------------------------------------------
Headquarters: Albuquerque, NM Headquarters: Tustin, CA
Business Description: Long-term care, rehabilitation, Business Description: Develops, owns, manages and operates
and post-acute services operator. long-term care facilities, home
healthcare institutional pharmacy,
and rehabilitation services.
Total Facilities 235 Total Facilities 116
Total Beds 22,741 Total Beds 11,493
Equity Value (3): $ 995.0 Equity Value (3): $ 339.9
Net Revenue (4): 1,394.7 Net Revenue (4): 614.6
EBITDAR (4): 157.0 EBITDAR (4): 92.3
Net Income (4): 33.7 Net Income (3): 14.0
Net Debt to Total Capital (4:) 56.6% Net Debt to Total Capital (4:) 70%
----------------------------------------------------------------- -----------------------------------------------------------
</TABLE>
(1) Based on target price one week prior to announcement.
(2) Latest twelve months ended 6/30/97.
(3) Closing price first trading day following announcement.
(4) Latest twelve months ended 6/30/97.
21
<PAGE>
MERGER CASE STUDY - GENESIS HEALTH VENTURES CONTEMPLATED ACQUISITION OF
MULTICARE
(Dollars in millions unless otherwise noted)
<TABLE>
<S> <C>
--------------------------------------------------------------------- -------------------------------------------------------
TRANSACTION OVERVIEW MERGER HIGHLIGHTS
--------------------------------------------------------------------- -------------------------------------------------------
Announcement Date: June 16, 1997 o Combined company has approximately $1.4 billion
in annual revenue.
Completed Date: Pending o
Equity Value: $ 861.9 Genesis teamed with Cypress Group and Texas
Enterprise Value (1): $ 1,474.5 Pacific Group to buy Multicare, forming the third
Exchange Ratio: Cash largest U.S. nursing home chain.
Premium Paid (2): 13.7% o
Multiples of Enterprise Under the agreement, Genesis will pay $300
Value: million for a 42 percent stake in Multicare. The
Facilities $ 9,765,065 investor groups will pay $420 million for the
Beds $ 94,081 remaining equity.
Net Revenue (3) 2.54 x o
EBITDAR (3) 12.63 x Genesis shares rose slightly upon announcement of
EBIT (3) 19.36 x the deal. Multicare shares rose $1 1/4. Genesis
Equity Value/Net Income (3): 27.54 x shares are currently down $1 3/4 and Multicare
Pro Forma Net Debt/Total Cap. 55.9% shares are unchanged since the announcement.
The transaction will be financed with $675
o million in debt.
--------------------------------------------------------------------- ------------------------------------------------------
--------------------------------------------------------------------- ------------------------------------------------------
Description of Acquirer: Genesis Health Ventures Description of Target: Multicare Companies, Inc.
--------------------------------------------------------------------- ------------------------------------------------------
Headquarters: Kennett Square, PA Headquarters: Hackensack, NJ
Business Description: Provides geriatric care in 12 states. Business Description: Provides long-term care and
Operates primary care physician clinics, specialty medical services
and community based pharmacies. in 11 states. Operates an
community based pharmacies. institutional pharmacy
Total Facilities Total Facilities business.
148 151
Total Beds Total Beds
20,014 15,673
Equity Value (4): Equity Value (4):
$ 1,245.7 $ 827.3
Net Revenue (3): Net Revenue (3):
790.0 581.0
EBITDAR (3): EBITDAR (3):
146.9 116.8
Net Income (3): Net Income (3):
42.9 31.3
Net Debt to Total Capital (3:) 51.2% Net Debt to Total Capital (3:) 64.7%
--------------------------------------------------------------------- -----------------------------------------------------
</TABLE>
(1) Includes 8 times LTM 3/31/97 lease expense.
(2) Based on target price one week prior to announcement.
(3) Latest 12 months ended 3/31/97 or as of 3/31/97.
(4) Closing price used at announcement date.
22
<PAGE>
MERGER CASE STUDY - GRANCARE CONTEMPLATED MERGER WITH LIVING CENTERS OF AMERICA
(Dollars in millions unless otherwise noted)
<TABLE>
<S> <C>
---------------------------------------------------------------------- -----------------------------------------------------
TRANSACTION OVERVIEW MERGER HIGHLIGHTS
---------------------------------------------------------------------- -----------------------------------------------------
Announcement Date: May 8, 1997 o Combined company has over $2.1 billion in annual
Completed Date: Pending revenue.
Merger creates the second largest nursing
Equity Value: $ 800.0 home chain in the U.S. with 330 facilities in 21
states.
Enterprise Value (1): $ 1,470.5
Exchange Ratio: Cash o Living Centers stock rose $1 1/4 and Grancare
Premium Paid (2): 12.5% shares rose $1 on news of the merger. Grancare
Multiples of Enterprise shares are up $1 1/2 and Living Centers shares are
Value: up $1 since the announcement.
Facilities $ 7,138,238
Beds $ 62,573 o The new company's board will have four current
Net Revenue (3) 1.30 x Grancare directors, four Apollo designees and two
EBITDAR (3) 8.40 x Living Centers directors.
EBIT (3) 16.23 x
Equity Value/Net Income (3:) 19.15 x
Pro Forma Net Debt/Total Cap. 55.0%
---------------------------------------------------------------------- -----------------------------------------------------
---------------------------------------------------------------------- -----------------------------------------------------
DESCRIPTION OF ACQUIRER: GRANCARE INC. DESCRIPTION OF TARGET: LIVING CENTERS OF AMERICA
---------------------------------------------------------------------- -----------------------------------------------------
Headquarters: Atlanta, GA Headquarters: Houston, TX
Business Description: Provides specialty medical services and long- Business Description: Provides skilled nursing,
term care. Operates skilled nursing, assisted rehabilitation,
living, subacute facilities and home health. pharmaceutical services,
assisted living, sub-acute
care and home health care.
Total Facilities Total Facilities 206
26
Total Beds 15,189 Total Beds 23,500
Equity Value (4): $ 207.2 Equity Value (4): $ 765.1
Net Revenue (3): 1,003.1 Net Revenue (3): 1,131.6
EBITDAR (3): 927.2 EBITDAR (3): 175.1
Net Income (3): 32.7 Net Income (3): 41.8
Net Debt to Total Capital (3:) 63.7% Net Debt to Total Capital (3:) 47.3%
---------------------------------------------------------------------- -----------------------------------------------------
</TABLE>
(1) Includes 8 times LTM 3/31/97 lease expense.
(2) Based on target price one week prior to announcement.
(3) Latest 12 months ended 3/31/97 or as of 3/31/97.
(4) Closing price used at announcement date.
23
<PAGE>
MERGER CASE STUDY - HEALTHSOUTH CONTEMPLATED
ACQUISITION OF HORIZON/CMS HEALTHCARE
(Dollars in millions
unless otherwise noted)
<TABLE>
<S> <C>
------------------------------------------------- --------------------------------------------------
TRANSACTION OVERVIEW MERGER HIGHLIGHTS
------------------------------------------------- --------------------------------------------------
Announcement February 18, 1997 o Combination results in a company of 123 rehab
Date: hospitals, 982 outpatient centers and 48
Completed Date: Pending specialty hospitals.
Equity Value: $ 949.0 o Increases Healthsouth's reach, expanding in
the Midwest and Southwest.
Enterprise $ 2,276.2 o Horizon adds its network of 262 long term care
Value (1): facilities, a contract therapy
Exchange Ratio: Fixed; 0.422 shares HRC business holding 1,400 contracts and an
for 1 share HHC institutional pharmacy business serving 38,500
Premium Paid (2): 29.9% beds.
Multiples of o Transaction includes $949 million in stock and
Enterprise assumption of $700 million in debt.
Value:
Facilities $8,687,656
Beds $ 73,779 o Exchange ratio is fixed, and Horizon is
required to pay a $35 million breakup fee, plus
Net 1.29 x $5 million for merger-related expenses if deal
Revenue (3) is not consummated.
EBITDAR (3) 7.82 x o Healthsouth shares fell $2 1/8 while
Horizon/CMS shares rose $2 1/4 upon announcement.
EBIT (3) 15.28 x Since the announcement, Healthsouth and Horizon
Equity 11.91 x shares are up $4.
Value/Net
Income (3):
Pro Forma Net Debt/Total Cap. 47.9% o Transaction is expected to close in mid-1997.
------------------------------------------------- --------------------------------------------------
------------------------------------------------- --------------------------------------------------
DESCRIPTION OF ACQUIRER: HEALTHSOUTH CORPORATION DESCRIPTION OF TARGET: HORIZON/CMS HEALTHCARE
------------------------------------------------- --------------------------------------------------
Headquarters: Birmingham, Alabama Headquarters: Albuquerque, NM
Business Offers rehabilitation Business Provides post-acute health
Description: services for disabled Description: care services at 300
patients. Services include facilities located in the
physical therapy, sports the Midwest, Southwest and
medicine and occupational Northeast. Long-term
therapy. care accounts for 21.7% of
Total Facilities Company revenue.
101 Total Faciliites 262
Total Beds 6,661 Total Beds 30,851
Equity Value (4): $ 6,546.9 Equity Value 4): $ 858.3
Net Revenue (3): 2,436.5 Net Revenue (3): 1,768.9
EBITDAR (3): 729.6 EBITDAR (3): 290.9
Net Income (3): 245.7 Net Income (3): 79.7
Net Debt to Net Debt to
Total Capital (3:) 46.8% Total Capital (3:) 50.3%
------------------------------------------------- --------------------------------------------------
</TABLE>
(1) Includes 8 times LTM 12/31/96 lease expense.
(2) Based on target price one week prior to announcement.
(3) Latest 12 months ended 12/31/96 or as of 12/31/96.
(4) Closing price used at announcement date.
24
<PAGE>
MERGER CASE STUDY - SUN HEALTHCARE CONTEMPLATED ACQUISITION OF
RETIREMENT CARE ASSOCIATES
(Dollars in millions unless otherwise noted)
<TABLE>
<S> <C>
----------------------------------------------------------- --------------------------------------------------------------
TRANSACTION OVERVIEW MERGER HIGHLIGHTS
----------------------------------------------------------- --------------------------------------------------------------
Announcement Date: February 18, 1997 o Combined company has $1.5 billion in annual revenue.
Completed Date: Pending o Merger will bring Sun's total to 376 nursing homes and 47
assisted-living centers in the U.S. and U.K. with a total
Equity Value: $ 146.5 of 36,223 beds.
Enterprise Value (1): $ 364.7 o Sun's shares fell $3/8 and Retirement Care's stock fell
$3/4 on announcement of the merger. Sun's shares are up $6
and Retirement Care's are up $ 3 1/2 since the announcement.
Exchange Ratio: Fixed; 0.6625 shares SHG for 1
share RCA o Transaction includes $147 million in stock and assumption
Premium Paid (2): 3.1% of $149 million in debt
Multiples of
Enterprise Value:
Facilities $ 3,921,847 o Sun will also buy the 35% of Contour Medical Inc. not
already owned by Retirement Care for about $8.50 per share.
Beds $ 39,892
Net Revenue (2) 1.91 x o Acquisition should be completed by the end of September.
EBITDAR (3) 12.33 x
EBIT (3) 22.20 x
Equity Value/Net
Income (3): 38.37 x
Pro Forma Net
Debt/Total Cap. 51.2%
----------------------------------------------------------- --------------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------------
DESCRIPTION OF ACQUIRER: SUN HEALTHCARE GROUP INC. DESCRIPTION OF TARGET: RETIREMENT CARE ASSOCIATES
----------------------------------------------------------- --------------------------------------------------------------
Headquarters: Albuquerque, NM Headquarters: Atlanta, GA
Business Operates long-term care facilities Business Owns and operates retirement
Description: in the United States and United Description: facilities,
Kingdom and manages institutional assisted living centers and nursing
pharmacies. homes
located primarily in the Southeast
U.S.
Total Facilities Total Facilities 93 Derives most of revenue from
235 long-term care.
Total Beds Total Beds $ 9,143
22,741
Equity Value (4): $ 696.8 Equity Value (4): $ 113.7
Net Revenue (3): 1,316.3 Net Revenue (3): 190.7
EBITDAR (3): 131.4 EBITDAR (3): 29.6
Net Income (3): 33.1 Net Income (3): 3.8
Net Debt to Total Net Debt to Total
Capital (3:) 46.4% Capital (3:) 78.1%
----------------------------------------------------------- -------------------------------------------------------------
</TABLE>
(1) Includes 8 times LTM 12/31/96 lease expense.
(2) Based on target price one week prior to announcement and assumes SHG price
of $14.00
(3) Latest 12 months ended 12/31/96 or as of 12/31/96.
(4) Closing price used at announcement date.
25
<PAGE>
MERGER CASE STUDY - VENCOR ACQUISITION OF THERATX
(Dollars in millions unless otherwise noted)
<TABLE>
<S> <C>
---------------------------------------------------------- -------------------------------------------------------------------
TRANSACTION OVERVIEW MERGER HIGHLIGHTS
---------------------------------------------------------- -------------------------------------------------------------------
Announcement Date: February 10, 1997 o Combined company has $3 billion in annual revenue.
Completed Date: March 18, 1997
Equity Value: $ 354.0 o Vencor will add Theratx's rehabilitation services to its
existing network of 372 nursing homes.
Enterprise Value (1): $ 610.7
Exchange Ratio: Cash Tender
Premium Paid (2): 35.4% o Vencor stock was unchanged upon announcement, while Theratx
shares rose $3 1/2.
Multiples of
Enterprise Value:
Facilities $22,619,481
Beds $ 161,269
Net Revenue (2) 1.56 x
EBITDAR (3) 8.63 x
EBIT (3) 12.57 x
Equity Value/Net
Income (3): 16.40 x
Pro Forma Net
Debt/Total Cap. 46.1%
---------------------------------------------------------- -------------------------------------------------------------------
---------------------------------------------------------- -------------------------------------------------------------------
DESCRIPTION OF ACQUIRER: VENCOR, INC. DESCRIPTION OF TARGET: THERATX, INC.
---------------------------------------------------------- -------------------------------------------------------------------
Headquarters: Louisville, KY Headquarters: Alpharetta, GA
Business Description: Provides long-term hospital Business Description: Manages sub-acute rehabilitation programs
care to chronically ill in skilled nursing facilities and operates
patients, primarily dependent sub-acute and long-term inpatient facilities.
on technology for continued
life support.
Total Facilities 372 Total Facilities 27
Total Beds 45,886 Total Beds 3,787
Equity Value (4): $ 2,360.0 Equity Value (4): $ 342.7
Net Revenue (3): 2,577.8 Net Revenue (3): 391.2
EBITDAR (3): 419.4 EBITDAR (3): 70.7
Net Income (3): 123.1 Net Income (3): 21.6
Net Debt to Total Capital (3:) 45.0% Net Debt to Total Capital (3:) 50.8%
---------------------------------------------------------- -------------------------------------------------------------------
</TABLE>
(1) Includes 8 times LTM 12/31/96 lease expense.
(2) Based on target price one week prior to announcement.
(3) Latest 12 months ended 12/31/96 or as of 12/31/96.
(4) Closing price used at announcement date.
26
<PAGE>
MERGER CASE STUDY - MULTICARE COMPANIES INC. ACQUISITION OF CONCORD HEALTH GROUP
(Dollars in millions unless otherwise noted)
<TABLE>
<S> <C>
--------------------------------------------------------------------- -------------------------------------------------------
TRANSACTION OVERVIEW MERGER HIGHLIGHTS
--------------------------------------------------------------------- -------------------------------------------------------
Announcement Date: January 16, 1996 o Combined entity will have 166 long term care
facilities and about 18,000 beds.
Completed Date: February 16, 1996
Equity Value: $ 70.7 o Agreement calls for Concord to pay Multicare $3
million breakup fee plus expense reimbursement of
Enterprise Value: $ 114.5 as much as $750,000.
Exchange Ratio: Cash Tender
Premium Paid (1): 43.4% o Upon announcement of the merger, Multicare's stock
Multiples of Enterprise price fell by $1/2 and Concord's shares rose $1
Value: 1/4.
Facilities $ 7,635,267
Beds $ 44,050 o Each holder of Concord's outstanding warrants
Net Revenue (2) 2.18 x received $1.85 per warrant.
EBITDAR (2) 11.65 x
EBIT (2) 15.18 x
Equity Value/Net Income (2): 26.26 x
Pro Forma Net Debt/Total Cap. 71.9%
--------------------------------------------------------------------- ------------------------------------------------------
--------------------------------------------------------------------- ------------------------------------------------------
DESCRIPTION OF ACQUIRER: MULTICARE COMPANIES INC. DESCRIPTION OF TARGET: CONCORD HEALTH GROUP INC.
--------------------------------------------------------------------- ------------------------------------------------------
Headquarters: Hackensack, NJ Headquarters: Williamsport, PA
Business Description: Provides long-term care and specialty Business Description: Develops, owns, manages and
medical services in 11 states. Operates operates post-acute care
an institutional pharmacy business. nursing facilities. Provides
skilled and intermediate care
and home care.
Total Facilities 151 Total Facilities 15
Total Beds 15,673 Total Beds 2,600
Equity Value (3): $ 268.2 Equity Value (3): $ 67.3
Net Revenue (4): Net Revenue (4):
353.0 52.6
EBITDAR (4): EBITDAR (4):
65.2 9.8
Net Income (3): Net Income (3):
18.4 2.7
Net Debt to Total Capital (4:) 71.0% Net Debt to Total Capital (4:) 78%
--------------------------------------------------------------------- ------------------------------------------------------
</TABLE>
(1) Based on target price one week prior to announcement.
(2) Latest Twelve months ended 12/31/95.
(3) Closing price used at announcement date.
(4) Latest 12 months ended 12/31/95 or as of 12/31/95.
27
<PAGE>
C
INFORMATION ON NAPOLEON
<PAGE>
OWNERSHIP PROFILE OF NAPOLEON
<TABLE>
<CAPTION>
Shares Shares
Institutional Investors(2) Held % Directors and Officers(3) Held %
- -------------------------- --------- ----- ------------------------- ------- ----
<S> <C> <C> <C> <C> <C>
Desai Capital Management (5) 1,331,814 17.5% Robert N. Elkins (4) 1,591,627 20.9%
Putnam Investments 524,700 6.9% William J. Krystopowicz 32,346 0.4%
Liberty Investment Management 227,500 3.0% Michael S. Blass 24,249 0.3%
Frankfurt Trust 200,000 2.6% Deborah A. Lau 10,000 0.1%
BZW Barclays 119,625 1.6% John L. Silverman 8,083 0.1%
Mass Financial Services 100,000 1.3% Other Directors and Officers 40,090 0.5%
AWM Investment Company 48,100 0.6%
Merrill Lynch Asset 0.5% Total 1,706,395 22.5%
Management 35,000
Deutsche Kapital 20,000 0.3%
Veritos SG Investments 10,000 0.1% Estimated Retail and Others 3,262,896 42.9%
----------------------------
Other Institutional Investors 11,771 0.2%
Total 2,628,510 34.6%
</TABLE>
[GRAPHIC OMITTED]
- -----------------------------------------------------------------------------
(1) As of April 30, 1997. Does not include certain options and warrants
outstanding.
(2) Source: 13F Filing as of March 1997.
(3) As filed with the SEC as of April 25, 1997.
(4) Includes shares individually owned by Dr. Elkins as well as shares of which
he has voting control.
(5) Mr. Desai was a board member but resigned from the Board of Directors.
<PAGE>
NAPOLEON STOCK PRICE & VOLUME GRAPH (August 10, 1995 Through July 30, 1997)
[GRAPHIC OMITTED]
Current Price: $3.25
High / Low Range: $15.50 / $1.63
Average Daily Volume: 57,150
<PAGE>
NAPOLEON VS. LTC INDEX AND STOCK MARKET INDEX
(August 10, 1995 Through July 29, 1997)
[GRAPHIC OMITTED]
LTC Index includes: AVC, AHCC, BEV, GHV, GC, HBR, HCR, HHC, HIS, LCA, MNR, MRNR,
MUL, RHS, SHG, UNHC AND VC.
<PAGE>
<TABLE>
<CAPTION>
Financial Summary - Terrapin
(Dollars in thousands)
For the Years Ended December 31,
--------------------------------------
Income Statement Data: 1994 1995 1996 1997E(3)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Total revenues $ 712,102 $1,178,888 $1,434,695 $1,908,374
Facility operating expenses 528,131 888,551 1,093,948 1,456,862
Corporate general and administrative 37,041 56,016 60,976 74,291
---------- ---------- ---------- ----------
EBITDAR 146,930 234,321 279,771 377,221
Rent expense 42,158 66,125 77,785 97,759
---------- ---------- ---------- ----------
EBITDA 104,772 168,196 201,986 279,462
Depreciation and amortization 26,367 39,961 41,681 63,666
---------- ---------- ---------- ----------
EBIT 78,405 128,235 160,305 215,796
Interest expense 20,602 38,977 64,110 85,921
---------- ---------- ---------- ----------
Earnings (loss) before taxes and
non-recurring charges
Non-recurring charges 57,803 89,258 96,195 129,875
(4,274) (133,973) 13,026 -
---------- ---------- ---------- ----------
Earnings before taxes 53,529 (44,715) 109,221 129,875
Income taxes 22,117 (16,270) 63,715 50,651
---------- ---------- ---------- ----------
Earnings from continuing operations $ 31,412 $ 105,528(2) $ 45,506 $ 79,224
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 63,347 $ 41,304 $ 41,072
Total assets 1,255,989 1,433,730 1,993,107
Current maturities of LTD 8,972 5,404 16,547
Long-term debt (1) 542,480 765,257 1,038,200
Stockholders' equity 453,811 431,528 534,865
Total Facilities 122 118
Total Beds 16,107 15,456
Total debt/stockholders' equity 121.5% 178.6% 197.2%
Total debt/total 54.9% 64.1% 66.4%
Net debt/total capitalization 51.8% 62.8% 65.5%
Capital expenditures 91,354 131,080 145,065
Total debt/EBITDA 5.26 x 4.58 x 5.22 x
EBITDAR/Interest + Rent 2.34 2.23 1.97 2.05
EBIT/Interest 3.81 3.29 2.50 2.51
</TABLE>
-----------------
(1) Includes capitalized lease obligations.
(2) Before extraordinary charge of $133,973,000.
(3) Projections per Wheat First Research.
<PAGE>
OWNERSHIP PROFILE OF TERRAPIN
<TABLE>
<CAPTION>
Institutional Investors(1) Shares Held % Directors and Officers(2) Shares Held %
- -------------------------- ----------- --- ------------------------- ----------- ------
<S> <C> <C> <C> <C> <C>
Fidelity Management 2,310,000 9.3% Robert N. Elkins 234,458 0.9%
Pioneering Management 1,811,000 7.3% Timothy F. Nicholson 174,088 0.7%
Lazard Freres Asset 1,465,000 5.9% Lawrence P. Cirka 44,217 0.2%
The Crabbe-Huson Company 1,343,000 5.4% George H. Strong 4,000 0.0%
Massachusetts Financial
Services 1,180,000 4.7% C. Christian Winkle 2,143 0.0%
Investment Counselors 957,860 3.8% Other Directors and 26,233 0.1%
Heartland Advisors 739,750 3.0% Officers
Ohio Public Employees 500,000 2.0% Total 485,139 1.9%
American Express Financial 498,000 2.0%
Zurich Kemper Investments 482,290 1.9% Estimated Retail and Others 3,408,317 13.7%
Mitch Hutch Asset Management 480,380 1.9%
BZW Barclays 427,814 1.7%
Numeric Investors 419,000 1.7%
Dimensional Fund 417,700 1.7%
Jenswold King 382,410 1.5%
Others 7,574,632 30.4%
Total 20,988,836 84.4%
</TABLE>
- ------------------------------------
(1) Source: 13F Filing as of March 1997.
(2) Source: Proxy statement dated June 20, 1997.
<PAGE>
TERRAPIN STOCK PRICE & VOLUME GRAPH (July 30, 1996 Through July 30, 1997)
[GRAPHIC OMITTED]
Current Price: $34.63
High/Low Range: $38.94 / $22.00
Average Daily VOlume: 177,246
<PAGE>
TERRAPIN STOCK PRICE & VOLUME GRAPH (April 25, 1991 Through July 30, 1997)
[GRAPHIC OMITTED]
Current Price: $34.63
High/Low Range: $42.00 / $14.00
Average Daily VOlume: 131,632
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL SUMMARY - NAPOLEON
(Dollars in thousands)
For the Years Ended 3 Months Ended
December 31,
---------------------------- ------------------
Income Statement Data: 1994 1995 1996 3/31/96 3/31/97 1997E (1) 1998E (1)
-------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues $57,492 $94,178 $127,512 $28,945 $32,694 $115,480 $117,423
Facility operating expenses 46,035 73,693 111,171 22,106 27,239 94,743 91,874
Corporate general and administrative 2,935 4,765 5,226 1,434 1,039 2,900 3,207
-------- -------- ------- -------- -------- -------- --------
EBITDAR 8,522 15,720 11,115 5,405 4,416 17,837 22,342
Rent expense 3,806 6,404 8,999 1,763 2,632 8,800 7,745
-------- -------- ------- -------- -------- -------- --------
EBITDA 4,716 9,316 2,116 3,642 1,784 9,037 14,597
Depreciation and amortization 1,465 2,033 3,021 645 857 3,282 3,004
-------- -------- ------- -------- -------- -------- --------
EBIT 3,251 7,283 (905) 2,997 927 5,755 11,593
Interest expense 2,857 3,795 5,337 818 1,566 5,465 4,719
-------- -------- ------- -------- -------- -------- --------
Earnings (loss) before taxes and
non-recurring charges 394 3,488 (6,242) 2,179 (639) 290 6,874
Non-recurring charges - - (22,128) - - - -
-------- -------- ------- -------- -------- -------- --------
Earnings before taxes(1) - - (28,370) 2,179 (639) 290 6,874
Income taxes - 1,047 (9,465) 827 (162) 110 2,612
-------- -------- ------- -------- -------- -------- --------
Earnings from continuing
operations (1) $ 394 2,441(3) (18,905) 1,352 $(477) $ 180 4,262
======== ======== ======= ======== ======== ========= ========
Balance Sheet Data:
Cash and cash equivalents 3,925 2,485 $1,709 $ 611 1,486 2,302
Total assets 62,375 93,290 102,119 102,686 94,672 94,275
Current maturities of LTD 1,318 1,258 6,341 4,407 2,080 1,610
Long-term debt (2) 31,768 34,407 54,030 55,765 56,285 52,675
Stockholders' equity 4,745 31,241 16,003 15,526 16,617 21,312
Total Facilities 55 54 54 42 42
Total Beds 4,614 4,450 4,450 NA NA
Total debt/stockholders' equity 697.3% 114.2% 377.2% 387.6% 351.2% 254.7%
Total debt/total capitalization 87.5% 53.3% 79.0% 79.5% 77.8% 71.8%
Net debt/total capitalization 77.1% 49.6% 76.8% 78.7% 75.9% 68.8%
Capital expenditures 2,472 6,647 6,615 386 NA NA
Total debt/EBITDA 7.02 x 3.83 x 28.53 x NA 6.46 x 3.72 x
EBITDAR/Interest + Rent 1.28 1.54 0.78 2.09 x 1.05 x 1.25 1.79
EBIT/Interest 1.14 1.92 (0.17) 3.66 0.59 1.05 2.46
</TABLE>
---------------
(1) Estimates provided by Napoleon management.
(2) Includes capitalized lease obligations.
(3) Before extraordinary charge of $992,000.
- --------------------------------------------------------------------------------
Preliminary Fairness Opinion Presentation to
The Board of Directors of
Integrated Health Services, Inc.
Community Care of America, Inc.
June 11, 1997
SHATTUCK HAMMOND PARTNERS INC.
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Integrated Health Services, Inc.
Table of Contents
Page
----
Introduction...................................................................1
Transaction Terms..............................................................5
Other Issues Related to the Transaction........................................6
Valuation Methodologies........................................................8
Valuation Summary..............................................................9
Valuation Methodology: Publicly Traded
Comparable Company Analysis................................................10
Valuation Methodology: Discounted Cash Flow Analysis..........................18
Valuation Methodology: Comparable Merger and Acquisition Analysis.............24
Valuation Methodology: Per Bed Valuation......................................27
Valuation Methodology: Accretion/(Dilution) Analysis..........................28
CCAI Premium Analysis.........................................................30
Preliminary Conclusions.......................................................31
Exhibits Tab
- -------- ---
o Discounted Cash Flow Valuation.......................................1
o No Synergies................................................2
o Synergies...................................................3
o Publicly-Traded Stock Comparison.....................................4
o Selected Comparable Merger and
Acquisition Transaction Analysis.....................................5
o Weighted Average Cost of Capital Analyses............................6
o Stock Price Graph....................................................7
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC.
<PAGE>
================================================================================
Integrated Health Services, Inc.
Introduction
o Shattuck Hammond Partners Inc. ("Shattuck Hammond") has been engaged to
render a Fairness Opinion (the "Opinion") regarding the fairness to
Integrated Health Services, Inc. ("IHS"), from a financial point of view,
of the proposed acquisition of Community Care of America, Inc. ("CCAI") by
IHS (the "Transaction").
o Shattuck Hammond has been requested to render its Fairness Opinion based
on: (i) the terms of the proposed acquisition as described to us by the
management of IHS and limited discussions with the management of CCAI; (ii)
financial and other information concerning CCAI made available to us as of
the date of this report; (iii) market, economic and other conditions that
existed on or before the date of this report; (iv) various financial
analyses that, as investment bankers, we deemed to be relevant to our
pinion; and (v) other information and analyses that we deemed to be
relevant.
o Among the information reviewed by Shattuck Hammond are the following:
o The Form 10-K and 10-Q for CCAI and IHS;
o A Confidential Memorandum, dated Spring 1997, prepared by Smith Barney
Inc.;
o An IHS 1997 and 1998 projected accretion/(dilution) analysis in
connection with the proposed acquisition of CCAI, prepared by IHS;
o An IHS/CCAI pro forma balance sheet as of 3/31/97, prepared by IHS;
o A 1997 and 1998 projected IHS income statement, prepared by IHS;
o A financial analysis of IHS rural facilities, prepared by IHS; and
o An analysis of CCAI facilities held for sale, prepared by IHS.
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 1
<PAGE>
================================================================================
Integrated Health Services, Inc.
Introduction (Cont'd)
o In preparing our Opinion, we have relied upon and assumed the accuracy and
completeness of all information that was available to us from public
sources and that was supplied or otherwise made available to us by IHS or
its representatives, and have not independently verified the information
received by us or undertaken an independent appraisal or physical
inspection of the assets or liabilities of CCAI.
o We have discussed and reviewed all projections and historical financial
information regarding CCAI and IHS, including projected merger synergies,
with the management of IHS and CCAI. IHS has informed us that projected
operating margins are in line with other IHS rural facilities. In addition,
IHS management believes that the ability to realize the projected revenue
per day increases is supported not only by reimbursement increases, but
also increased Medicare business and ancillary therapy revenues. Although
the projections assume that patient days remain constant, since the
facilities are operating well below full occupancy, IHS management believes
that there is a significant opportunity to increase the daily patient
census.
o Financial analysis is performed on a pro forma basis assuming the sale of
12 facilities. (See "Other Issues Related to Transaction"). Due to the pro
forma adjustments, valuations based on historical results utilize pro forma
projected 1997 results with appropriate adjustments.
o Since being engaged by IHS on June 6, we have not had an opportunity to
conduct full "due diligence" regarding CCAI, nor have definitive
transaction documents on which our final Opinion will be based, been
prepared. Therefore, at this stage, the opinions expressed in this report
are preliminary.
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 2
<PAGE>
================================================================================
Integrated Health Services, Inc.
Transaction Terms
o IHS will acquire all of the outstanding shares of CCAI for $3.50 per share
in cash at closing. Including common stock equivalents as described below,
the total estimated purchase price is $28.8 million.
o Including assumption of all long-term liabilities and short-term debt, net
of working capital, as estimated at December 31, 1997, the total
acquisition cost is $87.7 million. This cost excludes operating leases.
o Shares outstanding:
o At March 31, 1997, CCAI had 7.6 million shares outstanding.
o In addition, there were options and warrants outstanding which can be
converted into 2.0 million shares. However, with the exception of
342,000 Daiwa warrants, all warrants and options either are owned by
IHS or are out of the money at $3.50 per share.
o Under the terms of the Daiwa Credit Agreement, the number of Daiwa
warrants will increase until CCAI meets certain covenants. IHS
management has estimated that the number of Daiwa warrants will
increase from 342,000 to 1.8 million during the period of time that it
takes to close the Transaction.
o As a result, the total number of shares outstanding including the
estimated Daiwa warrants accounted for under the treasury method is
8.2 million.
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 3
<PAGE>
================================================================================
Integrated Health Services, Inc.
Other Issues Related to The Transaction
o Facilities to be Sold
o Due to continuing losses at 12 facilities containing approximately
1,100 beds, CCAI is currently in the process of selling these
facilities. The facilities (with the exception of one owned facility)
are all leased and will require CCAI purchasing the facilitates from
Health and Retirement Properties Trust ("HRPT") and then reselling
them.
o In the event that the facilities cannot be sold, they will be closed
down.
o The financial impact on the valuation of CCAI depends on the price for
which the facilities can be sold, HRPT's flexibility and the
accounting treatment of the sale or close down.
o CCAI informed us that HRPT has agreed to take a note back for the
difference between the price paid to HRPT for the facilities and the
price that the facilities will be sold for.
o Based on an analyses prepared by IHS, if the facilities were sold for
$25,000 per bed, CCAI would experience a loss on the sale of
approximately $4.5 million. Such loss would decrease the equity value
of CCAI by $4.5 million if the loss were funded through an HRPT note.
In the event that the facilities were sold for $30,000 per bed, there
would not be a significant loss on the sale nor a significant decrease
in the equity value of CCAI.
o We have been informed that IHS will undertake additional due diligence
regarding the twelve facilities and is reviewing the accounting
treatment with its accountants.
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 4
<PAGE>
================================================================================
Integrated Health Services, Inc.
Other Issues Related to The Transaction (Cont'd)
o Synergies
o IHS believes that there are significant synergies in connection with
the acquisition of CCAI:
-- S,G&A Reduction: IHS currently performs financial and reporting
functions for CCAI under a contract. Based on an IHS analysis,
CCAI's S,G&A can be reduced by approximately $1.2 million
following the acquisition. IHS believes that this is a
conservative assumption.
-- Rehab Services: IHS estimates that, by owning the CCAI
facilities, IHS will be able to realize incremental pretax profit
on its rehab services of approximately $500,000. IHS believes
that this is a conservative assumption.
o In evaluating the financial fairness of the Transaction, we examined
the impact of the Transaction under two scenarios, one assuming no
synergies were realized and the other assuming realization of
synergies.
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 5
<PAGE>
================================================================================
Integrated Health Services, Inc.
o Valuation Methodologies
o Valuation Methodologies Utilized:
o Comparable publicly-traded company analysis;
o Risk-adjusted discounted cash flow analysis;
o Comparable merger and acquisition transaction analysis;
o Per bed analysis; and
o Accretion/(Dilution) analysis
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 6
<PAGE>
================================================================================
Integrated Health Services, Inc.
Valuation Summary
================================================================================
Indicated Per Share Value
--------------------------------
High Average Low
-------- ----------- -------
Publicly-Traded Company Analysis
EBITDA (No synergies) $3.88 $2.57 $1.27
1997 Net Income (No synergies) 3.83 3.59 3.34
1998 Net Income (No synergies) 7.91 7.34 6.77
EBITDA (Synergies) 5.67 4.15 2.63
1997 Net Income (Synergies) 5.74 5.38 5.01
1998 Net Income (Synergies) 9.60 8.90 8.20
Discounted Cash Flow Analysis
No synergies 10.54 7.72 5.28
Synergies 12.01 8.97 6.24
Merger and Acquisition Transaction Analysis
EBITDA (No synergies) 4.27 2.96 1.66
EBITDA (Synergies) 6.12 4.61 3.09
Per Bed Valuation 3.46 1.95 0.44
CCAI Acquisition Value 3.50 3.50 3.50
IHS Accretion/(Dilution)
1997 .03 .02 .01
1998 .09 .07 .05
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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Integrated Health Services, Inc.
Valuation Methodology: Publicly-Traded Comparable Company Analysis
o A common approach to valuing a business enterprise is to compare it with
similar publicly-traded companies in the same industry ("Publicly-Traded
Comparable Company Analysis"). Comparability can be based on a number of
factors including: type of business; size of business; geography; etc.
o Once a group of comparable companies is selected, relevant valuation
multiples must be selected. Such multiples can include: revenue; earnings
before interest, taxes, depreciation and amortization ("EBITDA"); EBIT; net
income; book value; and projected income. Depending on the business, the
data available and a judgment, as an investment banker, as to which
multiples appropriately reflect the value of a company, certain multiples
or other valuation factors are selected. Moreover, the multiples of certain
companies within a selected comparable group may be excluded for valuation
purposes because they are outliers and would create a misleading valuation
if used in an analysis.
o As previously discussed, CCAI pro forma projected results for 1997 are used
for valuation purposes. For valuations based on EBITDA, information on
projected 1997 results for comparable companies is not available.
Therefore, valuations based on the latest twelve month EBITDA for the
comparable companies have been used and have been discounted by 10%. We
believe that this is an appropriate discount based on (i) the fact the LTM
results for the comparable companies are as of 3/31/97 and (ii) a review of
the 1997 PE multiples for the comparable companies.
o Since CCAI facilities are generally in rural locations and have a large
Medicaid patient census in their payer mix, we selected comparable
long-term care companies which had similar characteristics. For relative
valuation purposes, we used multiples of EBITDA and projected earnings. Per
bed valuations were not used due to the impact of non facility related
revenue which can skew per bed valuations.
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Integrated Health Services, Inc.
Valuation Methodology: Publicly-Traded Comparable Company Analysis (Cont'd)
================================================================================
Comparable Public Companies
Key Valuation Parameters Summary
Equity Value as a Multiple of:
------------------------------
BEV/ Projected 1997 Projected 1998
Company LTM EBITDA Net Income Net Income
------- ---------- ---------- ----------
Advocat 5.7x 9.7x 8.6x
Beverly Enterprises 7.5 17.0 15.0
Multicare Cos. 11.4 20.7 17.7
Regency Health Services 6.8 14.4 12.5
Sun Healthcare Group 9.8 11.7 10.4
--- ---- ----
Average 8.2x 14.7x 12.8x
Community Care America
(at $3.50 per share) 7.9x(1) 5.6x 4.2x
Integrated Health Services 8.7x 14.0x 12.0x
================================================================================
- ------------
(1) Uses Pro Forma FY 1997 EBITDA.
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 9
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Integrated Health Services, Inc.
Valuation Methodology: Publicly-Traded Comparable Company Analysis (Cont'd)
================================================================================
Comparable Public Company Valuation
Based on EBITDA Multiples
(No synergies)
($ millions, except per share amounts)
--------------------------------------
High Average Low
---- ------- ---
CCAI EBITDA(1) $10.7 $10.7 $10.7
Adjusted Public Company
EBITDA Multiple(2) 8.4x 7.4x 6.4x
BEV $89.9 $79.2 $68.5
Less: Debt(3,4) 58.5 58.5 58.5
Plus: Net Working Capital(4) 0.4 0.4 0.4
----- ----- -----
Equity Value $31.8 $21.1 $10.4
Shares Outstanding(5) 8.2 8.2 8.2
----- ----- -----
Value Per Share $3.88 $2.57 $1.27
===== ===== =====
Acquisition Value Per Share $3.50 $3.50 $3.50
================================================================================
- --------------
(1) Pro Forma for FY 1997.
(2) Public company average discounted 10% since average is based on YTD results
through 3/31/97 and multiple is being applied to pro forma forward CCAI
EBITDA.
(3) Includes all long-term liabilities and short-term debt.
(4) Estimated balance sheet at 12/31/97.
(5) Including shares issuable upon conversion of in-the-money warrants related
to Daiwa only.
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================================================================================
Integrated Health Services, Inc.
Valuation Methodology: Publicly-Traded Comparable Company Analysis (Cont'd)
================================================================================
Comparable Public Company Valuation
Based on 1997 Net Income Estimates
(No synergies)
($ millions, except per share amounts)
--------------------------------------
High Average Low
---- ------- ---
CCAI 1997 Projected Net Income(1) $2.0 $2.0 $2.0
Public Company Average Multiple 15.7x 14.7x 13.7x
Equity Value $31.4 $29.4 $27.4
Shares Outstanding(2) 8.2 8.2 8.2
----- ----- -----
Value Per Share $3.83 $3.59 $3.34
===== ===== =====
Acquisition value Per Share $3.50 $3.50 $3.50
================================================================================
- -----------
(1) Pro Forma.
(2) Includes shares issuable upon exercise of in-the-money warrants related to
Daiwa only.
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================================================================================
Integrated Health Services, Inc.
Valuation Methodology: Publicly-Traded Comparable Company Analysis (Cont'd)
================================================================================
Comparable Public Company Valuation
Based on 1998 Net Income Estimates
(No synergies)
($ millions, except per share amounts)
--------------------------------------
High Average Low
---- ------- ---
CCAI Projected 1998 Net Income $4.7 $4.7 $4.7
Public Company Average Multiple 13.8x 12.8x 11.8x
Equity Value $64.9 $60.2 $55.5
Shares Outstanding(1) 8.2 8.2 8.2
----- ----- -----
Value Per Share $7.91 $7.34 $6.77
===== ===== =====
Acquisition Value Per Share $3.50 $3.50 $3.50
================================================================================
- ---------------
(1) Includes shares issuable upon exercise of in-the-money warrants related to
Daiwa only.
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Integrated Health Services, Inc.
Valuation Methodology: Publicly-Traded Comparable Company Analysis (Cont'd)
================================================================================
Comparable Public Company Valuation
Based on EBITDA Multiples
(With Synergies)
($ millions, except per share amounts)
--------------------------------------
High Average Low
---- ------- ---
CCAI EBITDA(1) $10.7 $10.7 $10.7
Synergies 1.8 1.8 1.8
----- ----- -----
Total EBITDA 12.5 12.5 12.5
Adjusted Public Company
EBITDA Multiple(2) 8.4x 7.4x 6.4x
BEV $104.6 $92.1 $79.7
Less: Debt(3,4) 58.5 58.5 58.5
Plus: Net Working Capital(4) 0.4 0.4 0.4
----- ----- -----
Equity Value $46.5 $34.0 $21.6
Shares Outstanding(5) 8.2 8.2 8.2
----- ----- -----
Value Per Share $5.67 $4.15 $2.63
===== ===== =====
Acquisition Value Per Share $3.50 $3.50 $3.50
================================================================================
- -------------
(1) Pro Forma for FY 1997.
(2) Public company average discounted 10% since average is based on YTD results
through 3/31/97 and multiple is being applied to pro forma forward CCAI
EBITDA.
(3) Includes all long-term liabilities and short-term debt.
(4) Estimated balance sheet at 12/31/97.
(5) Includes shares issuable upon conversion of in-the-money warrants related
to Daiwa only.
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================================================================================
Integrated Health Services, Inc.
Valuation Methodology: Publicly-Traded Comparable Company Analysis (Cont'd)
================================================================================
Comparable Public Company Valuation
Based on 1997 Net Income Estimates
(With Synergies)
($ millions, except per share amounts)
--------------------------------------
High Average Low
---- ------- ---
CCAI 1997 Projected Net Income(1) $2.0 $2.0 $2.0
Synergies, net of tax 1.0 1.0 1.0
----- ----- -----
Total Pro Forma 1997 Net Income 3.0 3.0 3.0
Public Company Average Multiple 15.7x 14.7x 13.7x
Equity Value $47.1 $44.1 $41.1
Shares Outstanding(2) 8.2 8.2 8.2
----- ----- -----
Value Per Share $5.74 $5.38 $5.01
===== ===== =====
Acquisition value Per Share $3.50 $3.50 $3.50
================================================================================
- -----------
(1) Pro Forma.
(2) Includes shares issuable upon exercise of in-the-money warrants related to
Daiwa only.
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================================================================================
Integrated Health Services, Inc.
Valuation Methodology: Publicly-Traded Comparable Company Analysis (Cont'd)
================================================================================
Comparable Public Company Valuation
Based on 1998 Net Income Estimates
(With Synergies)
($ millions, except per share amounts)
--------------------------------------
High Average Low
CCAI 1997 Projected Net Income(1) $4.7 $4.7 $4.7
Synergies, net of tax 1.0 1.0 1.0
----- ----- -----
Total Pro Forma 1998 Net Income 5.7 5.7 5.7
Public Company Average Multiple 13.8x 12.8x 11.8x
Equity Value $78.7 $73.0 $67.3
Shares Outstanding(2) 8.2 8.2 8.2
----- ----- -----
Value Per Share $9.60 $8.90 $8.20
===== ===== =====
Acquisition value Per Share $3.50 $3.50 $3.50
================================================================================
- -----------
(1) Pro Forma.
(2) Includes shares issuable upon exercise of in-the-money warrants related to
Daiwa only.
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Integrated Health Services, Inc.
Valuation Methodology: Discounted Cash Flow Analysis
o Valuing an enterprise based on the discounted value of its cash flows ("DCF
Analysis") is a universally recognized valuation methodology.
o Unlike the market-based approaches, DCF Analysis utilizes estimates of
future, rather than historical, financial performance. The methodology
seeks to empirically derive the value of an organization by computing the
present value of its future cash flow stream.
o Specifically, DCF Analysis combines the present value of five-year
projections of free cash flow with the present value of the estimated
"terminal" value -- which reflects the value of the business beyond the
forecast period.
o Free cash flow represents the earnings of a business which are
available for distribution to providers of debt and equity capital,
and is defined as EBIT plus depreciation and amortization, less
capital expenditures, additions to non-cash working capital and taxes
payable on EBIT.
o The terminal value is estimated by discounting, back to the present, a
multiple of the fifth year EBITDA or another valuation multiple.
o For companies which are projected to have significant increases in
EBITDA (such as CCAI), the majority of the present value is determined
by the terminal value.
o The greatest challenge to this approach is its high dependence on the
assumptions used in projecting free cash flows. The forecasts should
reflect industry trends and other external factors, as well as strategic
and financial plans currently in place.
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Integrated Health Services, Inc.
Valuation Methodology: Discounted Cash Flow Analysis (Cont'd)
o Weighted Average Cost of Capital/Determination of Discount Rates
The selection of appropriate discounts rates which take into account the
risk of a business are an important part of a DCF Analysis. In general,
each business will have its own discount rate. The Capital Asset Pricing
Model is a traditional approach to determining the cost of equity capital
for a given business enterprise. This methodology is founded on the
principle that an enterprise's cost of equity capital (or required rate of
return on equity) is related to the prevailing interest rate environment,
the expected volatility (variance) of investment returns or risk associated
with the business, and the market equity risk premium in excess of the
current riskless rate of return. The Capital Asset Pricing Model is
therefore expressed as follows:
Ke = rf + B1(rm - rf)
The Required Equity Rate of Return = The Risk Free Rate +
The Investment's Leveraged Beta x The Market Equity Risk Premium
The Risk Free rate (Rf) is the yield on the U.S. Treasury security that
matches the tenor of the investment being considered. For purposes of this
analysis, the 30 year Treasury yield was used as the Risk Free Rate in
order to reflect the long-term nature of the business and the undertaking
behind the transaction.
B(1) is an empirical measurement of the historical correlation of the
return on an investment in relation to the return on the overall market
where 1.0 represents a perfect correlation. A higher Beta implies higher
volatility and therefore higher risk. Betas for private companies are
generally calculated by analyzing Betas for publicly-traded comparable
companies. A company's reported Beta includes the effect of its financial
leverage. Therefore, as part of the calculation of Cost of Capital, a Beta
derived from a comparable company must first be deleveraged and then
- --------------------------------------------------------------------------------
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Integrated Health Services, Inc.
Valuation Methodology: Discounted Cash Flow Analysis (Cont'd)
releveraged with a company's capital structure. In many instances, a company's
optimal or targeted capital structure may have to be used rather than the actual
capital structure in order to calculate a realistic discount rate.
The Market Equity Risk Premium (Rm - Rf) is an empirical measurement of the
historical relationship between return on stocks and the return on risk free
securities of a given tenor. According to Ibbotson Associates, the long term
premium of the return on stocks over the return on long-term Treasury securities
is approximately 7.2%.
The formula to determine the weighted average cost of capital ("WACC"), which
incorporates a predetermined capital structure and the above cost of equity
capital calculation to discount future cash flows is as follows:
E D
WACC = Ke ( --------- ) +Kd(1-t) ( ---------- )
E+D E+D
In the foregoing formula, financial leverage (Debt/Capitalization) is used to
calculate a weighted average capital cost or discount rate. Value of Equity (E)
and the Value of Debt (D) are used to calculate financial leverage. Since cash
flows subject to discounting are after-tax cash-flows, the Cost of Debt (Kd) is
calculated on an after-tax (1-t) basis.
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Integrated Health Services, Inc.
Valuation Methodology: Discounted Cash Flow Analysis (Cont'd)
o Applying WACC to CCAI
o Exhibit 5 presents a calculation of WACC of IHS, CCAI and the
publicly-traded comparable companies. However, we believe that
analysis is misleading due to the current Betas and the high leverage
of all the companies. IHS has told us that they generally uses
discount rates of 12%-14%. However, due to CCAI's high leverage and
the uncertainty regarding the sale of the 12 facilities, we used
discount rates that were approximately 25% higher: 14%;16%; 18%.
o Terminal Multiples
o Terminal EBITDA multiples used were based on the analysis discussed in
the Publicly-Traded Comparable Company Analysis section of this
Report: 6x; 7x; 8x.
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SHATTUCK HAMMOND PARTNERS INC. 19
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================================================================================
Integrated Health Services, Inc.
Valuation Methodology: Discounted Cash Flow Analysis (Cont'd)
================================================================================
Discounted Cash Flow Valuation
(No Synergies)
High Average Low
---- ------- ---
BEV $144.9 $121.7 $101.5
Less: Debt(1,2) 58.5 58.5 58.5
Plus: Net Working Capital(1) 0.4 0.4 0.4
------ ----- ------
Equity Value $86.8 $63.6 $43.4
Shares Outstanding(3) 8.2 8.2 8.2
------ ----- ------
Value Per Share $10.54 $7.72 $5.28
====== ===== =====
Acquisition Value Per Share $3.50 $3.50 $3.50
================================================================================
- -------------
(1) Estimated balance sheet at 12/31/97.
(2) Includes all long-term liabilities and short-term debt.
(3) Includes shares issuable upon conversion of in-the-money warrants related
to Daiwa only.
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================================================================================
Integrated Health Services, Inc.
Valuation Methodology: Discounted Cash Flow Analysis (Cont'd)
================================================================================
Discounted Cash Flow Valuation
(With Synergies)
High Average Low
---- ------- ---
BEV $157.0 $132.0 $110.3
Less: Debt(1,2) 58.5 58.5 58.5
Plus: Net Working Capital(1) 0.4 0.4 0.4
------ ----- ---
Equity Value $98.9 $73.9 $52.2
Shares Outstanding(3) 8.2 8.2 8.2
------ ----- ---
Value Per Share $12.01 $8.97 $6.34
====== ===== =====
Acquisition Value Per Share $3.50 $3.50 $3.50
================================================================================
- -------------
(1) Estimated balance sheet at 12/31/97.
(2) Includes all long-term liabilities and short-term debt.
(3) Includes shares issuable upon conversion of in-the-money warrants related
to Daiwa only.
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Integrated Health Services, Inc.
Valuation Methodology: Comparable Merger and Acquisition Analysis
o Comparable Merger and Acquisition Analysis relies on comparable
transactions that have happened in the past. As in the Publicly-Traded
Comparable Company Analysis, determining comparability is critical.
Precedent transactions are chosen based on industry/sector, time elapsed
since transaction, size, structure, changes in financial markets and
industry conditions.
o With regard to CCAI, our universe of comparable transactions involves
transactions in which: (i) the target is a public long-term care company;
(ii) the target has a significant portion of its facilities in relatively
rural locations; (iii) facilities have a high Medicaid mix; and (iv) the
transactions were announced within the last twelve months.
================================================================================
Comparable Merger and Acquisition Transactions
- --------------------------------------------------------------------------------
Date Target/Acquiror Status BEV/EBITDA
- ----------- ----------------------------------------- -------- ----------
5/97 Living Centers of America/GranCare-Apollo Pending 7.3x
2/97 Retirement Care Assoc./Sun Healthcare Pending(1) 10.5
10/96 Geriatric & Med. Cos./Genesis Health Completed 7.7
----
Average 8.5x
Average(2) 7.7x
================================================================================
o Although other transactions in this sector have occurred, we did not
include them since they lacked sufficient similarity to the Transaction.
o Although other transaction multiples can be used, we evaluated the
comparable transactions based on the multiple of BEV to LTM EBITDA. A 10%
discount has been applied to the EBITDA multiple to adjust for CCAI
valuation based on pro forma projected 1997 results.
- ------------
(1) Adjusted for value of Contour Medical.
(2) Reflects 10% discount.
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 22
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Integrated Health Services, Inc.
Valuation Methodology: Comparable Merger and Acquisition Analysis (Cont'd)
================================================================================
Comparable Merger and Acquisition Valuation
Based on LTM EBITDA Multiples
(No Synergies)
High Average Low
---- ------- ---
CCAI EBITDA(1) $10.7 $10.7 $10.7
Adjusted Merger and Acquisition
EBITDA Multiple(2) 8.7x 7.7x 6.7x
BEV $93.1 $82.4 $71.7
Less: Debt(3,4) 58.5 $58.5 58.5
Plus: Net Working Capital(4) 0.4 0.4 0.4
----- ----- -----
Equity Value $35.0 $24.9 $13.6
Shares Outstanding(5) 8.2 8.2 8.2
----- ----- -----
Value Per Share $4.27 $2.96 $1.66
===== ===== =====
Acquisition Value Per Share $3.50 $3.50 $3.50
================================================================================
- ----------------
(1) Pro Forma for FY 1997.
(2) Comparable average discounted 10% since average is based on YTD results
through 3/31/97 and multiple is being applied to pro forma forward CCAI
EBITDA.
(3) Includes all long-term liabilities and short-term debt.
(4) Estimated balance sheet at 12/31/97.
(5) Including shares issuable upon conversion of in-the-money warrants related
to Daiwa only.
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Integrated Health Services, Inc.
Valuation Methodology: Comparable Merger and Acquisition Analysis (Cont'd)
================================================================================
Comparable Merger and Acquisition Valuation
Based on LTM EBITDA Multiples
(With Synergies)
High Average Low
---- ------- ---
CCAI EBITDA(1) $10.7 $10.7 $10.7
Synergies 1.8 1.8 1.8
------
Total EBITDA 12.5 12.5 12.5
Adjusted Merger and Acquisition
EBITDA Multiple(2) 8.7x 7.7x 6.7x
BEV $108.3 $95.9 $83.4
Less: Debt(3,4) 58.5 $58.5 58.5
Plus: Net Working Capital(4) 0.4 0.4 0.4
------ ----- -----
Equity Value $50.2 $37.8 $25.3
Shares Outstanding(5) 8.2 8.2 8.2
------ ----- -----
Value Per Share $6.12 $4.61 $3.09
===== ===== =====
Acquisition Value Per Share $3.50 $3.50 $3.50
================================================================================
- ----------------
(1) Pro Forma for FY 1997.
(2) Comparable average discounted 10% since average is based on YTD results
through 3/31/97 and multiple is being applied to pro forma forward CCAI
EBITDA.
(3) Includes all long-term liabilities and short-term debt.
(4) Estimated balance sheet at 12/31/97.
(5) Including shares issuable upon conversion of in-the-money warrants related
to Daiwa only.
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Integrated Health Services, Inc.
Valuation Methodology: Per Bed Valuation Analysis
o A Per Bed Valuation Analysis is a commonly used valuation methodology for
valuing long-term care companies. Often it is a more appropriate
methodology for valuing single or small groups of facilities in specific
markets than for valuing an operating company, which is valued on the basis
of cash flow and earnings. Moreover, a per bed valuation can be skewed by
revenue derived from non-facility operations such as pharmacy or rehab.
o The following analysis is based on discussions with long-term care
companies on per bed valuations placed on rural facilities with high
Medicaid census.
================================================================================
Per Bed Valuation Analysis
(in millions, except bed data)
High Average Low
---- ------- ---
Total CCAI Beds(1)
Owned 1,202 1,202 1,202
Leased 2,137 2,137 2,137
----- ----- -----
Total 3,339 3,339 3,339
BEV per Bed
Owned $40,000 $35,000 $30,000
Leased $18,000 $15,000 $12,000
CCAI BEV
Owned $48.1 $42.1 $36.1
Leased 38.5 32.0 25.6
---- ---- ----
Total 86.6 74.1 61.7
Less: Debt(2,3) 58.5 58.5 58.5
Plus: Working Capital(3) 0.4 0.4 0.4
--- --- ---
Equity Value 28.5 16.0 3.6
Shares Outstanding(4) 8.2 8.2 8.2
--- --- ---
Value Per Share $3.46 $1.95 $0.44
===== ===== =====
Acquisition Value Per Share $3.50 $3.50 $3.50
================================================================================
- ---------------
(1) Excludes 12 facilities held for disposition.
(2) Includes all long-term liability and short-term debt.
(3) Based on estimated balance sheet at 12/31/97.
(4) Includes shares issuable upon exercise of in-the-money warrants related to
Daiwa only.
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<PAGE>
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Integrated Health Services, Inc.
Valuation Methodology: Accretion/(Dilution) Analysis
o The following analysis provides a review of the projected
accretion/(dilution) impact on IHS's projected earnings. The accounting
adjustments are based on IHS's current view of the accounting for the
Transaction inclusive of the sale of the 12 facilities. The analysis
assumes that CCAI experiences a $4.5 million loss on the disposition of the
facilities.
================================================================================
Accretion/(Dilution) Analysis - 1997 Projected
(Assumes $3.50 Per Share)
High Average Low
---- ------- ---
CCAI Projected Pro Forma
Pre-tax Income $3.2 $3.2 $3.2
Discount 0% 20% 30%
-- --- ---
Adj. CCAI Pro Forma Pre-tax Income $3.2 $2.6 $2.2
IHS Projected Pre-tax Income 146.7 146.7 146.7
Synergies 1.8 1.8 1.8
Annual Transaction Cost(1) (3.9) (3.9) (3.9)
----- ----- -----
Pro Forma Pre-tax Income 147.8 147.2 146.8
Pro Forma Taxes 57.6 57.4 57.2
---- ---- ----
Pro Forma Net Income $90.2 $89.8 $89.6
IHS Shares Outstanding 35.0 35.0 35.0
---- ---- ----
Pro Forma IHS EPS $2.58 $2.57 $2.56
===== ===== =====
Current EPS Projection $2.55 $2.55 $2.55
===== ===== =====
Accretion/(Dilution) $0.03 $0.02 $0.01
================================================================================
- -------------
(1) Based on IHS analysis.
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 26
<PAGE>
================================================================================
Integrated Health Services, Inc.
Valuation Methodology: Comparable Merger and Acquisition Analysis (Cont'd)
================================================================================
Accretion/(Dilution) Analysis - 1998 Projected
(Assumes $3.50 Per Share)
High Average Low
---- ------- ---
CCAI Projected Pro Forma
Pre-tax Income $7.7 $7.7 $7.7
Discount 0 20% 30%
- --- ---
Adj. CCAI Pro Forma Pre-tax Income $7.7 $6.2 $5.4
IHS Projected Pre-tax Income 188.4 188.4 188.4
Synergies 1.8 1.8 1.8
Annual Transaction Cost(1) (3.9) (3.9) (3.9)
----- ----- -----
Pro Forma Pre-tax Income 194.0 192.5 191.7
Pro Forma Taxes 76.6 76.0 75.7
---- ---- ----
Pro Forma Net Income $117.4 $116.5 $116.0
IHS Shares Outstanding 38.0 38.0 38.0
---- ---- ----
Pro Forma IHS EPS $3.09 $3.07 $3.05
===== ===== =====
Current EPS Projection $3.00 $3.00 $3.00
===== ===== =====
Accretion/(Dilution) $0.09 $0.07 $0.05
================================================================================
- -------------
(1) Based on IHS analysis.
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 27
<PAGE>
================================================================================
Integrated Health Services, Inc.
CCAI Premium Analysis
================================================================================
One Month Prior One Week Prior
to 6/10/96 to 6/10/96 6/10/96
---------- ---------- -------
CCAI Share Price $1.9375 $3.375 $3.375
IHS Acquisition Offer $3.50 $3.50 $3.50
Premium 80.5% 3.7% 3.7%
================================================================================
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 28
<PAGE>
================================================================================
Integrated Health Services, Inc.
Preliminary Conclusion
o Based on our preliminary evaluation, we believe that the Transaction is
fair to IHS assuming (i) CCAI can divest of the 12 facilities without
incurring a material loss that will signficantly impact the value of its
equity and (ii) a reasonable amount of the synergies identified by IHS can
be realized.
o Since IHS has been managing certain operations for CCAI, we have confidence
in management's projections regarding the synergies. There is greater
uncertainty regarding the divestiture of facilities, and we suggest that
IHS attempt to structure the Transaction to minimize IHS's risk in this
regard.
o Shattuck Hammond will participate in formal due diligence for the
Transaction and will update the Board as requested.
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. 29
<PAGE>
EXHIBIT 1
================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. Page 1
- BASE CASE/No Synergies
(In thousands) VALUATION ANALYSIS 10-Jun-97
================================================================================
DISCOUNTED CASH FLOW
NPV OF ASSETS (1)
Discount Rate
-----------------------------------------
Terminal 14.0% 16.0% 18.0%
Multiple ----- ----- -----
of EBITDA
---------
6.0 x $118,021 $109,370 $101,529
7.0 x $131,464 $121,694 $112,844
8.0 x $144,908 $134,018 $124,158
Plus: Adjusted Working Capital (1,2) $446 $446 $446
Less: Long-Term Labilities
and Short Term Debt(1) (58,527) (58,527) (58,527)
-------- -------- --------
($58,081) ($58,081) ($58,081)
NPV OF EQUITY (1,3)
Discount Rate
-----------------------------------------
Terminal 14.0% 16.0% 18.0%
Multiple ----- ----- -----
of EBITDA
---------
6.0 x $59,939 $51,289 $43,448
7.0 x $73,383 $63,613 $54,763
8.0 x $86,827 $75,937 $66,077
NPV OF EQUITY (1)
Discount Rate
-----------------------------------------
Terminal 14.0% 16.0% 18.0%
Multiple ----- ----- -----
of EBITDA
---------
6.0 x $7.28 $6.23 $5.28
7.0 x $8.91 $7.72 $6.65
8.0 x $10.54 $9.22 $8.02
1) Estimated at 12/31/97.
2) Adjusted for short- term debt and current maturities of long- term debt.
3) Based on 8.2 million shares. Assumes: (i) 7.6 million shares oustanding;
(ii) exclusion of IHS warrants; (iii) all employee options are out of the
money and; (iv) Daiwa warrants equal 1.8 million or .6 million shares
based on the treasury stock method.
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================
Shattuck Hammond Partners Inc. COMMUNINITY CARE OF AMERICA, INC. - BASE CASE/No Synergies Page 2
(In thousands) VALUATION ANALYSIS 10-Jun -97
=========================================================================================================
DISCOUNTED CASH FLOW
Years ended December 31,
-------------------------------------------------------------------
1998 1999 2000 2001 2002
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EBITDA $15,297 $17,576 $20,084 $22,846 $25,885
IHS Synergies, Net of Tax 0 0 0 0 0
Capital Expenditures (2,170) (2,279) (2,392) (2,512) (2,638)
Change in Net Working Capital (1,073) 141 155 170 188
Taxes Payable(1) (4,671) (5,494) (6,403) (7,406) (8,511)
------- ------- ------- ------- -------
FREE CASH FLOW $7,383 $9,943 $11,444 $13,099 $14,924
TERMINAL EBITDA $25,885
</TABLE>
Footnotes:
(1) Adjusted for Investment Income and Interest Expense.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/No Synergies Page 3
(In thousands, except per share data) INCOME STATEMENT
====================================================================================================================================
Years ended December 31,
----------------------------------------------------------------------------------------------------------
Historical (Pro Forma)(1) Projected
----------------------------------------- --------------------------------------------------------------
Est. 3 mos l2mos FY
----------------------------------------- --------------------------------------------------------------
1994 1995 1996 1997 1996 1997 1998 1999 2000 2001 2002
----------------------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Patient Service Revenue NA NA $93,250 $107,475 $0 $107,475 $117,423 $129,166 $142,082 $156,290 $171,919
Other Oper. Revenue NA NA 0 0 0 0 0 0 0 0 0
----------------------------------------- --------------------------------------------------------------
Total Revenue NA NA 93,250 107,475 0 107,475 117,423 129,166 142,082 156,290 171,919
Operating Expense NA NA 77,195 87,187 0 87,187 91,874 101,062 111,168 122,284 134,513
----------------------------------------- --------------------------------------------------------------
Gross Income NA NA 16,055 20,289 0 20,289 25,549 28,104 30,914 34,005 37,406
SG&A NA NA 5,226 2,200 0 2,200 2,507 2,758 3,034 3,337 3,671
----------------------------------------- --------------------------------------------------------------
EBITDAR NA NA 10,829 18,089 0 18,089 23,042 25,346 27,880 30,668 33,735
Lease/Rent Exp. NA NA 6,313 7,430 0 7,430 7,745 7,770 7,796 7,822 7,850
----------------------------------------- --------------------------------------------------------------
EBITDA NA NA 4,516 10,659 0 10,659 15,297 17,576 20,084 22,846 25,885
Depreciation NA NA 2,021 2,323 0 2,323 2,396 2,509 2,626 2,750 2,880
Amortization NA NA 200 608 0 608 608 608 608 608 608
----------------------------------------- --------------------------------------------------------------
EBIT NA NA 2,295 7,728 0 7,728 12,293 14,459 16,850 19,488 22,397
Investment Income NA NA 105 80 0 80 157 210 280 330 583
Revolver Expense NA NA 0 0 0 0 0 0 0 0 0
Interest Expense NA NA (3,692) (4,635) 0 (4,635) (4,814) (4,456) (3,858) (2,937) (2,363)
----------------------------------------- --------------------------------------------------------------
Pretax Income NA NA (1,292) 3,172 0 3,172 7,636 10,213 13,272 16,881 20,617
Income Taxes NA NA (491) 1,205 0 1,205 2,902 3,881 5,043 6,415 7,834
----------------------------------------- --------------------------------------------------------------
Net Inc. Bef. Extra. Item NA NA (801) 1,967 0 1,967 4,734 6,332 8,229 10,466 12,382
Ex. Item, net of tax(2) NA NA 0 0 0 0 0 0 0 0 0
----------------------------------------- --------------------------------------------------------------
Net Income NA NA ($801) $1,967 $0 $1,967 $4,734 $6,332 $8,229 $10,466 $12,382
========================================= ==============================================================
# of Shares Outst.(3) 0.00 0.00 7,385 7,598 0 7,598 7,598 7,598 7,598 7,598 7,598
Earnings per share $0.00 $0.00 ($0.11) $0.26 $0.00 $0.26 $0.62 $0.83 $1.08 $1.38 $1.68
Dividend per share $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Total Dividend (000) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
</TABLE>
SEE ASSUMPTIONS FOR PROJECTIONS PAGES 7-8
1) Estimated pro forma adjustment has been made for facilities, clinics and
management contracts which are assumed to be sold or closed by the end of
1997.
2) Excludes historic extraordinary items. 3) Excludes warrants and options.
<PAGE>
<TABLE>
<CAPTION>
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Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, lNC. - BASE CASE/No Synergies Page 4
MARGINS, INTEREST COVERAGE, RATIO ANALYSIS
=========================================================================================================================
Years ended December 31,
----------------------------------------------------------------------------------------------
Historical Est. Projected
------------------------------------ ------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001 2002
------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARGINS
Gross Income NA NA 17.2% 18.9% 21.8% 21.8% 21.8% 21.8% 21.8%
EBITDAR NA NA 11.6% 16.8% 19.6% 19.6% 19.6% 19.6% 19.6%
EBITDA NA NA 4.8% 9.9% 13.0% 13.6% 14.1% 14.6% 15.1%
EBIT NA NA 2.5% 7.2% 10.5% 11.2% 11.9% 12.5% 13.0%
Pretax Income NA NA -1.4% 3.0% 6.5% 7.9% 9.3% 10.8% 12.0%
Net Income NA NA -0.9% 1.8% 4.0% 4.9% 5.8% 6.7% 7.4%
COVERAGE RATIOS (1)
EBITDAR/(Rent
and Int. Exp.) NA NA 1.08 1.50 1.83 2.07 2.39 2.85 3.30
EBITDA/Int. Exp. NA NA 1.22 2.30 3.18 3.94 5.21 7.78 10.95
EBITDAR/(Rent
and Debt Service.) NA NA NA 1.29 1.38 1.42 1.41 1.44 2.28
EBITDA/Debt Service NA NA NA 1.60 1.72 1.75 1.68 1.69 3.72
RATIO ANALYSIS
Return on Equity NA NA -5.0% 10.9% 20.9% 21.8% 22.1% 21.9% 21.1%
Return on Assets NA NA -0.8% 2.0% 4.9% 6.4% 8.2% 10.2% 11.3%
Return on Inv. Cap.(2) NA NA -1.0% 2.6% 6.1% 8.1% 10.6% 13.5% 14.9%
L-T Debt/Total Cap.(3) NA NA 81.2% 81.2% 76.1% 70.3% 62.7% 53.3% 46.4%
Total Debt/Total Capital NA NA 81.4% 81.4% 76.4% 70.6% 63.0% 53.5% 46.6%
Sales/Inventory NA NA 58.5 67.4 72.4 65.8 65.8 NA NA
Sales/Working Capital NA NA (14.8) (43.3) (83.4) (75.8) (75.8) (75.8) (75.8)
Sales/Net Fixed Assets NA NA 1.6 1.9 2.0 2.2 2.5 2.7 3.0
Sales/Gross Fixed Assets NA NA 1.4 1.6 1.7 1.8 2.0 2.1 2.2
Sales/Assets NA NA 1.0 1.1 1.2 1.3 1.4 1.5 1.5
</TABLE>
Footnotes:
(1) Interest Expense includes Revolver interest.
(2) Invested Capital consists of Stockholders' Equity and Long-Term Debt.
(3) Includes Other liabilities.
(4) Net of Cash and Revolver.
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/No Synergies Page 5
(In thousands) BALANCE SHEET
==========================================================================================================================
Years ended December 31,
--------------------------------------------------------------------------------------------
Historical Est. Projected
---------------------------- Opening --------------------------------------------------
1995 1996 1997 Balance 1998 1999 2000 2001 2002
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSET
Cash and Equivalents NA $ 1,709 $ 2,928 $ 2,928 $ 3,343 $ 5,043 $ 6,159 $ 7,045 $ 16,263
Receivables, Net NA 16,407 14,900 14,900 14,477 15,925 17,517 19,269 21,196
Inventory NA 1,761 1,595 1,595 1,622 1,784 1,962 2,158 2,374
Other Current Assets NA 1,095 992 992 1,008 1,109 1,220 1,342 1,476
--------------------------------------------------------------------------------------------
Total Current Assets NA 20,972 20,415 20,415 20,450 23,861 26,858 29,814 41,309
Gross Fixed Assets NA 64,145 65,980 65,980 68,150 70,429 72,821 75,333 77,971
Accumulated Depreciation NA 5,721 8,044 8,044 10,440 12,949 15,575 18,325 21,205
--------------------------------------------------------------------------------------------
Net Fixed Assets NA 58,424 57,936 57,936 57,710 57,480 57,246 57,008 56,766
Deposits NA 6,637 2,637 2,637 2,637 2,637 2,637 2,637 2,637
Note Receivable NA 0 0 0 0 0 0 0 0
Other Assets NA 1,354 1,354 1,354 1,354 1,354 1,354 1,354 1,354
Goodwill & Intangibles NA 14,732 14,124 14,124 13,516 12,908 12,300 11,692 11,084
--------------------------------------------------------------------------------------------
Total Assets NA 102,119 96,466 96,466 95,667 98,240 100,395 102,505 113,150
LIABILITIES:
Revolver/Short Term Debt NA 0 0 0 0 0 0 0 0
Accounts Payable NA 15,595 12,899 12,899 11,327 12,460 13,706 15,076 16,584
Accrued Expenses NA 7,807 7,070 7,070 7,189 7,908 8,698 9,568 10,525
Put Option NA 2,181 0 0 0 0 0 0 0
Other Liabilities NA 0 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------
Total Current Liabilities NA 25,583 19,969 19,969 18,516 20,367 22,404 24,644 27,109
Junior Subordinated NA 0 0 0 0 0 0 0 0
Existing NA 60,371 58,365 58,365 54,285 48,675 40,565 29,968 25,366
Deferred Taxes NA 162 162 162 162 162 162 162 162
Other NA 0 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------
Total Liabilities NA 86,116 78,496 78,496 72,963 69,204 63,131 54,774 52,637
Shareholders' Equity
Surplus Note/New Equity, Net NA 0 0 0 0 0 0 0 0
Paid-in- Capital NA 36,484 36,484 36,484 36,484 36,484 36,484 36,484 36,484
Retained Earnings NA (20,481) (18,514) (18,514) (13,780) (7,448) 780 11,247 24,029
Total Shareholders' Equity NA 16,003 17,970 17,970 22,704 29,036 37,264 47,731 60,513
--------------------------------------------------------------------------------------------
Liabilities & Equity NA $102,119 $96,466 $96,466 $95,667 $98,240 $100,395 $102,505 $113,150
===========================================================================================
NA 0.0 0.0 0.0 0.0 (0.0) 0.0 0.0 0.0
</TABLE>
SEE ASSUMPTIONS FOR PROJECTIONS PAGES 7-8.
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/No Synergies Page 6
(In thousands) CASH FLOW STATEMENT
================================================================================================================
Years ended December 31,
Opening --------------------------------------------------------------
Balance 1998 1999 2000 2001 2002 Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SOURCES:
Net Income $ 4,734 $ 6,332 $ 8,229 $ 10,466 $ 12,782 $ 42,543
Depreciation 2,396 2,509 2,626 2,750 2,880 13,161
Goodwill Amortization 608 608 608 608 608 3,040
Deferred Charge Amortization 0 0 0 0 0 0
Other 0 0 0 0 0 0
Deferred Taxes 0 0 0 0 0 0
--------------------------------------------------------------
Sources from Operations 7,738 9,449 11,463 13,824 16,270 58,744
Other Liabilities 0 0 0 0 0 0
Sales of Assets 0 0 0 0 0 0
Revolver Increase/(Repayment) 0 0 0 0 0 0
Common Equity, Net/Surplus Note, Net 0 0 0 0 0 0
--------------------------------------------------------------
Total Sources of Funds 7,738 9,449 11,463 13,824 16,270 58,744
USES:
Net Ch. in Curr. Ass. and Liab. Incr./(Decr.)(1) 1,073 (141) (155) (170) (188) 419
Capital Expenditures 2,170 2,279 2,392 2,512 2,638 11,991
Debt Repayment/Dividends 4,080 5,610 8,110 10,597 4,602 32,999
Other Assets - Increase/(Decrease) 0 0 0 0 0 0
--------------------------------------------------------------
Total Uses of Funds $ 7,323 $ 7,748 $ 10,347 $ 12,939 $ 7,052 $ 45,409
==============================================================
Increase (Decrease) in Cash $ 415 $ 1,701 $ 1,116 $ 886 $ 9,218 $ 13,335
==============================================================
Cash Balance $ 2,928 $ 3,343 $ 5,043 $ 6,159 $ 7,045 $ 16,263 $ 16,263
==============================================================
</TABLE>
Footnotes: SEE ASSUMPTIONS FOR PROJECTIONS PAGES 7-8.
(1) Net of Cash and Revolver.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/No Synergies Page 7
(In thousands) ASSUMPTIONS FOR PROJECTIONS
====================================================================================================================================
Years ended December 31,
-----------------------------------------------------------------------------
Historical(1) Est. Projected
--------------------------- ----------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Projected Patient Service Revenue Growth NA NA 15.3% 9.3% 10.0% 10.0% 10.0% 10.0%
2. Projected Other Operating Revenue Growth NA NA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
3. Operating Exp. as a Per. of Revenue will be NA 82.8% 81.1% 80.0% 80.0% 80.0% 80.0% 80.0%
4. SG&A as a Percent of Operating Revenue will be NA 5.6% 2.0% 2.1% 2.1% 2.1% 2.1% 2.1%
5. SG&A Will Increase By NA NA -57.9% 14.0% 10.0% 10.0% 10.0% 10.0%
6. Lease/Rent Expense Will Increase By NA NA 17.7% 4.2% 0.3% 0.3% 0.3% 0.4%
7. Cap. Exp. as a Percent of Revenue will be NA 3.1% 1.7% 1.8% 1.8% 1.7% 1.6% 1.5%
8. Capital Expenditures are Projected to be NA $2,859 $1,835 $2,170 $2,279 $2,392 $2,512 $2,638
9. Depreciation as a percent of Revenue will be NA 2.2% 2.2% 2.0% 1.9% 1.8% 1.8% 1.7%
10. Receivables as Days of Revenue will be NA 64.2 50.6 45.0 45.0 45.0 45.0 45.0
11. Supplies as a % of Revenue NA 1.9% 1.5% 1.4% 1.4% 1.4% 1.4% 1.4%
12. Other Current Assets as a Percent of
Revenue will be NA 1.2% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9%
13. Accounts Payable as Days of Operating Exp. will be NA 73.7 54.0 45.0 45.0 45.0 45.0 45.0
14. Accrued Expenses as a precent of Rev. will be NA 8.4% 6.6% 6.1% 6.1% 6.1% 6.1% 6.1%
15. Other Current Liabilities as a Percent
of Revenue will be NA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
16. The Effective Tax Rate will be 38.0%
17. Investments will earn 5.0%
</TABLE>
1) Estimated pro forma adjustments have been made for facilities, clinics and
management contracts which are assumed to be sold or closed by the end of
1997.
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/No Synergies Page 8
FACILITY ASSUMPTIONS 10-Jun-97
==============================================================================================================================
Years ended December 31,
------------------------------------------------------------------------------------------------
Historical Est. Projected
----------------------------------------- -----------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Skilled Nursing Facilities:
Patient Days NA NA 996,778 1,081,927 1,081,927 1,081,927 1,081,927 1,081,927 1,081,927
NA NA NA 8.5% 0.0% 0.0% 0.0% 0.0% 0.0%
Average Daily Revenue $76.63 $84.42 $92.17 $98.00 $107.02 $117.80 $129.66 $142.71 $157.07
NA 10.2% 9.2% 6.3% 9.2% 10.1% 10.1% 10.1% 10.1%
Revenue NA NA 91,869 106,029 115,790 127,451 140,281 154,399 169,934
NA NA NA 15.4% 9.2% 10.1% 10.1% 10.1% 10.1%
Average Daily Operating Expense NA NA $76.27 $79.50 $83.70 $92.13 $101.41 $111.62 $122.85
NA NA NA 4.2% 5.3% 10.1% 10.1% 10.1% 10.1%
Operating Expense NA NA $76,025 $86,013 $90,560 $99,682 $109,719 $120,763 $132,916
NA NA NA 13.1% 5.3% 10.1% 10.1% 10.1% 10.1%
Head Trauma Facility:
Head Trauma Revenue NA NA $1,381 $1,446 $1,633 $1,715 $1,801 $1,891 $1,985
NA NA NA 4.7% 12.9% 5.0% 5.0% 5.0% 5.0%
Head Trauma Operating Expense NA NA $1,170 $1,173 $1,314 $1,380 $1,449 $1,521 $1,597
NA NA NA 0.3% 12.0% 5.0% 5.0% 5.0% 5.0%
Total Revenue NA NA $93,250 $107,475 $117,423 $129,166 $142,082 $156,290 $171,919
Total Operating Expense NA NA $77,195 $87,187 $91,874 $101,062 $111,168 $122,284 $134,513
</TABLE>
<PAGE>
EXHIBIT 2
================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. Page 1
(In thousands) - BASE CASE/Synergies
VALUATION ANALYSIS 10-Jun-97
================================================================================
DISCOUNTED CASH FLOW
NPV OF ASSETS(1)
Discount Rate
-------------------------------------
Terminal 14.0% 16.0% 18.0%
Multiple ----- ----- -----
of EBITDA
---------
6.0 x $128,083 $118,736 $110,263
7.0 x $142,550 $131,998 $122,439
8.0 x $157,017 $145,260 $134,614
Plus: Adjusted Working Capital(1,2) $446 $446 $446
Less: Long-Term Liabilities
and Short Term Debt(1) (58,527) (58,527) (58,527)
-------- -------- --------
($58,081) ($58,081) ($58,081)
NPV OF EQUITY(1,3)
Discount Rate
-------------------------------------
Terminal 14.0% 16.0% 18.0%
Multiple ----- ----- -----
of EBITDA
---------
6.0 x $70,002 $60,655 $52,182
7.0 x $84,469 $73,917 $64,357
8.0 x $98,935 $87,179 $76,533
NPV OF EQUITY(1)
Discount Rate
-------------------------------------
Terminal 14.0% 16.0% 18.0%
Multiple ----- ----- -----
of EBITDA
---------
6.0 x $8.50 $7.36 $6.34
7.0 x $10.26 $8.97 $7.81
8.0 x $12.01 $10.58 $9.29
1) Estimated at 12/31/97.
2) Adjusted for short-term debt and current maturities of long-term debt.
3) Based on 8.2 million shares. Assumes: (i) 7.6 million shares outstanding;
(ii) exclusion of IHS warrants; (iii) all employee options are out of the money
and; (iv) Daiwa warrants equal 1.8 million or .6 million shares based on the
treasury stock method.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. Page 2
(In thousands) - BASE CASE/Synergies
VALUATION ANALYSIS 10-Jun-97
====================================================================================
DISCOUNTED CASH FLOW
Years ended December 31,
----------------------------------------------------
1998 1999 2000 2001 2002
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
EBITDA $ 15,297 $ 17,576 $ 20,084 $ 22,846 $ 25,885
IHS Synergies, Net of Tax 1,085 1,118 1,151 1,186 1,221
Capital Expenditures (2,170) (2,279) (2,392) (2,512) (2,638)
Change in Net Working Capital (1,073) 141 155 170 188
Taxes Payable (1) (4,671) (5,494) (6,403) (7,406) (8,511)
-------- -------- -------- -------- --------
FREE CASH FLOW $ 8,468 $ 11,061 $ 12,595 $ 14,285 $ 16,145
TERMINAL EBITDA $ 27,854
</TABLE>
Footnotes:
(1) Adjusted for Investment Income and Interest Expense.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/Synergies Page 3
(In thousands, except per share data) INCOME STATEMENT
====================================================================================================================================
Years ended December 31,
---------------------------------------------------------------------------------------------------------
Historical (Pro Forma)(1) Projected
----------------------------------------- ------------------------------------------------------------
Est. 3 mos 12 mos FY
----------------------------------------- ------------------------------------------------------------
1994 1995 1996 1997 1996 1997 1998 1999 2000 2001 2002
----------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Patient Service Revenue NA NA $93,250 $107,475 $0 $107,475 $117,423 $129,166 $142,082 $156,290 $171,919
Other Oper. Revenue NA NA 0 0 0 0 0 0 0 0 0
----------------------------------------- ------------------------------------------------------------
Total Revenue NA NA 93,250 107,475 0 107,475 117,423 129,166 142,082 156,290 171,919
Operating Expense NA NA 77,195 87,187 0 87,187 91,874 101,062 111,168 122,284 134,513
----------------------------------------- ------------------------------------------------------------
Gross Income NA NA 16,055 20,289 0 20,289 25,549 28,104 30,914 34,005 37,406
SG&A NA NA 5,226 2,200 0 2,200 2,507 2,758 3,034 3,337 3,671
----------------------------------------- ------------------------------------------------------------
EBITDAR NA NA 10,829 18,089 0 18,089 23,042 25,346 27,880 30,668 33,735
Lease/Rent Exp NA NA 6,313 7,430 0 7,430 7,745 7,770 7,796 7,822 7,850
----------------------------------------- ------------------------------------------------------------
EBITDA NA NA 4,516 10,659 0 10,659 15,297 17,576 20,084 22,846 25,885
Depreciation NA NA 2,021 2,323 0 2,323 2,396 2,509 2,626 2,750 2,880
Amortization NA NA 200 608 0 608 608 608 608 608 608
----------------------------------------- ------------------------------------------------------------
EBIT NA NA 2,295 7,728 0 7,728 12,293 14A59 16,850 19,488 22,397
Investment Income NA NA 105 80 0 80 157 210 280 330 583
Revolver Expense NA NA 0 0 0 0 0 0 0 0 0
Interest Expense NA NA (3,692) (4,635) 0 (4,635) (4,814) (4,456) (3,858) (2,937) (2,363)
----------------------------------------- ------------------------------------------------------------
Pretax Income NA NA (1,292) 3,172 0 3,172 7,636 10,213 13,272 16,881 20,617
Income Taxes NA NA (491) 1,205 0 1,205 2,902 3,881 5,043 6,415 7,834
----------------------------------------- ------------------------------------------------------------
Net Inc. Bef. Extra. Item NA NA (801) 1,967 0 1,967 4,734 6,332 8,229 10,466 12,782
Ex. Item, net of tax(2) NA NA 0 0 0 0 0 0 0 0 0
----------------------------------------- ------------------------------------------------------------
Net Income NA NA ($801) $1,967 $0 $1,967 $4,734 $6,332 $8,229 $10,466 $12,782
========================================= ============================================================
# of Shares Outst.(3) 0.00 0.00 7,385 7,598 0 7,598 7,598 7,598 7,598 7,598 7,598
Earnings per share $0.00 $0.00 ($0.11) $0.26 $0.00 $0.26 $0.62 $0.83 $1.08 $1.38 $1.68
Dividend per share $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Total Dividend (000) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
</TABLE>
SEE ASSUMPTIONS FOR PROJECTIONS PAGES 7-8.
1) Estimated pro forma adjustment has been made for facilities, clinics and
management contracts which are assumed to be sold or closed by the end of 1997.
2) Excludes historic extraordinary items. 3) Excludes warrants and options.
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/Synergies Page 4
MARGINS, INTEREST COVERAGE, RATIO ANALYSIS
======================================================================================================================
Years ended December 31,
--------------------------------------------------------------------------------------------
Historical Est. Projected
----------------------------------- ------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001 2002
----------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARGINS
Gross Income NA NA 17.2% 18.9% 21.8% 21.8% 21.8% 21.8% 21.8%
EBITDAR NA NA 11.6% 16.8% 19.6% 19.6% 19.6% 19.6% 19.6%
EBITDA NA NA 4.8% 9.9% 13.0% 13.6% 14.1% 14.6% 15.1%
EBIT NA NA 2.5% 7.2% 10.5% 11.2% 11.9% 12.5% 13.0%
Pretax Income NA NA -1.4% 3.0% 6.5% 7.9% 9.3% 10.8% 12.0%
Net Income NA NA -0.9% 1.8% 4.0% 4.9% 5.8% 6.7% 7.4%
COVERAGE RATIOS(1)
EBITDAR/(Rent
and Int. Exp.) NA NA 1.08 1.50 1.83 2.07 2.39 2.85 3.30
EBITDA/Int. Exp. NA NA 1.22 2.30 3.18 3.94 5.21 7.78 10.95
EBITDAR/(Rent
and Debt Service.) NA NA NA 1.29 1.38 1.42 1.41 1.44 2.28
EBITDA/Debt Service NA NA NA 1.60 1.72 1.75 1.68 1.69 3.72
RATIO ANALYSIS
Return on Equity NA NA -5.0% 10.9% 20.9% 21.8% 22.1% 21.9% 21.1%
Return on Assets NA NA -0.8% 2.0% 4.9% 6.4% 8.2% 10.2% 11.3%
Return on Inv. Cap.(2) NA NA -1.0% 2.6% 6.1% 8.1% 10.6% 13.5% 14.9%
L-T Debt/Total Cap.(3) NA NA 81.2% 81.2% 76.1% 70.3% 62.7% 53.3% 46.4%
Total Debt/Total Capital NA NA 81.4% 81.4% 76.4% 70.6% 63.0% 53.5% 46.6%
Sales/Inventory NA NA 58.5 67.4 72.4 65.8 65.8 NA NA
Sales/Working Capital NA NA (14.8) (43.3) (83.4) (75.8) (75.8) (75.8) (75.8)
Sales/Net Fixed Assets NA NA 1.6 1.9 2.0 2.2 2.5 2.7 3.0
Sales/Gross Fixed Assets NA NA 1.4 1.6 1.7 1.8 2.0 2.1 2.2
Sales/Assets NA NA 1.0 1.1 1.2 1.3 1.4 1.5 1.5
</TABLE>
Footnotes:
(1) Interest Expense includes Revolver interest.
(2) Invested Capital consists of Stockholders' Equity and Long-Term Debt.
(3) Includes Other Liabilities.
(4) Net of Cash and Revolver.
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/Synergies Page 5
(In thousand) BALANCE SHEET
====================================================================================================================================
Years ended December 31,
Historical Est. Opening Projected
---------------------------- -------------------------------------------------------------
1995 1996 1997 Balance 1998 1999 2000 2001 2002
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and Equivalents NA $ 1,709 $ 2,928 $ 2,928 $ 3,343 $ 5,043 $ 6,159 $ 7,045 $ 16,263
Receivables, Net NA 16,407 14,900 14,900 14,477 15,925 17,517 19,269 21,196
Inventory NA 1,761 1,595 1,595 1,622 1,784 1,962 2,158 2,374
Other Current Assets NA 1,095 992 992 1,008 1,109 1,220 1,342 1,476
-----------------------------------------------------------------------------------------------------
Total Current Assets NA 20,972 20,415 20,415 20,450 23,861 26,858 29,814 41,309
Gross Fixed Assets NA 64,145 65,980 65,980 68,150 70,429 72,821 75,333 77,971
Accumulated Depreciation NA 5,721 8,044 8,044 10,440 12,949 15,575 18,325 21,205
-----------------------------------------------------------------------------------------------------
Net Fixed Assets NA 58,424 57,936 57,936 57,710 57,480 57,246 57,008 56,766
Deposits NA 6,637 2,637 2,637 2,637 2,637 2,637 2,637 2,637
Note Receivable NA 0 0 0 0 0 0 0 0
Other Assets NA 1,354 1,354 1,354 1,354 1,354 1,354 1,354 1,354
Goodwill & Intangibles NA 14,732 14,124 14,124 13,516 12,908 12,300 11,692 11,084
-----------------------------------------------------------------------------------------------------
Total Assets NA 102,119 96,466 96,466 95,667 98,240 100,395 102,505 113,150
LIABILITIES:
Revolver/Short Term Debt NA 0 0 0 0 0 0 0 0
Accounts Payable NA 15,595 12,899 12,899 11,327 12,460 13,706 15,076 16,584
Accrued Expenses NA 7,807 7,070 7,070 7,189 7,908 8,698 9,568 10,525
Put Option NA 2,181 0 0 0 0 0 0 0
Other Liabilities NA 0 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------------
Total Current Liabilities NA 25,583 19,969 19,969 18,516 20,367 22,404 24,644 27,109
Junior Subordinated NA 0 0 0 0 0 0 0 0
Existing NA 60,371 58,365 58,365 54,285 48,675 40,565 29,968 25,366
Deferred Taxes NA 162 162 162 162 162 162 162 162
Other NA 0 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------------
Total Liabilities NA 86,116 78,496 78,496 72,963 69,204 63,131 54,774 52,637
Shareholders' Equity
Surplus Note/New Equity, Net NA 0 0 0 0 0 0 0 0
Paid-in-Capital NA 36,484 36,484 36,484 36,484 36,484 36,484 36,484 36,484
Retained Earnings NA (20,481) (18,514) (18,514) (13,780) (7,448) 780 11,247 24,029
Total Shareholders' Equity NA 16,003 17,970 17,970 22,704 29,036 37,264 47,731 60,513
-----------------------------------------------------------------------------------------------------
Liabilities &Equity NA $102,119 $ 96,466 $ 96,466 $ 95,667 $98,240 $100,395 $102,505 $113,150
=====================================================================================================
NA 0.0 0.0 0.0 0.0 (0.0) (0.0) 0.0 0.0
</TABLE>
SEE ASSUMPTIONS FOR PROJECTIONS PAGES 7-8.
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/Synergies Page 6
(In thousands) CASH FLOW STATEMENT
==================================================================================================================================
Years ended December 31,
Opening -----------------------------------------------------------------------
Balance 1998 1999 2000 2001 2002 Total
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SOURCES
Net Income $4,734 $ 6,332 $ 8,229 $ 10,466 $ 12,782 $42,543
Depreciation 2,396 2,509 2,626 2,750 2,880 13,161
Goodwill Amortization 608 608 608 608 608 3,040
Deferred Charge Amortization 0 0 0 0 0 0
Other 0 0 0 0 0 0
Deferred Taxes 0 0 0 0 0 0
-----------------------------------------------------------------------
Sources from Operations 7,738 9,449 11,463 13,824 16,270 58,744
Other Liabilities 0 0 0 0 0 0
Sales of Assets 0 0 0 0 0 0
Revolver Increase/(Repayment) 0 0 0 0 0 0
Common Equity, Net/Surplus Note, Net 0 0 0 0 0 0
-----------------------------------------------------------------------
Total Sources of Funds 7,738 9,449 11,463 13,824 16,270 58,744
USES:
Net Ch. in Curr. Ass. and Liab. Incr./(Decr.)(1) 1,073 (141) (155) (170) (188) 419
Capital Expenditures 2,170 2,279 2,392 2,512 2,638 11,991
Debt Repayment/Dividends 4,080 5,610 8,110 10,597 4,602 32,999
Other Assets - Increasd(Decrease) 0 0 0 0 0 0
-----------------------------------------------------------------------
Total Uses of Funds $7,323 $ 7,748 $ 10,347 $ 12,939 $ 7,052 $45,409
=======================================================================
Increase (Decrease) in Cash $ 415 $ 1,701 $ 1,116 $ 886 $ 9,218 $13,335
=======================================================================
Cash Balance $2,928 $3,343 $ 5,043 $ 6,159 $ 7,045 $ 16,263 $16,263
=======================================================================
</TABLE>
Footnotes: SEE ASSUMPTIONS FOR PROJECTIONS PAGES 7-8.
(1) Net of Cash and Revolver
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/Synergies Page 7
(In thousands) ASSUMPTIONS FOR PROJECTIONS
====================================================================================================================================
Years ended December 31,
-----------------------------------------------------------------------------
Historical(1) Est. Projected
--------------------------- ----------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Projected Patient Service Revenue Growth NA NA 15.3% 9.3% 10.0% 10.0% 10.0% 10.0%
2. Projected Other Operating Revenue Growth NA NA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
3. Operating Exp. as a Per. of Revenue will be NA 82.8% 81.1% 80.0% 80.0% 80.0% 80.0% 80.0%
4. SG&A as a Percent of Operating Revenue will be NA 5.6% 2.0% 2.1% 2.1% 2.1% 2.1% 2.1%
5. SG&A Will Increase By NA NA -57.9% 14.0% 10.0% 10.0% 10.0% 10.0%
6. Lease/Rent Expense Will Increase By NA NA 17.7% 4.2% 0.3% 0.3% 0.3% 0.4%
7. Cap. Exp. as a Percent of Revenue will be NA 3.1% 1.7% 1.8% 1.8% 1.7% 1.6% 1.5%
8. Capital Expenditures are Projected to be NA $2,859 $1,835 $2,170 $2,279 $2,392 $2,512 $2,638
9. Depreciation as a percent of Revenue will be NA 2.2% 2.2% 2.0% 1.9% 1.8% 1.8% 1.7%
10. Receivables as Days of Revenue will be NA 64.2 50.6 45.0 45.0 45.0 45.0 45.0
11. Supplies as a % of Revenue NA 1.9% 1.5% 1.4% 1.4% 1.4% 1.4% 1.4%
12. Other Current Assets as a Percent of
Revenue will be NA 1.2% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9%
13. Accounts Payable as Days of Operating Exp. will be NA 73.7 54.0 45.0 45.0 45.0 45.0 45.0
14. Accrued Expenses as a precent of Rev. will be NA 8.4% 6.6% 6.1% 6.1% 6.1% 6.1% 6.1%
15. Other Current Liabilities as a Percent
of Revenue will be NA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
16. The Effective Tax Rate will be 38.0%
17. Investments will earn 5.0%
</TABLE>
1) Estimated pro forma adjustments have been made for facilities, clinics and
management contracts which are assumed to be sold or closed by the end of 1997.
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================================
Shattuck Hammond Partners Inc. COMMUNITY CARE OF AMERICA, INC. - BASE CASE/Synergies Page 8
FACILITY ASSUMPTIONS 10-Jun-97
==============================================================================================================================
Years ended December 31,
------------------------------------------------------------------------------------------------
Historical Est. Projected
----------------------------------------- -----------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Skilled Nursing Facilities:
Patient Days NA NA 996,778 1,081,927 1,081,927 1,081,927 1,081,927 1,081,927 1,081,927
NA NA NA 8.5% 0.0% 0.0% 0.0% 0.0% 0.0%
Average Daily Revenue $76.63 $84.42 $92.17 $98.00 $107.02 $117.80 $129.66 $142.71 $157.07
NA 10.2% 9.2% 6.3% 9.2% 10.1% 10.1% 10.1% 10.1%
Revenue NA NA 91,869 106,029 115,790 127,451 140,281 154,399 169,934
NA NA NA 15.4% 9.2% 10.1% 10.1% 10.1% 10.1%
Average Daily Operating Expense NA NA $76.27 $79.50 $83.70 $92.13 $101.41 $111.62 $122.85
NA NA NA 4.2% 5.3% 10.1% 10.1% 10.1% 10.1%
Operating Expense NA NA $76,025 $86,013 $90,560 $99,682 $109,719 $120,763 $132,916
NA NA NA 13.1% 5.3% 10.1% 10.1% 10.1% 10.1%
Head Trauma Facility:
Head Trauma Revenue NA NA $1,381 $1,446 $1,633 $1,715 $1,801 $1,891 $1,985
NA NA NA 4.7% 12.9% 5.0% 5.0% 5.0% 5.0%
Head Trauma Operating Expense NA NA $1,170 $1,173 $1,314 $1,380 $1,449 $1,521 $1,597
NA NA NA 0.3% 12.0% 5.0% 5.0% 5.0% 5.0%
Total Revenue NA NA $93,250 $107,475 $117,423 $129,166 $142,082 $156,290 $171,919
Total Operating Expense NA NA $77,195 $87,187 $91,874 $101,062 $111,168 $122,284 $134,513
</TABLE>
<PAGE>
EXHIBIT 3
- --------------------------------------------------------------------------------
Selected Long Term Care Companies
<TABLE>
<CAPTION>
Integrated
Health Community Beverly
($ in millions, except per share amounts) Services Care Advocat Enterprises Multicare
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ticker/Exchange IHS/NYSE CCAI/NMS AVC/NYSE BEV/NYSE MUL/NYSE
Latest Fiscal Year Ended 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
Latest Twelve Months (LTM) Ended 3/31/97 12/31/97 E 3/31/97 3/31/97 3/31/97
Price per Share - June 6, 1997 $36.00 $3.38 $10.38 $15.00 $24.63
Market Value of Common Equity $895.8 $25.6 $55.2 $1,485.6 $758.4
Book Value of Preferred Stock 0.0 0.0 0.0 0.0 0.0
Total Debt (incl current portion) 1,096.7 58.4 23.7 1,156.2 417.4
Other Long Term Liabilities 64.0 0.2 4.3 187.3 42.6
Less: Working Capital 99.6 0.4 14.7 445.0 45.7
--------------------------------------------------------------------------
Total Value $1,956.8 $84.7 $68.5 $2,384.1 $1,172.7
==========================================================================
- -------------------------------------------------------------------------------------------------------------------------
Valuation Multiples Based on LTM Results
Total Value/Revenues 1.2 x 0.8 x 0.4 x 0.7 x 2.0 x
Adjusted Value/EBITDAR 11.9 13.7 16.0 10.7 12.6
Total Value/EBITDA 8.7 7.9 5.7 7.5 11.4
Total Value/EBIT 11.1 10.8 7.1 11.3 15.1
Total Value/Total Assets 1.0 0.9 1.0 0.9 1.5
Total Value/Bed $126,604 $18,340 $6,912 $33,049 $74,822
Price/Earnings Latest Twelve Months 16.9 x 13.5 x 10.8 x 26.2 x 23.6 x
Price/Earnings Projected Year 1 14.0 5.6 9.7 17.0 20.7
Price/Earnings Projected Year 2 12.0 4.2 8.6 15.0 17.7
MV Equity/Cash Flow from Operations 8.8 5.4 7.3 9.0 13.4
MV Equity/Book Value 1.6 1.5 1.9 1.7 3.4
- -------------------------------------------------------------------------------------------------------------------------
Operating Results for LTM (a)
Net Revenues $1,568.4 $107.5 $170.0 $3,272.8 $581.0
EBITDAR (b) 231.0 10.7 12.4 317.7 103.9
EBITDA (b) 224.6 10.7 12.1 317.7 102.4
EBIT (b) 176.2 7.7 9.6 210.2 77.9
Net Income 53.0 2.0 5.1 56.8 32.1
Cash Flow from Operations (b) 101.5 4.9 7.5 164.3 56.6
Margins for Latest Reporting Period
EBITDAR Margin 14.7 9.9 7.3 9.7 17.9
EBITDA Margin 14.3 9.9 7.1 9.7 17.6
EBIT Margin 11.2 7.2 5.7 6.4 13.4
Net Income Margin 3.4 1.8 3.0 1.7 5.5
Balance Sheet Data
Current Assets and Invested Funds $422.3 $20.4 $29.5 $802.6 $133.4
Current Liabilities, excl. current $322.6 $20.0 $14.8 $357.6 $87.7
maturities
Total Assets $2,058.1 $96.5 $71.5 $2,582.4 $774.7
Common Equity 574.8 18.0 28.6 881.3 225.5
Common Shares Outstanding (MM) 24.9 7.6 5.3 99.0 30.8
Share Price Range for LTM
High $36.625 $12.500 $10.375 $16.125 $25.875
Low $20.250 $1.375 $5.875 $9.250 $12.250
Current Price as % Below High 1.7 % 72.0 % 0.0 % 7.0 % 4.8 %
Current Price as % Above Low 77.8 154.5 76.6 62.2 101.0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Regency Sun
Health Healthcare
($ in millions, except per share amounts) Services Group
------------- ------------
Ticker/Exchange RHS/NYSE SHG/NYSE
Latest Fiscal Year Ended 12/31/96 12/31/96
Latest Twelve Months (LTM) Ended 3/31/97 3/31/97
Price per Share - June 6, 1997 $13.13 $17.00
Market Value of Common Equity $208.3 $835.3
Book Value of Preferred Stock 0.0 0.0
Total Debt (incl current portion) 237.9 789.4
Other Long Term Liabilities 17.7 26.5
Less: Working Capital 88.2 261.2
-----------------------------
Total Value $375.8 $1,390.0
=============================
- -----------------------------------------------------------------------------
Valuation Multiples Based on LTM Results
Total Value/Revenues 0.6 x 1.0 x
Adjusted Value/EBITDAR 10.6 15.1
Total Value/EBITDA 6.4 9.8
Total Value/EBIT 8.8 13.5
Total Value/Total Assets 0.9 0.9
Total Value/Bed $33,503 $61,124
Price/Earnings Latest Twelve Months 30.6 x 37.8 x
Price/Earnings Projected Year 1 14.4 11.7
Price/Earnings Projected Year 2 12.5 10.4
MV Equity/Cash Flow from Operations 8.9 13.7
MV Equity/Book Value 2.5 1.3
- -----------------------------------------------------------------------------
Operating Results for LTM (a)
Net Revenues $588.5 $1,394.6
EBITDAR (b) 61.9 142.0
EBITDA (b) 59.1 142.1
EBIT (b) 42.5 103.1
Net Income 6.8 22.1
Cash Flow from Operations (b) 23.4 61.1
Margins for Latest Reporting Period
EBITDAR Margin 10.5 10.2
EBITDA Margin 10.0 10.2
EBIT Margin 7.2 7.4
Net Income Margin 1.2 1.6
Balance Sheet Data
Current Assets and Invested Funds $162.9 $394.4
Current Liabilities, excl. current $74.7 $133.2
maturities
Total Assets $413.3 $1,537.1
Common Equity 83.0 653.7
Common Shares Outstanding (MM) 15.9 49.1
Share Price Range for LTM
High $13.250 $17.500
Low $9.500 $11.500
Current Price as % Below High 0.9 % 2.9 %
Current Price as % Above Low 38.2 47.8
- ----------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC.
<PAGE>
- --------------------------------------------------------------------------------
Selected Long Term Care Companies
<TABLE>
<CAPTION>
Integrated
Health Community Beverly
Services Care Advocat Enterprises Multicare
------------ -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Performance Variables for Period Ending 12/31/96 12/31/97 E 12/31/96 12/31/96 12/31/96
- ---------------------------------------
3 Year Growth Rate
Net Revenues 41.9 % NA 27.0 % 4.9 % 42.4 %
EBITDA 38.3 NA 11.5 10.2 37.4
EBIT 42.3 NA 10.7 10.9 33.1
Net Income 13.8 NA 11.3 (17.7) 29.9
3 Year EBITDA Margins
Latest FY 14.1 % 9.9 % 6.7 % 9.4 % 17.6 %
Latest FY-1 14.4 4.8 6.4 8.3 18.5
Latest FY-2 14.9 NA 8.7 8.5 18.9
Beds in Operation for Period Ending 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
- -----------------------------------
Nursing Facility Beds 15,456 4,450 7,399 71,245 15,673 (1)
Assisted Living Beds 0 115 2,509 892 0
Other beds 0 0 0 0 0
Total Beds in Operation 15,456 4,565 9,908 72,137 15,673
(1) Number includes assisted living units.
Payor Mix for Period Ending 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
- ---------------------------
Private Pay 37.0% 30.1% 18.1% 25.0% 40.0%
Medicare 12.2% 20.3% 25.7% 75.0% (d) 25.0%
Medicaid 50.8% 49.6% 56.2% 0.0% 35.0%
Other 0.0% 0.0% 0.0% 0.0% 0.0%
</TABLE>
Regency Sun
Health Healthcare
Services Group
--------------------------
Performance Variables for Period Ending 12/31/96 12/31/96
- ---------------------------------------
3 Year Growth Rate
Net Revenues 21.6 % 39.8
EBITDA 26.9 46.3
EBIT 26.3 40.3
Net Income NM (1.4)
3 Year EBITDA Margins
Latest FY 10.0 % 10.0
Latest FY-1 10.5 11.8
Latest FY-2 9.2 9.1
Beds in Operation for Period Ending 12/31/96 12/31/96
- -----------------------------------
Nursing Facility Beds 11,216 (1) 22,741
Assisted Living Beds 0 0
Other beds 0 0
Total Beds in Operation 11,216 22,741
Payor Mix for Period Ending 12/31/96 12/31/96
- ---------------------------
Private Pay 30.1% 31.0%
Medicare 29.3% 23.0%
Medicaid 40.6% 41.0%
Other 0.0% 5.0%
Footnotes
- ----------
(a) Adjusted to exclude extraordinary or nonrecurring items.
(b) EBITDA = Earnings before interest, taxes, depreciation and amortization.
EBITDAR = Earnings before interest, taxes, d &a, and rent expense EBIT =
Earnings before interest and taxes. Cash Flow from Operations = Net Income
plus depreciation, amortization and other non-cash charges. Net Income =
Net Income from continuing operations, before extraordinary items.
(c) Adjusted value is BEV plus rent expense grossed up to a debt equivalent at
a 12% cap rate.
(d) Medicare and Medicaid combined
(e) Foreign revenues, primarily U.K.
- ----------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC.
<PAGE>
Publicly-Held Long Term Care Care Company Analysis
================================================================================
Operating Data ($ in Millions)
<TABLE>
<CAPTION>
Revenue (1) EBITDA (1) (2) EBIT (1) (3)
------------------------------------ ------------------------------- -------------------------------
LTM 1996 1995 1994 LTM 1996 1995 1994 LTM 1996 1995 1994
------------------------------------ ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Integrated Health Services $1,568 $1,435 $1,179 $712 $225 $203 $170 $106 $176 $161 $130 $80
Community Care $107 107 93 NA $11 11 5 NA $8 8 2 NA
Advocat $170 166 140 103 $12 11 9 9 $10 9 7 7
Beverly Enterprises $3,273 3,267 3,229 2,969 $318 308 268 254 $210 203 164 165
Multicare $581 532 353 262 $102 94 65 50 $78 71 52 40
Regency $589 558 416 377 $59 56 44 35 $43 40 34 25
Sun Healthcare Group $1,395 1,316 1,136 673 $142 131 134 61 $103 98 106 50
Total $7,683 $7,382 $6,545 $5,097 $869 $814 $694 $514 $627 $590 $495 $367
<CAPTION>
Net Income (4) EBITDAR (5)
--------------------------------- ------------------------------
LTM 1996 1995 1994 LTM 1996 1995 1994
--------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Integrated Health Services $53 $48 ($26) $37 $231 $281 $236 $148
Community Care $2 2 (1) NA $11 $17 $11 NA
Advocat $5 5 4 4 $12 $26 $22 $19
Beverly Enterprises $57 52 (8) 77 $318 $430 $400 $386
Multicare $32 29 22 17 $104 $107 $71 $53
Regency $7 6 4 (1) $62 $81 $60 $50
Sun Healthcare Group $22 22 (20) 22 $142 $223 $208 $105
Total $178 $163 ($24) $156 $880 $1,163 $1,008 $761
</TABLE>
(1) Excludes Interest and Investment Income.
(2) Earnings Before Interest, Taxes, Depreciation and Amorization (EBITDA)
(3) Earnings Before Interest and Taxes (EBIT).
(4) Before extraordinary items.
(5) Earnings Before Interest, Taxes, Depreciation and Amortization, and Rent
Expense.
Shattuck Hammond Partners Inc.
<PAGE>
Publicly-Held Long Term Care Company Analysis
================================================================================
Beds & Balance Sheet Data ($ in Millions)
<TABLE>
<CAPTION>
Working Adjusted
Beds Mkt. Value Capital Debt BEV (6) BEV (7)
-------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Integrated Health Services 15,456 $896 $100 $1,161 $1,957 $2,757
Community Care 4,565 26 0 59 84 $146
Advocat 9,908 55 15 28 68 $198
Beverly Enterprises 72,137 1,486 445 1,344 2,384 $3,384
Multicare 15,673 758 46 460 1,173 $1,311
Regency 11,216 208 88 256 376 $655
Sun Healthcare Group 22,741 835 261 816 1,390 $2,148
Total 151,696 $4,265 $955 $4,122 $7,432 $10,598
</TABLE>
(6) Business Enterprise Value (BEV) represents the market value of the company's
operating assets, excluding cash and other working capital.
(7) Adjusted BEV = BEV plus rent expense grossed up to a debt equivalent at a
12% cap rate.
Shattuck Hammond Partners Inc.
<PAGE>
Publicly-Held Long Term Care Company Analysis
================================================================================
Margin Analysis
<TABLE>
<CAPTION>
Margins
--------------------------------------------------------------------------------------------------------
EBITDA EBIT Net Income
------------------------------------ ------------------------------- -------------------------------
LTM 1996 1995 1994 LTM 1996 1995 1994 LTM 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Integrated Health Services 14.3% 14.1% 14.4% 14.9% 11.2% 11.2% 11.0% 11.2% 3.4% 3.3% -2.2% 5.2%
Community Care 9.9% 9.9% 4.8% NA 7.2% 7.2% 2.5% NA 1.8% 1.8% -0.9% NA
Advocat 7.1% 6.7% 6.4% 8.7% 5.7% 5.3% 5.3% 7.0% 3.0% 2.8% 3.2% 3.7%
Beverly Enterprises 9.7% 9.4% 8.3% 8.5% 6.4% 6.2% 5.1% 5.6% 1.7% 1.6% -0.3% 2.6%
Multicare 17.6% 17.6% 18.5% 18.9% 13.4% 13.4% 14.7% 15.4% 5.5% 5.4% 6.3% 6.5%
Regency 10.0% 10.0% 10.5% 9.2% 7.2% 7.2% 8.1% 6.7% 1.2% 1.1% 1.1% -0.2%
Sun Healthcare Group 10.2% 10.0% 11.8% 9.1% 7.4% 7.4% 9.4% 7.4% 1.6% 1.6% -1.8% 3.3%
Average (8) 10.9% 10.7% 11.1% 10.9% 8.0% 7.9% 8.5% 8.4% 2.6% 2.5% 1.7% 3.2%
Median (8) 10.0% 10.0% 10.5% 9.1% 7.2% 7.2% 8.1% 7.0% 1.7% 1.6% 1.1% 3.3%
</TABLE>
Margins
------------------------------------
EBITDAR
---------------------------------
LTM 1996 1995 1994
Integrated Health Services 14.7% 19.6% 20.0% 20.8%
Community Care 9.9% 15.8% 11.6% NA
Advocat 7.3% 15.4% 16.1% 18.5%
Beverly Enterprises 9.7% 13.1% 12.4% 13.0%
Multicare 17.9% 20.1% 20.0% 20.1%
Regency 10.5% 14.4% 14.5% 13.3%
Sun Healthcare Group 10.2% 16.9% 18.3% 15.6%
Average (8) 11.1% 16.0% 16.3% 16.1%
Median (8) 10.2% 15.4% 16.1% 15.6%
(8) Excludes IHS and CCAI.
Shattuck Hammond Partners Inc.
<PAGE>
Publicly-Held Long Term Care Care Company Analysis
================================================================================
<TABLE>
<CAPTION>
Valuation Multiples BEV Multiples (LTM)(11) Market Value Multiples
------------------------------------------------- -----------------------------------
Adjusted
BEV/ Net Projected Projected
Revenue EBITDA EBIT Beds EBITDAR (12) Income (LTM) 1997 EPS 1998 EPS
------------------------------------------------ ---------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Integrated Health Services 1.2 x 8.7 x 11.1 x $126,604 11.9 x 16.9 x 14.0 x 12.0 x
Community Care 0.8 7.9 10.8 $18,340 13.7 13.0 5.4 4.1
Advocat 0.4 5.7 7.1 $6,912 16.0 10.8 9.7 8.6
Beverly Enterprises 0.7 7.5 11.3 $33,049 10.7 26.2 17.0 15.0
Multicare 2.0 11.4 15.1 $74,822 12.6 23.6 20.7 17.7
Regency 0.6 6.8 8.8 $33,503 10.6 30.6 14.4 12.5
Sun Healthcare Group 1.0 9.8 13.5 $61,124 15.1 37.8 11.7 10.4
Average(9) 1.0 x 8.2 x 11.2 x $41,882 13.0 x 25.8 x 14.7 x 12.8 x
Adjusted Average(9)(10) 0.9 x 7.4 x 10.1 x $37,694 11.7 x 23.2 x 13.2 x 11.5 x
Median (9) 0.7 x 7.5 x 11.3 x $33,503 12.6 x 26.2 x 14.4 x 12.5 x
</TABLE>
(9) Averages and median exclude IHS and CCAI.
(10) Adjusted for 10% small cap discount.
(11) Revenues, EBITDA, and EBITDAR exclude investment income.
(12) EBITDAR multiple based on adjusted BEV for rent expense grossed up at a
cap rate of 12%. BEV rent expense is gross, before sublease rental income.
Shattuck Hammond Partners Inc.
<PAGE>
EXHIBIT 4
Comparison of Recent, Selected Comparable Long-term Care Acquisitions
================================================================================
<TABLE>
<CAPTION>
Announced Form of Offer Price
(closed) Target/Acquirer Consideration ($1000's) Premium(1) Revenues
- ----------- -------------------------- ------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
8-May-97 Living Centers of America/ $37.67 per shr. $796,716 17.4% $1,131,575
(Pending) GranCare-Apollo Mgmnt. plus .07 new shares
14-Feb-96 Retirement Care Associates/ .6625 shares of $ 97,100 7.6% $ 181,586
(Pending) Sun Healthcare Group(4) Sun common (excludes Contour value)(4)
3-Jul-96 Geriatric & Medical Cos./ $5.75 per shr. $ 92,000 170.1% $ 195,196
(14-Oct-96) Genesis Health Ventures in Cash ------------
Averages 65.0%
<CAPTION>
Announced Long-Term Working
(closed) Target/Acquirer EBITDA Net Income Debt Capital
- ----------- -------------------------- -------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
8-May-97 Living Centers of America/ $130,903 $41,348 $311,233 $147,106
(Pending) GranCare-Apollo Mgmnt.
14-Feb-96 Retirement Care Associates/ $ 21,240 $ 2,306 $131,341 $ 5,462
(Pending) Sun Healthcare Group(4)
3-Jul-96 Geriatric & Medical Cos./ $ 23,966 $ 4,153 $135,595 $ 42,703
(14-Oct-96) Genesis Health Ventures
Averages
</TABLE>
Notes:
1 Based os Target's Stock price 30 days prior to offer 2 Calculated using an
implied interest rate of 11.5%
3 Calculated including imputed lease "debt equivalent" and excluding lease
expense
4 Excludes Contour Medical's operations from all calculations 5 Excludes implied
value of ownership in Contour Medical calculated at 5.8
million shares @ $8.50 per share
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. Page 1
<PAGE>
Comparison of Recent, Selected Comparable Long-term Care Acquisitions
================================================================================
<TABLE>
<CAPTION>
Offer Price
--------------------------------------------------------------
Announced LTM Forward Earnings
----------------------------- -----------------------------
(closed) Target/Acquirer Revenues Net Income 1 Year 2 Year
- --------------- ------------------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
8-May-97 Living Centers of America/ 0.70 x 19.27 x 15.70 x 13.68 x
(Pending) GranCare-Apollo Mgmnt.
14-Feb-96 Retirement Care Associates/ 0.53 x 47.69 x N/A N/A
(Pending) Sun Healthcare Group(4)
3-Jul-96 Geriatric & Medical Cos./ 0.47 x 22.15 x N/A N/A
(14-Oct-96) Genesis Health Ventures ------------- ------------- ------------- -------------
Averages 0.57 x 29.70 x 15.70 X 13.68 x
<CAPTION>
Business Enterprise Value
---------------------------------------------------------------
Announced LTM
---------------------------------------------------------------
(closed) Target/Acquirer Revenues EBITDA EBIT Net Income
- --------------- ------------------------------ ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
8-May-97 Living Centers of America/ 0.85 x 7.34 x 10.61 x 23.24 x
(Pending) GranCare-Apollo Mgmnt.
14-Feb-96 Retirement Care Associates/ 1.23 x 10.50 x 13.91 x 96.70 x
(Pending) Sun Healthcare Group(4)
3-Jul-96 Geriatric & Medical Cos./ 0.95 x 7.71 x 12.17 x 44.52 x
(14-Oct-96) Genesis Health Ventures ------------- ------------- ------------- ------------
Averages 1.01 x 8.52 x 12.23 x 54.82 x
</TABLE>
Notes:
1 Based os Target's Stock price 30 days prior to offer 2 Calculated using an
implied interest rate of 11.5%
3 Calculated including imputed lease "debt equivalent" and excluding lease
expense
4 Excludes Contour Medical's operations from all calculations 5 Excludes implied
value of ownership in Contour Medical calculated at 5.8
million shares @ $8.50 per share
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. Page 2
<PAGE>
Comparison of Recent, Selected Comparable Long-term Care Acquisitions
================================================================================
<TABLE>
<CAPTION>
Announced Number of BEV/ Add'l Lease Adjusted BEV(3) EBITDAR/
(closed) Target/Acquirer Beds BED Equiv. Debt(2) /EBITDAR EDITDA
- ----------------- ------------------------------ --------- ---------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
8-May-97 Living Centers of America/ 23,746 $40,463 $360,000 7.67 x 132%
(Pending) GranCare-Apollo Mgmnt.
14-Feb-96 Retirement Care Associates/ 9,143 $24,388 $ 92,565 9.90 x 150%
(Pending) Sun Healthcare Group(4)
3-Jul-96 Geriatric & Medical Cos./ 3,928 $47,070 -0- N/A N/A
(14-Oct-96) Genesis Health Ventures -------------- ---------
Averages $37,307 8.78 x 141%
</TABLE>
Notes:
1 Based os Target's Stock price 30 days prior to offer 2 Calculated using an
implied interest rate of 11.5%
3 Calculated including imputed lease "debt equivalent" and excluding lease
expense
4 Excludes Contour Medical's operations from all calculations 5 Excludes implied
value of ownership in Contour Medical calculated at 5.8
million shares @ $8.50 per share
- --------------------------------------------------------------------------------
SHATTUCK HAMMOND PARTNERS INC. Page 3
<PAGE>
EXHIBIT 5
PubiC Long Term Care Companies
================================================================================
Cost of Capital and Unlevered Beta Calculation(2)(3)
<TABLE>
<CAPTION>
Equity
Reported Value Debt Unlevered Estimated Cost of
Beta (4) ($MM) ($MM) Beta Cost of Debt Equity WACC
-------- ------ ------ --------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Integrated Health Services 0.89 $ 896 $1,097 0.51 9.50% 13.23% 9.08%
Community Care 1.42 $ 21 $ 27 0.81 10.00% 17.04% 10.87%
Advocat 0.52 $ 55 $ 24 0.41 9.00% 10.56% 9.01%
Beverly Enterprises 0.76 $1,486 $1,156 0.52 9.00% 12.29% 9.28%
Multicare 0.91 $ 758 $ 417 0.68 9.00% 13.37% 10.54%
Regency Health Systems 0.44 $ 208 $ 238 0.26 9.50% 9.99% 7.70%
Sun Healthcare 0.94 $ 835 $ 789 1.68 9.50% 13.59% 9.76%
-------- ----------- ------- ------
Mean 0.70 9.33% 12.87% 9.46%
Mean, excluding IHS and CCAI 0.71 9.20% 11.96% 9.26%
</TABLE>
(2) Risk free rate = 6.82%, equal to the 30 year Treasury bond yield as of
6/9/97.
(3) Equity risk premium = 7.2%. Source: Ibbotsen Associates, Inc. Equity risk
premium over long term treasury rates, 1926-1993.
Shattuck Hammond Partners Inc.
<PAGE>
EXHIBIT 6
[The following table was represented as a line graph in the printed material]
Long Term Care Stock Analysis
<TABLE>
<CAPTION>
Jun-95 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-97 Feb-97 Mar-97 Apr-97 May-97
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CCAI
LTC COMPOSITE [Data to come]
SP 500
</TABLE>
July 3, 1997
The Board of Directors
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Brian K. Davidson
Executive Vice President
Gentlemen:
We understand that Integrated Health Services, Inc. ("IHS") proposes to offer to
acquire Community Care of America, Inc. ("CCAI"), through a tender offer and/or
merger for cash, all of the outstanding shares of CCAI Common Stock, par value
$.0025 per share (the "CCAI Common Stock"), at a price of $4.00 per share of
CCAI Common Stock (the "Proposed Transaction"). You have requested our opinion,
as investment bankers, as to the fairness, from a financial point of view, of
the Proposed Transaction to IHS.
In arriving at our opinion set forth below, we have, among other things:
o Reviewed certain publicly available business and financial information
relating to IHS and CCAI, as well as certain other information,
including financial projections and pro forma financial statements for
CCAI;
o Discussed the past and current operations and financial condition and
prospects of CCAI with certain members of the senior management of CCAI
and IHS;
o Reviewed a confidential memorandum, dated Spring 1997, regarding CCAI
prepared by Smith Barney Inc.;
o Reviewed an IHS 1997 and 1998 projected accretion/(dilution) analysis in
connection with the Proposed Transaction, prepared by IHS;
o Reviewed an IHS/CCAI pro forma balance sheet as of March 31, 1997,
prepared by IHS;
o Reviewed a 1997 and 1998 projected IHS income statement, prepared by
IHS;
o Reviewed an analysis of CCAI facilities held for sale (the "Facilities
Held For Sale"), prepared by IHS;
o Reviewed an analysis of IHS rural facilities, prepared by IHS;
o Reviewed CCAI individual facility financial and census data for the
quarter ended March 31, 1997;
o Reviewed an analysis of IHS/CCAI insurance synergies, prepared by the
management of IHS;
o Reviewed an analysis of IHS/CCAI rehabilitation therapy synergies,
prepared by IHS; and
o Reviewed an analysis of administrative cost reduction synergies,
prepared by IHS.
<PAGE>
The Board of Directors
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
July 3, 1997
Page 2
We also have considered such other information, financial studies and analyses,
investigations and financial, economic, market and trading criteria which we
deemed relevant, including our knowledge of the long-term care industry as well
as our experience in connection with similar transactions and securities
valuation generally.
We have assumed and relied upon the accuracy and completeness of the information
which we have reviewed for the purpose of this opinion and we have not assumed
any responsibility for independent verification of such information or for
independent evaluation or appraisal of the assets or liabilities of CCAI. With
respect to the financial projections of CCAI and IHS, we have assumed that they
have been prepared on bases reflecting the best currently available estimates
and judgments of the management of the CCAI and IHS, as the case may be, as to
the future performance of such entities, and we express no opinion with respect
to such forecasts or the assumptions on which they are based. In addition, we
have assumed that the Facilities Held For Sale will be disposed of at a price,
or in a manner, that is consistent with IHS' estimates and does not have a
material adverse impact on the net equity value of CCAI. We have also assumed
that IHS would complete the Proposed Transaction in accordance with terms and
conditions, and upon definitive documents, that are standard and customary for
similar transactions. Furthermore, we have noted that: (i) Dr. Robert N. Elkins,
Chairman and Chief Executive Officer of IHS, is a director of CCAI and owns
approximately 1.7 million share of CCAI Common Stock at the date hereof (which
represents approximately 23% of the shares of CCAI Common Stock outstanding);
(ii) John L. Silverman, a director of IHS and executive officer of an IHS
subsidiary, is a director and shareholder of CCAI; (iii) Lawrence P. Cirka, a
director and executive officer of IHS, is a shareholder of CCAI; and (iv)
Timothy F. Nicholson, a director of IHS, is a shareholder of CCAI.
Our opinion is necessarily based upon the business, market economic and other
conditions as they exist on, and can be evaluated as of, the date of this letter
and does not address IHS's underlying business decision to enter into the
Proposed Transaction or constitute a recommendation to the Board of Directors of
IHS.
Shattuck Hammond has provided certain investment banking services to IHS in the
past and received customary compensation. As part of these services, we
previously rendered an opinion to the Special Committee of the Board of
Directors of IHS in connection with a revolving line of credit and other related
transactions between IHS and CCAI.
It is understood that this letter is for the information of the Board of
Directors of IHS and may not be used for any other purpose without prior written
consent, except that this opinion may be included in any filing which IHS makes
with the Securities and Exchange Commission with respect to the Proposed
Transaction.
Based upon the foregoing, it is our opinion that, as of the date of this letter,
the Proposed Transaction is fair, from a financial point of view, to IHS.
Very truly yours,
Shattuck Hammond Partners Inc.
