Random Case

Cornell University
Johnson Graduate School of Management

Pharmacy Services, Inc.
In late 2003, Kemmons Wilson Companies (KWC) was trying to decide what their next step
should be or !harmacy "er#ices, Inc$ (%!"I& or %'he Company&)$ (c)uired by KWC in the
spring o *+++ and based in ,emphis, '-, !"I was the leading pro#ider o wor.ers/
compensation pharmacy beneit ser#ices in the 0$"$ 'he Company, acting as an intermediary,
acilitated prescription drug sales between pharmacies and in1ured wor.ers$ !"I pre2appro#ed
and guaranteed payment to pharmacies and was then reimbursed by the employer3insurer$ !"I
had experienced signiicant success since KWC/s ac)uisition in *+++ with re#enues almost
)uadrupling and 45I'6( increasing by o#er two times$ 5eing prudent in#estors, KWC elt it
needed to address ta.ing at least some o its chips o the table$ 'he most ob#ious routes
a#ailable to accomplish this inclination were a di#idend recapitali7ation or a pri#ate e)uity
recapitali7ation$ (dditionally, KWC had recently disco#ered that !"I/s .ey competitor,
,edi!rocess, was or sale and needed to throw into the mix a potential ac)uisition o
,edi!rocess either on its own or with an e)uity partner$ In order to address and clearly
understand all o these options, KWC decided to hire an in#estment ban.$ ,eanwhile, in the
midst o this in#estment ban./s process, a public company caught wind that !"I was addressing
its options and made KWC an unsolicited oer or the Company$ With this added layer o
complexity to the process, it was clear that KWC had reached a critical decision point in regards
to their ownership in !"I and needed to )uic.ly address these core options8
*$ 6i#idend recapitali7ation
2$ !ri#ate e)uity recapitali7ation
3$ (c)uisition o competitor on its own
9$ (c)uisition o competitor with new e)uity partner
:$ "ell *00; to public company
<$ 6o nothing
Industry
=eimbursement or wor.ers/ compensation claims was emerging as a growing niche in the
health insurance sector due to uni)ue regulatory re)uirements and the complexity o the
reimbursement process$ In act, wor.ers/ compensation cases placed such a signiicant
administrati#e burden on pharmacists that many reused to handle such claims$ 'he #eriication
process alone too. pharmacists upwards o 30 minutes to complete$ ,oreo#er, the billing and
collections unctions re)uired an additional time commitment, and there was an inherent ris. that
the claim would not be paid$
!"I had de#eloped a uni)ue Wor.ers/ Compensation !harmacy 5eneit !rogram that #irtually
eliminated the pharmacists/ time associated with administering the claim and guaranteed
payment without a resource draining collection eort$ ( !"I networ. pharmacist could
electronically submit basic patient data to the Company and recei#e payment appro#al within *
Prepared by Kemmons Wilson, III of Kemmons Wilson Companies for purposes of class discussion. Some names and numbers have been altered for confidentiality purposes. Reprint or
distribution prohibited without consent of author or publisher. Copyright !""# $ohnson %raduate School of &anagement, Cornell 'niversity. Page 1
Cornell University
second$ >nce the prescription was illed, !"I would also handle all o the #eriication, appro#al,
billing, and collection responsibilities$ 'ime sa#ings and the elimination o payment ris.
allowed a drug store to aggressi#ely promote wor.ers/ compensation business, and thereore
better ser#e its customers and increase its re#enues and proits$
(s consideration or its #alue2added ser#ices and acceptance o collection ris., the Company
generated a proit on each wor.ers/ compensation related claim e)ual to the dierence !"I pays
the pharmacy and what it charges payers$ 'he Company essentially buys the prescription
recei#able rom pharmacists based on pre2negotiated rates$ 'he Company then bills the
respecti#e payers in an amount e)ual to a reasonable premium abo#e this recei#able$ 'he spread
between the price paid to pharmacies and the price billed to payers is the Company/s gross
proit$
'hereore, there was a signiicant #alue proposition to retail pharmacy customers which
included8
*$) Increased pharmacy re#enues and proit margins
2$) =educed time pharmacists spend dispensing wor.ers/ compensation prescriptions
3$) 4nhanced consumer satisaction and loyalty rom in1ured wor.er
KWC clearly saw the #alue proposition and the potential o this niche mar.et$ 'he challenge
was eiciently and eecti#ely exploiting this opportunity$
KWC History up to 1999
KWC was ounded in ,emphis, '- in *+9? by Kemmons Wilson$ In the early years, its
business ocus was residential real estate in ,emphis$ @owe#er, in the summer o *+:*,
Kemmons, his mother, his wie, and their i#e children loaded up their >ldsmobile to dri#e cross
country to see the sights o Washington 6$C$ Aittle did they .now, but this #acation would
change the world and the ace o KWC ore#er$
'he Wilsons were a close amily, and Kemmons was always loo.ing to sa#e a dollar$ When
they stopped at a motel or the night, they would all share one room$ (nd since they were all in
the same room, to Kemmons/ mind, they should only ha#e to pay the standard charge or one
room$ (s Kemmons recalled, %4#erywhere we stopped, they charged an extra B2 or each child
who stayed in the room$ ( room was only about B<2? in those days$ I had i#e children, so my
B< room became B*<$ I told 6orothy that wasn/t air$& Kemmons did not 1ust get mad$ @e
igured lots o other athers were getting mad, too$ (nd he was determined to sol#e the problem
or them and ma.e a lot o money out o the deal$ @e told 6orothy, %I/m going to go home and
build a chain o motels that will ne#er charge or children as long as they stay in the same room
as their parents$& Aater Kemmons recounted, C(ll I e#er wanted to do was to bring
standardi7ation to the hotel industry so people would .now exactly what to expect$& Kemmons
told 6orothy that he planned to build 900 such motels across the country$ Kemmons later
insisted that %she laughed at me, and that/s what made me mad and made me do it$&
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>n (ugust *, *+:2, Kemmons/ dream came true as he opened his irst @oliday Inn on "ummer
(#enue in ,emphis, '-$ 'he irst @oliday Inn was barely open or business beore Kemmons
was mo#ing on to build more$ Within a span o two years, Kemmons had 99? rooms operating
in ,emphis, ma.ing him a ma1or player in the local lodging mar.et$ 5ut Kemmons soon
reali7ed that i he wanted to reach his target o 900 hotels, he would need help$ @e reached out
to another prominent homebuilder Wallace Dohnson in *+:3$ 'he idea was that by getting
hundreds o hotels in operation )uic.ly, @oliday Inn could introduce a national reser#ation
system and mar.eting system or all the hotels$ 5y selling other homebuilders the plans and
licenses to build @oliday Inns, Kemmons and Wallace launched one o the irst business
ranchise systems in the country$ 5y 6ecember *+<2, @oliday Inn number 900 opened its doors$
Kemmons had ulilled the bold prediction he had made to 6orothy 1ust o#er a decade beore$
(nd by *+E2, with o#er *000 hotels, @oliday Inn became the irst lodging and ood ser#ice chain
to top a billion dollars in sales$
,eanwhile, all through the @oliday Inn years and beyond, Kemmons maintained his personal
real estate, construction and insurance holdings under the name KWC, which was originally
ormed in *+9?$ 5y the early *+E0/s, Kemmons/ three sons had 1oined KWC helping to build
hotels, housing subdi#isions, apartment buildings, condominiums, shopping centers, warehouses,
oices and other buildings$ (lthough real estate was the ocal point o KWC, other business
interests o#er the years included a ban., a candy operation, a tortilla chip business, a company
that made ountain pens, companies that manuactured plastic products, a dri#ing range, a
commercial catish and bullrog arm, radio stations, a mobile home plant, and a coal, oil and gas
company to name a ew$
(ter ha#ing open2heart surgery in *+E+, Kemmons decided to retire rom @oliday Inn$
Kemmons along with his 3 sons again ocused his ull2time attention to KWC$ 5y the late
*++0/s, KWC included third generation amily members and .ey interests included the world/s
largest single site timeshare resort in >rlando (>range Aa.e), Kemmons Wilson Insurance,
Wilson @otel ,anagement, =eal 4state Fentures (commercial and residential), and Wilson (ir
Centers ((#iation)$
In addition to these interests, KWC also had a %!ri#ate In#estment& arm$ With an
entrepreneurial spirit at its core, KWC was acti#ely see.ing to ac)uire good businesses$ KWC/s
%!ri#ate In#estment& mission was to create long term wealth or the Wilson amily by in#esting
in a portolio o highly select, non2publicly traded in#estment opportunities possessing the
potential or signiicant appreciation at an appropriate le#el o ris.$ 'he ob1ecti#e was to
signiicantly outperorm, o#er long time periods, the potential return o a prudently in#ested
portolio o mar.etable securities$ 'he pri#ate in#estment ob1ecti#e places an emphasis on the
creation o wealth through capital appreciation as opposed to current income$ Whereas
Kemmons was a tremendous ris. ta.er and continually %bet the arm,& the Company now
ocused more on stable and predictable cash low businesses and limited its more %#enture&
in#esting$ In essence, the ris.s ta.en were more calculated with a ocus more on wealth
preser#ation and steady growth$
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PSI History
!"I was ounded in *+?2 by Keith Aee as a distributor o durable medical e)uipment to retail
pharmacies$ (s !"I began de#eloping relationships with pharmacy customers, the Company
identiied an opportunity to manage the administrati#e burdens related to wor.ers/ compensation
claims$ !"I initiated its uni)ue Wor.ers/ Compensation !harmacy !rogram in *++2 to ser#e the
growing need to eiciently handle these challenging cases$
In *++2, sales at !"I were ho#ering around B: million$ 0nder ,r$ Aee/s direction, !"I
experienced rapid growth and by *++? sales were o#er B:0 million$ ,r$ Aee had achie#ed great
success with !"I, but the business was )uic.ly reaching a dierent stage in its lie cycle$ Girst,
with most o his net worth tied to the business and with no apparent heirs, ,r$ Aee was loo.ing
or a reali7ation e#ent$ "econd, or a business its si7e, !"I seemingly lac.ed appropriate controls
H processes, a ull complement o proessional management, suicient mar.eting programs and
product expansion plans, etc$ In short, it seemed that the business had reached a point where
,r$ Aee could no longer manage and grow it eecti#ely$
PSI Discovery
KWC had a number o #enues in which they sourced pri#ate e)uity opportunities$ @istorically,
KWC/s approach was more passi#e than acti#e in the sense that they had an open2door policy
allowing anyone and e#eryone the time to come and pitch ideas, business opportunities, etc$
Gortunately, because o its reputation and past successes, KWC was able to ac)uire and3or
partner with some great businesses #ia this passi#e route$ @owe#er, this reacti#e approach also
led to its air share o ailures and, by the late *++0/s, KWC consciously began to ta.e a more
proacti#e approach in inding new opportunities$ 'his acti#e approach was accomplished by not
only endea#oring to proprietarily source deals through its networ. o relationships but also by
sourcing deals rom intermediaries including in#estment ban.s, business bro.ers, other pri#ate
e)uity irms, etc$
Interestingly, KWC was inormed o !"I rom one o its own employees$ In late *++? 5illy
!erry, an employee wor.ing or KWC/s homebuilding di#ision, approached the principals to
inorm them o a company in their hometown o ,emphis whose owner might be interested in
selling$ (t the time, ,r$ !erry/s mother wor.ed or !"I and .new that its owner, getting older in
age and ha#ing no heirs to the business, was loo.ing to possibly sell the Company$ Knowing
that KWC was loo.ing or good companies to ac)uire as part o their pri#ate in#estment arm,
,r$ !erry approached the principals to tell them o the situation$ KWC decided to in#estigate the
opportunity$
Acquisition of PSI
KWC had a long history o operating businesses across a wide spectrum o industries$ @owe#er,
the healthcare industry was one in which they had no experience$ -e#ertheless, ater perorming
extensi#e due diligence including (a) initiating and managing inancial and accounting re#iewsI
Cornell University
(b) management re#iewsI (c) in#estment negotiationsI (d) transaction 3 capital structuring andI (e)
o#erall in#estment analysis, KWC determined that !"I was a business which it the
criteria3mission o its pri#ate in#estment arm$ (lthough !"I was in an unamiliar industry, KWC
clearly understood the #alue proposition or all related parties and elt as i it could add
signiicant #alue to the business$ 'hereore, in (pril o *+++ KWC ac)uired !"I or
approximately B9:$: million$ 'his ac)uisition price e)uated to a 9$<x 45I'6( multiple based
on trailing twel#e month 45I'6($ (4xhibit 5)$ In regards to the structure o the ac)uisition,
KWC was able to borrow almost i#e times trailing 45I'6($ 'his debt was a combination o a
senior long2term debt o B2:$E million, a seller/s note o B?$: million, and a re#ol#er o up to B*2
million (o which approximately B9$< million was drawn at closing)$ KWC/s e)uity re)uirement
or the ac)uisition was BE$E million$ Importantly, !"I was an asset sale which resulted in a step
up in tax basis and the creation o goodwill which could be amorti7ed or tax purposes$ "ince
the amorti7ation o goodwill is tax deductible, this type o sale pro#ided KWC with a tax shield$
Gor more detailed inormation on the structure o this ac)uisition, reer to 4xhibit C$
KWC Operating of PSI
KWC clearly saw the #alue proposition and the potential o !"I/s niche mar.et$ 'he challenge
was eiciently and eecti#ely exploiting this opportunity$ In order to ully exploit the
opportunity KWC put orth the ollowing .ey initiati#es8
*$) Repositioned the business as a value-added service provider. In KWC/s mind, !"I
clearly had a great #alue added ser#ice but one that did not seem to be properly mar.eted$
!"I needed to clearly show pharmacies their #alue2added proposition$ 'hereore, KWC
elt as i a renewed sales H mar.eting push was essential$ -ew mar.eting materials were
de#eloped in (ugust o *+++ to support the new emphasis on partnering with the
customer base$ "oon, !"I was able to successully re2position itsel in the mar.etplace
rom being a claims administrator with a payment guarantee to a #alue2added ser#ice and
mar.eting irm or retail pharmacies$

2$) Strategically grew customer network: (t the time o purchase, !"I had a customer
networ. o approximately *:,000 pharmacies$ 'he strategy on how to grow this networ.
was basically twoold J a$) (ttract new retail customers$ b$) Gurther penetrate the existing
customer base$ In order to attract new retail customers, !"I .new that it was imperati#e
that they better target independent pharmacies$ =etail customers included both chain
pharmacies and independent pharmacies$ While !"I had been airly successul targeting
the larger chains, its independent pharmacy business had not thri#ed$ In *+++, there were
an estimated 30,000 independent pharmacies nationwide yet !"I only counted around
200 as customers$ 'hereore, !"I began promoting its ser#ices to cooperati#es and
buying groups in order to penetrate this ragmented pharmacy mar.et$ 5y 2003 !"I had
added approximately *9,000 independent pharmacies to its networ.$
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(nother initiati#e to strategically grow its customer networ. was made in 200*$ 'hat
year !"I made the tough decision to intentionally reduce margins on their business in
order to urther penetrate the mar.et and gain mar.et share$ In doing so, !"I reali7ed that
its bottom2line would be signiicantly aected but elt as i this was the right long2term
decision$
3$) Leveraged its proprietary inormation system and prescription services e!pertise to
e!pand oerings: In (ugust 2002, !"I successully launched Comp=x, a sister
company to !"I$ Comp=x was a prescription ser#ices manager that helps sel2insured
employers, 'hird !arty (dministrators, and Carriers pro#ide )uality care to in1ured
wor.ers while reducing pharmacy2related costs$ 'he main #alue proposition was the
ability or Comp=x/s core clients to control the claim rom the irst ill allowing the
in1ured wor.er a aster return to wor.$ 'his was achie#ed primarily through clinical
control J )uantity, days supply and reill edits helped manage patient complianceI drugs
not appropriate or in1ury were bloc.edI and pre2authori7ation o potentially addicti#e
drugs was re)uired$ Gurthermore, Comp=x assisted with prescription claim control by
pro#iding immediate notiication o new in1ury, online access to current claims data, and
immediate notiication when =x pre2authori7ations were re)uested$ Comp=x represented
another growth strategy or !"I and was beginning to gain signiicant traction by 9
th

)uarter 2003 with a run rate o B<$2 million in re#enues and B<00,000 in 45I'6($

9$) "dded proessional management: 0pon ac)uisition o the business, KWC reali7ed
that !"I/s )uic. success in the pre#ious ew years had come at the price o neglecting
se#eral areas$ 'he ounder o the business was an extremely successul entrepreneur and
his ability to build such a successul business was )uite remar.able particularly gi#en the
act he had done so without e#en a high school education$ @owe#er, the business had
reached a point in its lie cycle that he could no longer eecti#ely grow it$ "peciically,
KWC elt as i the business was in need o a deeper proessional management team that
could implement better controls and processes$ (s such, se#eral .ey hires were made and
KWC e#en charged one o its top executi#es to become Chairman H C4>$
Importantly, KWC too. some signiicant ris.s in ta.ing on these initiati#es$ ,ost signiicantly
were the decision to lower its margins and the decision to add more proessional management$
'he reduced margins and signiicant added o#erhead put signiicant pressure on the bottom2line,
but KWC elt as i these were the right long2term decisions$
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5y 2003, many o the initiati#es began to pay di#idends with both re#enues and 45I'6(
growing by almost ?0; rom 2002 to 2003$ Gurthermore, !"I expected signiicant internal
growth in 2009 rom a ull year eect o customers added during the 2003 calendar year$
What e!t"
5y the 9
th
)uarter o 2003, !"I/s Customer networ. had grown rom *:,000 to 33,000
pharmacies throughout :0 states and included larger chains such as CF", =ite (id, Kroger,
!ublix and "aeway$ =e#enues had reached approximately B23E million and 45I'6( was
approaching B2* million, with year2end 2003 run rate or re#enues and 45I'6( o
approximately B2+0 million and B2E million respecti#ely$ Gurthermore, all o this growth had
occurred organically and with negligible capital expenditures$ 5ecause o this sudden success,
ta.ing a ew chips o the table through either a di#idend recapitali7ation or a pri#ate e)uity
recapitali7ation seemed li.e a rational measure$ It was also at this time that !"I disco#ered its
main competitor was on the auction bloc.$ 5eing prudent in#estors, KWC elt it was time to
address the alternati#es a#ailable to it$ 'hereore, in all 2003 KWC hired an in#estment ban. to
conduct a thorough and comprehensi#e analysis o the business and the alternati#es a#ailable to
it$
In e#aluating the mar.et dynamics the ollowing a#orable actors existed8
!"I ser#ed about 33,000 o an estimated :<,000 pharmacies nationwide$
Aarge ,ar.et J 'otal medical costs related to in1ured wor.ers exceeded B90b annually
with prescription drug therapy accounting or an estimated B92<b o this amount$
In 2003, there was a signiicant nationwide shortage o s.illed pharmacists due in large
part to an increase in post2graduate education re)uirements$ 'his shortage mandated that
pharmacies impro#e their eiciency$
=ising prescription drug prices (**; pro1ected growth) pro#ide attracti#e growth
characteristics as !"I earns a set percentage o each script illed$
6espite these a#orable dynamics, KWC also needed to address some other important actors
weighing in on their in#estment alternati#es including8
!harmacy networ. growth J While there was seemingly a lot o mar.et share to gain, !"I
had attained the ma1ority o the larger chains, had signiicantly impro#ed its independent
pharmacy penetration, and had wor.ed #ery hard to attain those pharmacies not included
in its customer networ.$ While many o these pharmacies were doing business with a
competitor, most had 1ust decided not to outsource$ @ow much reasonable growth was
letK What was the li.elihood o these pharmacies adopting !"I/s ser#ices and at what
cost to !"I in terms o time and resourcesK
=egulatory en#ironment J !"I essentially had :3 bosses when you included all state
regulatory agencies, 0$"$ territories, and the ederal regulatory agency$ 0nortunately,
!"I had no control o#er their decisions which could signiicantly impact the business$
Cornell University
In assessing the option to ac)uire !"I/s competitor, KWC learned that this business was
approximately E0; the si7e o !"I in terms o 45I'6($ @owe#er, this competitor had
signiicant customer concentration with one customer representing almost :0; o its 45I'6($
-e#ertheless, the pro1ected ac)uisition price represented a signiicant amount o money and
would sub1ect KWC to more exposure in this niche industry than they elt was prudent$
'hereore, rather than ac)uiring the competitor on its own and combining the two companies,
KWC began to instead consider the option o inding an e)uity partner who was willing to
ac)uire and combine the two businesses$ Gortunately, many large, well2.nown pri#ate e)uity
groups ound the deal )uite interesting and KWC started down the road o negotiating with them$
'o add another layer o complexity to their decision, while KWC was entertaining these options,
a public company made an unsolicited, all cash oer to buy *00; o !"I$
Li#en the in#estment ban./s e#aluation, the competitor or sale, and the unsolicited oer, it was
clear that KWC needed to assess all o its options in regards to its ownership o !"I$ In its mind,
the ollowing options needed to be )uic.ly yet careully addressed8
*$ 6i#idend recapitali7ation
2$ !ri#ate e)uity recapitali7ation
3$ (c)uisition o competitor on its own
9$ (c)uisition o competitor with new e)uity partner
:$ "ell *00; to public company
<$ 6o nothing
#. $ow would one approach valuing the company%
&. 'hat are the key issues associated with each o the options%
(. I you were )'*, what option would you act upon and why%
+. $ow would you structure the transaction%
#efer to $!hi%its A & ' for a 'a(ance Sheet and Inco)e State)ent*
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,!hibit "
Cornell University
Pre-Acquisition
Post
Acquisition Decision Point
Assets Q1 1999 Q4 2003
Current Assets:
Cash 6,207 $ 207 $ 3,187 $
Net Accounts Receivable 10,372 $ 10,372 $ 51,119 $
Othe Cuent Assets ! $ ! $ 3,319 $
Total Current Assets 16,!" # 1$,!" # !,6% #
""#$, net 298 $ 298 $ 1,038 $
%oo&'ill, net ! $ 44,661 $ 33,758 $
Othe Assets 1 $ 1,040 $ 55 $
Total Assets 16,&!& # 6,!& # "%,'!! #
(ia)ilities * Stoc+holder,s -.uity
Current (ia)ilities:
Accounts "a(able 8,597 $ 8,597 $ 25,830 $
Revolve ! $ 4,640 $ 20,255 $
Cuent "otion o) *on+!te, -ebt ! $ ! $ 3,240 $
Othe 1,442 $ 1,442 $ 6,856 $
Total Current (ia)ilities 1$,$/& # 1',6!& # 6,1&$ #
*on+!.e, -ebt ! $ 34,200 $ 4,619 $
Othe ! $ ! $ ! $
Total (ia)ilities 1$,$/& # '&,&!& # 6$,!"" #
Stoc+holder,s -.uity:
A&&itional "ai&!in!Ca/ital ! $ 7,700 $ 9,136 $
Retaine& $anin+s 6,840 $ ! $ 22,542 $
Total -.uity 6,&'$ # !,!$$ # /1,6!& #
Total (ia)ilities * Stoc+holder,s -.uity 16,&!& # 6,!& # "%,'!! #
0harmacy Services, 1nc2
3alance Sheets 4# in thousands5
,!hibit -
Cornell University
TTM at
Ac.uisition 1""" %$$$ %$$1 %$$% %$$/ 6un 6ate
7et Sales 73,458 $ 95,495 $ 123,667 $ 127,500 $ 134,768 $ 237,191 $ 289,373 $
%Margin 7.0% 7.1% 7.7% 5.3% 6.1% 7.5% 7.5%
-31T8A 9,843 $ 12,605 $ 16,448 $ 12,495 $ 11,725 $ 20,636 $ 26,912 $
%Margin 13% 13% 13% 10% 9% 9% 9%
-31T8A 9,843 $ 12,605 $ 16,448 $ 12,495 $ 11,725 $ 20,636 $ 26,912 $
Less: CapEx 279 $ 300 $ 386 $ 245 $ 375 $ 953 $ 350 $
9:erating Cash ;lo< 9,623 $ 12,223 $ 16,077 $ 12,240 $ 11,186 $ 19,212 $ 26,044 $
%Margin 13% 13% 13% 10% 8% 8% 9%
1ncome Statements
Fiscal Year Ended ($ in thousands
0harmacy Services, 1nc2
,!hibit *
"c.uisition /etails:
Cornell University
Cash "a(,ent to 0elle 43,000,000 $
0elle Not e 8,500,000 $
Total 0urchase 0rice 1,$$,$$$ #
*ess1 Cash on 2alance 0heet at Close 6,000,000 $
-ffective 0urchase 0rice ',$$,$$$ #
"uchase "ice 51,500,000 $
.ansaction $3/enses # Othe -isbuse,ent s 1,040,000 $
!otal "2#"40#000 $
Revolvin+ Ce&it 4,640,000 $
.e, *oan A 22,500,000 $
.e, *oan 2 3,200,000 $
0elle4s Note 8,500,000 $
Cash on 2alance 0heet 6,000,000 $
$5uit( 7,700,000 $
!otal "2#"40#000 $
0urchase 0rice
Uses:
Sources:
Sources* Uses
8e)t Terms:
Term (oan A 30 -a( *ibo 6 37758'it h a 6 (ea a,oti9ation sche&ule
Term (oan 3 30 -a( *ibo 6 57008'it h a 6 (ea a,oti9ation sche&ule
6evolving Credit 30 -a( *ibo 6 37258
Seller 7ote 88 :nteest onl( )o 2 (eas, t hen /inci/al an& inteest &ue ,onthl( unt il ,atuit (
0elle note also inclu&e& 'aant s )o u/ to 58o) "0: ;non!votin+<
9ther Terms:
125 =o .e, *oans, inteest /a(able ,onthl( 'ith /inci/al /a(able in 5uatel( install,ents ove the
t e, o) t he loan7 A&&itionall(, t he Co,/an( is also e5uie& t o ,a>e a&&itional annual /inci/al /a(,ents
o) 508o) the e3cess cash )lo's t o be a//lie& )ist to .e, *oan A unt il /ai& in )ull, then t o .e, *oan 2 unt il
/ai& in )ull7 .he Co,/an( is also e5uie& to ,a>e /a(,ents e5ual to 1008o) an( /a(,ent eceive&
un&e an insuance /olic(, net cash /ocee&s )o, t he issuance an& sale o) co,,on st oc> an&
net cash /ocee&s )o, asset sales7 Ot he &ebt covenants 'ith ban> inclu&in+ inteest covea+e atios an&
t otal &ebt t o $2:.-A atios 'ee also ne+otiate&7
%25 %oo&'ill is bein+ a,oti9e& on a st ai+ht !line basis ove a 15 ( /eio&
/25 .ansaction cost s ae bein+ a,ot i9e& on a stai+ht!line basis ove a 5 ( /eio&

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