Established in February 1994, Community Rehab Centers, Inc. delivers comprehensive outpatient physical and occupational therapy services in the Middle Atlantic region. The growing influence of managed care in group health and workers’ compensation as well as increasing legislative and payor pressure to limit physician self-referrals has led to consolidation among the 3,000 to 4,000 private providers of outpatient rehabilitation therapy. CRC is well positioned to participate in the consolidation of the physical rehabilitation services industry having demonstrated an ability to realize cost savings, productivity gains and increased revenue at recently acquired clinics. Furthermore, CRC management determined that regional clusters of small, yet well-established, physical therapy practices could be purchased at substantial discounts to the valuation multiples recently achieved by publicly-traded rehab companies.

CRC engaged Stonebridge Associates as its exclusive financial advisor to arrange long-term financing for the acquisition of physical therapy clinics with whom Management had either signed “letters of intent” or negotiated preliminary offers. Stonebridge recommended a financing structure comprised of convertible preferred stock and subordinated debt in order to minimize the dilution of owners’ equity during this early stage of the Company’s development.

Following a broad-based solicitation of over 100 mezzanine and equity capital sources, Stonebridge raised $7.0 million of Subordinated Notes due 2005 and $6.3 million of Convertible Preferred Stock. The two-tiered financing approach provided the Company with ample liquidity to compete with the larger prospective acquirors of rehab clinics. In addition, the Company gained operating flexibility from the reasonable terms of the subordinated debt; the financial covenants were designed to match the forecasted ramp-up in consolidated cash flow as well as defer the repayment of principal for several years.

The initial deployment of financing proceeds enabled the Company to acquire two additional rehab therapy companies (operating a total of 13 clinics) thereby expanding its portfolio to 23 clinics in four states. Strengthened by the infusion of subordinated debt and equity from four new institutional investors, the Company has sufficient base capital to execute its acquisition strategy for the foreseeable future as well as arrange a larger bank credit facility to meet its ongoing working capital needs.