SC 13E3/A 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ____________________ AMENDMENT NO. 3 TO SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (Pursuant to Section 13(e) of the Securities Exchange Act of 1934) SAFEGUARD HEALTH ENTERPRISES, INC. (Name of Issuer) SAFEGUARD HEALTH ENTERPRISES, INC. (Name of Person Filing Statement) COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of Class of Securities) 786444109 ------------------------------------- (CUSIP Number of Class of Securities) RONALD I. BRENDZEL, ESQ. SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY SAFEGUARD HEALTH ENTERPRISES, INC. 95 ENTERPRISE, SUITE 100 ALISO VIEJO, CA 92656-2605 TEL: (949) 425-4300 FAX: (949) 425-4586 (Name, address and telephone number of person authorized to receive notices for SafeGuard Health Enterprises, Inc. and on behalf of persons filing statement) THIS STATEMENT IS FILED IN CONNECTION WITH (CHECK THE APPROPRIATE BOX): a. [x] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. [ ] The filing of a registration statement under the Securities Act of 1933. c. [ ] A tender offer. d [ ] None of the above. CHECK THE FOLLOWING BOX IF THE SOLICITING MATERIALS OR INFORMATION REFERRED TO IN CHECKING BOX (A) ARE PRELIMINARY COPIES: [x] CHECK THE FOLLOWING BOX IF THE FILING IS A FINAL AMENDMENT REPORTING THE RESULTS OF THE TRANSACTION: [ ] CALCULATION OF FILING FEE TRANSACTION VALUATION (1) AMOUNT OF FILING FEE (2) ---------------------------------------------------------------------- $12,983,828 $1,645.05 (1) For purposes of calculating the filing fee only. The filing fee was calculated based on the purchase price of $2.25 per share or pro rata portion thereof, before giving effect to a 1-for-1,500 reverse stock split as described herein, for 5,770,590 shares of the Company's common stock, which represents all issued and outstanding shares of the Issuer's common stock acquired pursuant to this transaction. (2) The amount of the filing fee, calculated in accordance with Section 13 of the Securities Exchange Act of 1934, as amended, equals .0001267 multiplied by the aggregate value of cash or new common stock to be paid and/or issued by the Issuer for the common stock. [x] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid:$1,645.05 --------- Form or Registration No.: Schedule 13e-3 ------------------------- Filing Party: SafeGuard Health Enterprises, Inc. --------------------------------------- Date Filed: April 20, 2004 ------------------------------------------- Balance Due: None ------------------------------------------ ITEM 1. SUMMARY TERM SHEET The information set forth in various sections of the Schedule 14C Definitive Information Statement filed by the Issuer with the Securities and Exchange Commission ("SEC") on May 25, 2004 (the "Information Statement") is incorporated herein by reference as set forth below. The information set forth under the caption "Summary of the Reverse Stock Split" of the Information Statement is incorporated herein by reference. ITEM 2. SUBJECT COMPANY INFORMATION (a) The information set forth under the caption "General Information" on the cover page of the Information Statement is incorporated herein by reference. (b) The information set forth under the caption "General Information" on the cover page of the Information Statement is incorporated herein by reference. (c) The information set forth under the caption "Price Range of Common Stock; Dividends; Trading Volume" in the Information Statement is incorporated herein by reference. (d) The information set forth under the caption "Price Range of Common Stock; Dividends; Trading Volume" in the Information Statement is incorporated herein by reference. (e) Not applicable. 2 (f) The information set forth under the caption "Fairness of the Reverse Stock Split-Factors Considered-Purchase Prices in Previous Transactions" in the Information Statement is incorporated herein by reference. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSONS (a) The information set forth under the caption "General Information" on the cover page of the Information Statement is incorporated herein by reference. (b) Not applicable. (c) The information set forth under the caption "Information Concerning Officers and Directors" in the Information Statement is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION (a) The information set forth under the caption "Terms of the Reverse Stock Split" and "Effects of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (b) Not applicable. (c) The information set forth under the caption "Terms of the Reverse Stock Split" and "Effects of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (d) The information set forth under the caption "Terms of the Reverse Stock Split-Dissenters' Rights" in the Information Statement is incorporated herein by reference. (e) The information set forth under the caption "Fairness of the Reverse Stock Split-Procedural Fairness to Unaffiliated Stockholders" in the Information Statement is incorporated herein by reference. (f) Not applicable. ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS (a) The information set forth under the captions "Special Factors-Background of the Reverse Stock Split" and "Significant Corporate Events-Contracts with Officers, Directors and Affiliates" in the Information Statement is incorporated herein by reference. (b) The information set forth under the caption "Special Factors-Background of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (c) The information set forth under the caption "Special Factors-Background of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (d) Not applicable. (e) The information set forth under the captions "Special Factors-Background of the Reverse Stock Split" and "Significant Corporate Events-Contracts with Officers, Directors and Affiliates" in the Information Statement is incorporated herein by reference. 3 ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS (a) Not applicable. (b) The information set forth under the caption "Federal Income Tax Consequences of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (c) (1) Not applicable. (2) Not applicable. (3) Not applicable. (4) The information under the captions "Conduct of the Company's Business After the Reverse Stock Split" and "Significant Corporate Events-Contracts with Officers, Directors and Affiliates" in the Information Statement is incorporated by reference. (5) Not applicable. (6) The information set forth under the caption "Special Factors-Purposes of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (7) The information set forth under the caption "Special Factors-Purposes of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (8) The information set forth under the caption "Special Factors-Purposes of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS (a) The information under the caption "Special Factors-Purposes of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (b) The information under the captions "Reasons for the Reverse Stock Split-Alternatives Considered" and "Special Factors-Background of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (c) The information under the captions "Special Factors-Background of the Reverse Stock Split" and "Reasons for the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (d) The information under the caption "Effects of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION (a) The information under the caption "Fairness of the Reverse Stock Split-Recommendation of the Company's Board" in the Information Statement is incorporated herein by reference. (b) The information under the caption "Fairness of the Reverse Stock Split-Factors Considered" in the Information Statement is incorporated herein by reference. 4 (c) The information under the caption "Fairness of the Reverse Stock Split-Procedural Fairness to Unaffiliated Stockholders" in the Information Statement is incorporated herein by reference. (d) The information under the caption "Fairness of the Reverse Stock Split-Procedural Fairness to Unaffiliated Stockholders" in the Information Statement is incorporated herein by reference. (e) The information under the caption "Fairness of the Reverse Stock Split-Procedural Fairness to Unaffiliated Stockholders" in the Information Statement is incorporated herein by reference. (f) The information under the caption "Fairness of the Reverse Stock Split-Procedural Fairness to Unaffiliated Stockholders" in the Information Statement is incorporated herein by reference. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS (a) The information under the captions "Fairness of the Reverse Stock Split-Factors Considered-Fairness Opinion" and "Opinion of Investment Banker" in the Information Statement is incorporated herein by reference. (b) (1) The information under the captions "Fairness of the Reverse Stock Split-Factors Considered-Fairness Opinion" and "Opinion of Investment Banker" in the Information Statement is incorporated herein by reference. (2) The information under the captions "Fairness of the Reverse Stock Split-Factors Considered-Fairness Opinion" and "Opinion of Investment Banker" in the Information Statement is incorporated herein by reference. (3) The information under the captions "Fairness of the Reverse Stock Split-Factors Considered-Fairness Opinion," "Opinion of Investment Banker" and "Significant Corporate Events-Acquisition of Health Net Dental, Inc. and Health Net Vision, Inc." in the Information Statement is incorporated herein by reference. (4) The information under the caption "Fairness of the Reverse Stock Split-Factors Considered-Fairness Opinion" in the Information Statement is incorporated herein by reference. (5) The information under the caption "Fairness of the Reverse Stock Split-Factors Considered-Fairness Opinion" in the Information Statement is incorporated herein by reference. (6) The information set forth under the caption "Opinion of Investment Banker" in the Information Statement is incorporated herein by reference. (c) The information under the captions "Fairness of the Reverse Stock Split-Factors Considered-Fairness Opinion" and "Opinion of Investment Banker" in the Information Statement is incorporated herein by reference. ITEM 10. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION (a) The information under the caption "Financing of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (b) Not applicable. 5 (c) The information under the caption "Costs of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (d) Not applicable. ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY (a) The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Information Statement is incorporated herein by reference. (b) Not applicable. ITEM 12. THE SOLICITATION OR RECOMMENDATION (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) The information under the captions "General Information" and "Fairness of the Reverse Stock Split-Recommendation of Company's Board" of the Information Statement is incorporated herein by reference. (e) The information under the captions "General Information" and "Fairness of the Reverse Stock Split-Recommendation of Company's Board" of the Information Statement is incorporated herein by reference. ITEM 13. FINANCIAL STATEMENTS (a) The information under the caption "Financial Statements" in the Information Statement is incorporated herein by reference. (b) The information under the caption "Pro Forma Financial Information" in the Information Statement is incorporated herein by reference. ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED (a) The information under the caption "Summary of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. (b) The information under the caption "Special Factors-Background of the Reverse Stock Split" in the Information Statement is incorporated herein by reference. ITEM 15. ADDITIONAL INFORMATION None. 6 ITEM 16. EXHIBITS (a) Information Statement. Incorporated by reference to the Information Statement. (b) Not applicable. (c) Opinion of Shattuck Hammond Partners LLC. Incorporated by reference to Exhibit B of the Information Statement. A copy of the Presentation Booklet issued by Shattuck Hammond Partners LLC to the Issuer dated as of November 21, 2003 is attached hereto marked Exhibit A. (d) Not applicable. (e) Not applicable. (f) None. (g) None. (h) Not Applicable. SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. May 25, 2004 SAFEGUARD HEALTH ENTERPRISES, INC. By: /s/ James E. Buncher -------------------------------------------- JAMES E. BUNCHER President and Chief Executive Officer /s/ Dennis L. Gates By: -------------------------------------------- DENNIS L. GATES Senior Vice President and Chief Financial Officer 7 EXHIBIT A SafeGuard Health Enterprises, Inc. November 21, 2003 FAIRNESS OPINION PRESENTATION TO THE BOARD OF DIRECTORS [GRAPHIC OMMITTED] SHATTUCK HAMMOND PARTNERS LLC ---------------------------------- SafeGuard Health Enterprises, Inc. TABLE OF CONTENTS 1. Introduction 2. Summary Analysis 3. Conclusion of Fairness Opinion 4. Transaction Summary and Rationale 5. SafeGuard Overview 6. Financial Summary 7. Factors Affecting Valuation 8. Valuation Methodology Exhibit A. Financial Projections: Years ended December 31, 2004 to 2008 Exhibit B. Selected Acquisitions of Dental/Vision Benefit Companies Exhibit C. Selected Acquisitions of Managed Care Companies Exhibit D. Reverse Stock Split Going Private Transactions: Premium Analysis Exhibit E. Selected Merger and Acquisition Transactions of Publicly-Traded Companies: Premium Analysis Exhibit F. Shares Owned by Investors and Affiliated Parties ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 1 ---------------------------------- SafeGuard Health Enterprises, Inc. [GRAPHIC OMITTED] INTRODUCTION ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 2 ---------------------------------- SafeGuard Health Enterprises, Inc. ENGAGEMENT OVERVIEW - Shattuck Hammond Partners LLC ("Shattuck Hammond") has been engaged by SafeGuard Health Enterprises, Inc. ("SafeGuard" or the "Company") to serve as an investment banker retained by the Board of Directors (the "Board") in connection with rendering a Fairness Opinion to the Board. - Shattuck Hammond's Fairness Opinion addresses the fairness, from a financial point of view, of the per share consideration to be received by the holders of SafeGuard Common Stock ("Common Stock") who will hold fractional shares immediately following the proposed Reverse Stock Split (the "Reverse Stock Split" or "Transaction"), as described below. - As contemplated, the proposed terms of the Reverse Stock Split would result in a one for 1,500 conversion rate. - Under the contemplated terms of the Reverse Stock Split, each holder of a fractional common share of SafeGuard will receive cash in amount equal to $2.00 per share of Common Stock on a pre-split basis (the "Consideration"). ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 3 ---------------------------------- SafeGuard Health Enterprises, Inc. SHATTUCK HAMMOND REVIEW PROCESS - For the purpose of this Fairness Opinion, we have, among other things: - Reviewed a Board of Directors memorandum, dated October 31, 2003, describing the proposed terms of the Transaction; - Reviewed certain internal and publicly available financial statements and disclosure documents for SafeGuard; - Discussed with SafeGuard management the Company's business operations, capital structure, projections, and the Health Net Transaction, as described below; - Reviewed Definitive Agreements related to SafeGuard's acquisition of: (i) Heath Net Dental, Inc.; (ii) Heath Net Vision, Inc.; (iii) other selected dental and vision assets; and (iv) the strategic relationship between Health Net, Inc. and SafeGuard ("Health Net Dental", "Health Net Vision" , "Strategic Dental Relationship", or the "Health Net Transaction"); - Reviewed the certificate and terms for the six percent (6%) Convertible Notes due October 31, 2013; - Reviewed information and analysis related to SafeGuard's acquisition of: (i) Ameritas Managed Dental Plan, Inc. (the "Ameritas Acquisition") ; and (ii) Paramount Dental Plan, Inc. ("Paramount Dental Plan"); - Reviewed an analysis prepared by management related to the integration of the Health Net Transaction. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 4 ---------------------------------- SafeGuard Health Enterprises, Inc. SHATTUCK HAMMOND REVIEW PROCESS (CONTINUED) - Reviewed pro forma income statements prepared by management for the latest twelve months ("LTM") ended September 30, 2003, estimated year ended December 31, 2003 and projected year ended December, 31, 2004 which assumed that the Health Net Transaction and the Ameritas Acquisition occurred at the beginning of the period and that full synergies were achieved at the beginning of the period; - Reviewed management's projections for the estimated year ended December 31, 2003 and the projected years ended December 31, 2004 to 2008; - Reviewed certain memos to the Board of Directors which reviewed the rationale for the transaction and various alternatives thereto; - Reviewed trading volume and prices for SafeGuard's common stock for various periods from January 28, 2000 through November 20, 2003; and - Performed a variety of financial analysis and reviews as presented in more detail in this Report. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 5 ---------------------------------- SafeGuard Health Enterprises, Inc. [GRAPHIC OMITTED] SUMMARY ANALYSIS ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 6 ---------------------------------- SafeGuard Health Enterprises, Inc. REVERSE STOCK SPLIT GOING PRIVATE SUMMARY - Reverse Stock Split: 1,500:1 - Fractional shareholders will receive $2.00 per share on a pre-split basis (the "Consideration"). ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 7 ---------------------------------- SafeGuard Health Enterprises, Inc. SUMMARY ANALYSIS - The summary analysis presented on the following page should be read in conjunction with the more detailed analysis presented later in this Report. - As described in more detail later in this Report, due to the illiquid nature of SafeGuard's common stock, as traded in the OTC Bulletin Board (symbol "SFGD"), we believe a valuation of SafeGuard's common stock based on a premium analysis is of limited analytical value. As a result, we substantially underweight this analysis. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 8 ---------------------------------- SafeGuard Health Enterprises, Inc. SUMMARY ANALYSIS (CONTINUED) - Safeguard's share price on November 20, 2003 was $1.95 bid / $2.20 asked, with a last trade of $1.92.
SUMMARY ANALYSIS ---------------- Per Fully-Diluted Common Share (1), (2) ------------------------- High Average Low ------ --------- ------ Comparable Company Publicly-Traded Analysis (4) $2.00 $ 1.40 $0.83 ------ --------- ------ Comparable Company Merger and Acquisition Analysis (4) $2.57 $ 1.62 $0.83 Discounted Cash Flow Analysis (4) $2.36 $ 2.09 $1.85 ------ --------- ------ Average Per Share Valuation $2.31 $ 1.71 $1.17 ------ --------- ------ Weighting 95.0% 95.0% 95.0% ------ --------- ------ Reverse Stock Split Premium Analysis (5) 1 Day (3) $2.46 $ 2.46 $2.46 30 Day (3) $2.94 $ 2.94 $2.94 Merger and Acquisition Premium Analysis (6) 1 Day (3) $2.63 $ 2.62 $2.60 30 Day (3) $2.66 $ 2.50 $2.31 ------ --------- ------ Average Per Share Valuation $2.67 $ 2.63 $2.58 ------ --------- ------ Weighting 5.0% 5.0% 5.0% ------ --------- ------ Weighted Average Per Share Valuation $2.33 $ 1.75 $1.24 ====== ========= ====== Proposed Consideration $2.00 $ 2.00 $2.00 ------ --------- ------ -------------------------------------------------------------------------------- (1) High reflects high of all methodologies utilized; low reflects low of all methodologies utilized; average reflects mean of all methodologies utilized. (2) Fully diluted common shares based on estimated December 31, 2003 common shares outstanding, all convertible securities on an as if converted basis and options on a treasury method basis at $2.00 per share (49.8 million shares). (3) Prior to November 21, 2003. SafeGuard closing share price on November 20, 2003 was $1.92. (4) See Section 8. (5) See Exhibit D. (6) See Exhibit E.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 9 ---------------------------------- SafeGuard Health Enterprises, Inc. [GRAPHIC OMITTED] CONCLUSION OF FAIRNESS OPINION ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 10 ---------------------------------- SafeGuard Health Enterprises, Inc. CONCLUSION OF FAIRNESS OPINION: UPDATE - Shattuck Hammond presented this Report to a meeting of the Board of Directors of SafeGuard on November 24, 2003. - After considerable questioning of Shattuck Hammond representatives by the Board of SafeGuard and a discussion of the pros and cons of various per share prices, the Board decided to increase the Consideration recommended by management on November 6, 2003 to $2.25 per share of SafeGuard Common Stock from $2.00 per share. - Shattuck Hammond restated its opinion that the Consideration(1) to be received by Holders of SafeGuard Common Stock who will hold fractional shares immediately following the Reverse Stock Split is fair, from a financial point of view, to such holders. (1) Per Board Resolution, dated November 24, 2003, $2.25 per pre-split share. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 11 ---------------------------------- SafeGuard Health Enterprises, Inc. CONCLUSION OF FAIRNESS OPINION - The Consideration(1) to be received by holders of SafeGuard Common Stock who will hold fractional shares immediately following the Reverse Stock Split is fair, from a financial point of view, to such holders. (1) $2.00 per pre-split share. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 12 ---------------------------------- SafeGuard Health Enterprises, Inc. [GRAPHIC OMITTED] TRANSACTION SUMMARY AND RATIONALE ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 13 ---------------------------------- SafeGuard Health Enterprises, Inc. REVERSE STOCK SPLIT/GOING PRIVATE SUMMARY - SafeGuard must reduce it stockholders to less than 300 to effect a going private transaction through a Reverse Stock Split. - The Reverse Stock Split will be effected through an amendment of SafeGuard's Certificate of Incorporation. - Because a majority of fully-diluted shareholders (inclusive of all preferred shareholders) are voting in favor of a going private transaction through a Reverse Stock Split, an information statement rather than a proxy statement will be sent to shareholders. - The Reverse Stock Split is based on a 1,500:1 ratio. - As of June 30, 2003, SafeGuard estimates that 441 of its approximately 725 shareholders have less than 500 shares. - After the Reverse Stock Split, the Company estimates it will have approximately 212 shareholders, which is less than the number at which the Company would have to remain public, which is 300 shareholders. - Stockholders will receive cash in lieu of fractional shares resulting from the Reverse Stock Split. - Cash payment for each fractional share will be $2.00 per pre-split share. - Total cash consideration is estimated at $775,000. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 14 ---------------------------------- SafeGuard Health Enterprises, Inc. RATIONALE FOR GOING PRIVATE - Costs of remaining a publicly-traded company and illiquidity of Common Stock support a decision to effect a going private transaction. - Cost Savings: Management estimates savings at approximately $1.0 million per year. - Sarbanes-Oxley compliance - D&O liability risk - SEC compliance/financial reporting - Management time - Illiquidity: SafeGuard is "publicly-traded" in name only.
- FLOAT ANALYSIS (2) -------------------------------------------------------------------------- Common shares outstanding 5.7 Less shares owned by investors and affiliated parties (3.9)(1) ------------ Total shares in float 1.8 32% ============ Total Preferred and Convertible Notes 42.8 Total Common, Preferred, and Convertible Notes 48.5 Total Common and Preferred in float 1.8 3.7% --------------------------------------------------------------------------
- Market value of float at November 20, 2003: $3.5 million. - Illiquidity of publicly-traded shares provides little benefit for raising capital or using shares as an acquisition currency. - Average monthly volume since January 28, 2000 to October 31, 2003 was 100,678(3). (1) See Exhibit F. Includes management, Board Members and certain other individuals that the Board considers to be long-term investors in the Company. (2) Excludes options and assumes conversion of notes. (3) Excludes volume of 598,600 during the week of August 31, 2000. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 15 ---------------------------------- SafeGuard Health Enterprises, Inc. RATIONALE FOR GOING PRIVATE - Benefits of going private through a Reverse Stock Split: - Requires minimal capital outlay and has a predictable cost; - Small shareholders can sell shares at a premium and without paying a commission; and - Small shareholders have the ability to maintain ownership by acquiring additional shares in the open market prior to effective date of the reverse stock split. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 16 ---------------------------------- SafeGuard Health Enterprises, Inc. [GRAPHIC OMITTED] SAFEGUARD OVERVIEW ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 17 ---------------------------------- SafeGuard Health Enterprises, Inc. SAFEGUARD OVERVIEW - SafeGuard provides managed care dental plans, PPO and indemnity dental plans, and vision benefit plans. The Company also provides administrative services and preferred provider organization services. - SafeGuard has undergone a transformation over the past few years.
SAFEGUARD OVERVIEW ------------------------------------------------------------------ 2000 2001 2002 2003 - Recapitalization - Additional new - Paramount - Ameritas management acquisition acquisition - New - Continued - $2 million - Health Net management management private acquisition turn around placement - Management - $19 million turn around private placement ------------------------------------------------------------------
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 18 ---------------------------------- SafeGuard Health Enterprises, Inc. SHARE PRICE PERFORMANCE - Over the LTM ended October 31, 2003, SafeGuard's share price has increased 25% and, performed similar to the Regional HMOs. - SafeGuard is traded in the OTC Bulletin Board (symbol "SFGD"). - The average share price over the LTM ended November 20, 2003 is $1.43(1). - Based on a closing price of $1.92 on November 20, 2003, SafeGuard's share price has increased 24% since October 31, 2003, the day before the closing of the Health Net Transaction was announced. - The average share price over the period from January 28, 2000(2) to November 20, 2003 is $1.31(1). RELATIVE SHARE PRICE PERFORMANCE: SAFEGUARD VS. REGIONAL HMOS VS. NASDAQ VS. RUSSELL SMALL CAP (LTM) ---------------------------------------------------- [GRAPHIC OMITTED] SAFEGUARD SHARE PRICE (LTM) ---------------------------------------------------- [GRAPHIC OMITTED] (1) For the calculation of the average price over the LTM ended November 20, 2003, if the stock did not trade the last closing price is used. (2) January 28, 2000 is the date that the Company first traded after being delisted from the OTC Bulletin Board. The Company was subsequently relisted on the OTC Bulletin Board on July 11, 2000. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 19 ---------------------------------- SafeGuard Health Enterprises, Inc. SHARE PRICE PERFORMANCE (CONTINUED) SAFEGUARD SHARE PRICE (JANUARY 28, 2000 TO CURRENT) --------------------------------------------------- [GRAPHIC OMITTED] (1) For the calculation of the average price over the period from January 28, 2000 to November 20, 2003, if the stock did not trade the last closing price is used. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 20 ---------------------------------- SafeGuard Health Enterprises, Inc. SHARE PRICE PERFORMANCE (CONTINUED) - Since the closing of the Health Net Transaction on October 31, 2003, SafeGuard's share price has increased. While trading volume during this period has been limited, it has been higher than typical trading volume in the Company since January 28, 2000. - A more detailed review of SafeGuard's trading volume is presented later in this Report. DAILY TRADING VOLUME SAFEGUARD STOCK PRICE SINCE OCTOBER 31, 2003 (2) (000'S) (1) -------------------------------------------------------- -------------------- [GRAPHIC OMITTED] (1) Volume represents both the buying and the selling of shares. (2) For calculation purposes, if the stock did not trade the last closing price is used. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 21 ---------------------------------- SafeGuard Health Enterprises, Inc. [GRAPHIC OMITTED] FINANCIAL SUMMARY ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 22 ---------------------------------- SafeGuard Health Enterprises, Inc. SAFEGUARD FINANCIAL SUMMARY - See Exhibit A for complete financial projections. - 2003 estimated and 2004 to 2008 projected financials are materially impacted by the following transactions: - The closing of the Health Net Transaction on October 31, 2003; - $19 million, 6% Convertible Notes financing on October 31, 2003 ("The Convertible Notes"); - Acquisition of Ameritas Dental on March 31, 2003; and - Acquisition of Paramount Dental Plan on August 30, 2002. - Fully-diluted shares are calculated as follows:
SUMMARY OF SHARES OUTSTANDING ----------------------------------------------------- Common Shares Outstanding (1) 5,737 Preferred Shares Outstanding (1) 30,000 ------ Basic Shares Outstanding 35,737 7% Secured Convertible Promissory Notes (2) 1,029 7% Unsecured Convertible Promissory Notes (1) 947 6% Unsecured Convertible Promissory Notes (1) 10,857 ------ 12,833 Options Outstanding (3) 1,230 ------ Total 49,800 ====== ----------------------------------------------------- (1) As of 9/30/2003 (2) Includes an additional $140,841 of principal amortization estimated in Q4 2003. (3) As of 9/30/2003 assuming treasury method and stock price of $2.00.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 23 ---------------------------------- SafeGuard Health Enterprises, Inc. SAFEGUARD FINANCIALS: MEMBERSHIP
9 Mon. Ending Year Ending December 31, September Year Ending December, 31 -------------------------- ---------- ---------------------------------------------------------- Actual Projected -------------------------- Estimated ---------------------------------------------------------- Membership Summary 2001 2002 2003 2003 2004 2005 2006 2007 2008 ------- -------- ------- ---------- ---------- ---------- ---------- ---------- ---------- HMO Wholesale California - - - - - - - - - Florida - 198,144 169,340 169,340 169,340 169,340 169,340 169,340 169,340 Texas - - - - - - - - - ------- -------- ------- ---------- ---------- ---------- ---------- ---------- ---------- Total HMO Wholesale - 198,144 169,340 169,340 169,340 169,340 169,340 169,340 169,340 NA NA -14.5% 0.0% 0,0% 0.0% 0.0% 0.0% Dental HMO California 305,297 274,559 287,274 727,830 750,115 773,100 796,808 821,261 846,483 HNT Strategic - - - - 10,000 20,000 30,000 40,000 50,000 Florida 41,311 83,393 83,925 83,925 88,121 92,527 97,154 102,011 107,112 Texas 129,528 102,136 99,777 99,777 105,764 112,109 118,836 125,966 133,524 ------- -------- ------- ---------- ---------- ---------- ---------- ---------- ---------- Total Dental HMO 476,136 460,088 470,976 911,532 954,000 997,737 1,042,797 1,089,239 1,137,120 NA -3.4% 98.1% 4.7% 4,6% 4.5% 4.5% 4.4% PPO/ Indemnity California 44,794 39,949 38,538 86,679 91,880 97,393 103,236 109,430 115,996 HNT Strategic - - - - 20,000 40,000 60,000 80,000 100,000 Florida 11,740 6,190 9,551 9,551 10,267 11,037 11,865 12,755 13,712 Texas 30,374 33,629 41,913 41,913 45,266 48,887 52,798 57,022 61,584 ------- -------- ------- ---------- ---------- ---------- ---------- ---------- ---------- Total PPO/ Indemnity 86,908 79,768 90,002 138,143 167,413 197,317 227,900 259,207 291,292 NA -8.2% 73.2% 21.2% 17.9% 15.5% 13.7% 12.4% Vision California 17,923 19,812 21,491 171,465 185,182 199,997 215,997 233,276 251,938 Florida 720 299 606 606 1,000 5,000 10,000 15,000 20,000 Texas 20,622 16,664 19,983 19,983 21,981 24,179 26,597 29,257 32,183 ------- -------- ------- ---------- ---------- ---------- ---------- ---------- ---------- Total Vision 39,265 36,775 42,080 192,054 208,164 229,176 252,594 277,533 304,121 NA -6.3% 422.2% 8.4% 10.1% 10.2% 9.9% 9.6% Third-Party Administrator and Other California 17,132 35,743 42,544 42,544 42,544 42,544 42,544 42,544 42,544 Florida - 10,432 9,813 9,813 9,813 9,813 9,813 9,813 9,813 Texas 19,922 3,172 3,939 3,939 3,939 3,939 3,939 3,939 3,939 ------- -------- ------- ---------- ---------- ---------- ---------- ---------- ---------- Total Other 37,054 49,347 56,296 56,296 56,296 56,296 56,296 56,296 56,296 NA 33.2% 14.1% 0.0% 0.0% 0.0% 0.0% 0.0% Total By Market California 385,146 370,063 389,847 1,028,518 1,099,721 1,173,033 1,248,584 1,326,512 1,406,962 Florida 53,771 298,458 273,235 273,235 278,542 287,718 298,172 308,919 319,977 Texas 200,446 155,601 165,612 165,612 176,950 189,115 202,171 216,184 231,230 ------- -------- ------- ---------- ---------- ---------- ---------- ---------- ---------- Total Membership 639,363 824,122 828,694 1,467,365 1,555,212 1,649,866 1,748,927 1,851,615 1,958,168 NA 28.9% 78.1% 6.0% 6.1% 6.0% 5.9% 5.8%
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 24 ---------------------------------- SafeGuard Health Enterprises, Inc. SAFEGUARD: FORECAST ASSUMPTIONS
FORECAST ASSUMPTIONS -------------------------------------------------------------------------------- Years ending December 31 ---------------------------------- Projected ---------------------------------- Membership Growth 2004 2005 2006 2007 2008 ----- ------ ----- ----- ----- Dental HMO CA 3.0% 3.0% 3.0% 3.0% 3.0% CA - Health Net (Commercial) 3.0% 3.0% 3.0% 3.0% 3.0% CA - Health Net (Medicare) 0.0% 0.0% 0.0% 0.0% 0.0% CA - Health Net (Medicaid) 3.5% 3.5% 3.5% 3.5% 3.5% CA - Health Net (Strategic Relationship) NA 100.0% 50.0% 33.3% 25.0% TX 6.0% 6.0% 6.0% 6.0% 6.0% FL 5.0% 5.0% 5.0% 5.0% 5.0% Dental PPO 21.2% 17.9% 15.5% 13.7% 12.4% Full-Risk: Vision 8.4% 10.1% 10.2% 9.9% 9.6% Premium Growth Full-Risk: Dental HMO (Commercial) (1) 3.5% 3.5% 3.5% 3.5% 3.5% PPO/Indemnity(1) 5.0% 5.0% 5.0% 5.0% 5.0% HMO (Medicare) 2.0% 2.0% 2.0% 2.0% 2.0% HMO (Medicaid) 2.0% 2.0% 2.0% 2.0% 2.0% Full-Risk: Vision HMO 3.5% 3.5% 3.5% 3.5% 3.5% PPO/Indemnity 3.5% 3.5% 3.5% 3.5% 3.5% Medical Loss Ratio (2) HMO Wholesale 52.7% 52.7% 52.7% 52.7% 52.7% Dental HMO (1) 62.9% 62.8% 62.7% 62.6% 62.5% PPO/ Indemnity (1) 79.4% 79.4% 79.3% 79.3% 79.2% Third-Party Administrator and Other 61.7% 62.0% 62.3% 62.6% 62.9% Vision 58.5% 58.5% 58.7% 58.8% 58.9% (1) Includes strategic relationship members. (2) Includes direct medical expenses only.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 25 ---------------------------------- SafeGuard Health Enterprises, Inc. SAFEGUARD FINANCIALS: INCOME STATEMENT In Thousands, Except Per Share Data
9 MON. ENDING YEAR ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 -------------------------- --------- -------------------------------------------------------------- ACTUAL PROJECTED ------------------------------------ ESTIMATED ---------------------------------------------------- INCOME STATEMENT 2001 2002 2003 2003 (1) 2004 2005 2006 2007 2008 ---------------------------------------------- -------- -------- --------- --------- -------- ---------- -------- --------- Revenues HMO Wholesale $ - $ 1,829 $ 3,525 $ 4,651 $ 4,505 $ 4,505 $ 4,505 $ 4,505 $ 4,505 Dental HMO 52,103 47,163 37,568 58,314 107,183 115,681 124,771 134,495 144,897 PPO/Indemnity 27,253 24,218 20,507 30,009 51,857 66,470 82,644 100,526 120,278 Third-Party Administrator and Other 2,724 7,562 4,546 6,108 6,542 6,834 7,140 7,461 7,798 Vision 2,442 2,051 1,784 3,897 12,591 14,254 16,270 18,551 21,089 Estimated Bad Debts 300 220 120 156 156 156 156 156 156 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- TOTAL REVENUE 84,822 83,043 68,050 103,135 182,834 207,899 235,486 265,694 298,723 Health Care Expense HMO Wholesale - 747 1,858 2,452 2,374 2,374 2,374 2,374 2,374 Dental HMO 30,044 27,258 21,067 33,738 67,444 72,654 78,219 84,165 90,516 PPO/Indemnity 20,961 17,959 16,066 23,588 41,191 52,747 65,538 79,679 95,299 Third-Party Administrator 1,787 5,429 2,766 3,727 4,036 4,238 4,450 4,673 4,906 Vision 1,611 1,275 1,103 2,324 7,362 8,345 9,547 10,908 12,421 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- Direct Health Care Expense 54,403 52,668 42,860 65,829 122,408 140,359 160,129 181,799 205,516 Broker Commissions 6,117 5,160 4,602 6,634 10,404 12,075 13,921 15,947 18,168 Broker Commissions - TPA - 873 482 643 688 719 751 785 821 TPA Fees - 691 450 600 643 671 701 733 766 Internal Incentives 618 259 288 463 1,500 1,706 1,932 2,180 2,451 Premium Taxes 1,034 1,042 839 1,189 1,825 2,205 2,626 3,092 3,605 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- Total Direct Expenses 62,172 60,693 49,521 75,357 137,468 157,735 180,062 204,536 231,327 Gross Profit 22,650 22,350 18,529 27,778 45,366 50,163 55,424 61,158 67,396 Administrative Expense 20,074 20,645 15,456 23,149 35,945 37,381 39,658 42,047 44,554 One-Time Integration Expenses - - - 230 310 - - - - HNT Strategic Relationship Expense - - - - 270 848 1,479 2,167 2,917 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- EBITDA 2,576 1,705 3,073 4,399 8,841 11,935 14,287 16,944 19,925 Less Depreciation 1,837 1,216 921 1,250 1,500 1,500 1,500 1,500 1,500 Less Amortization - 257 422 575 1,193 1,193 1,193 1,194 979 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- EBIT 739 232 1,730 2,574 6,148 9,242 11,594 14,250 17,446 Less: Interest Expense - Existing (504) (232) (262) (335) (201) (108) (101) (60) (13) Less: Interest Expense - Convertible Note (6%) - - - (190) (1,140) (1,140) (1,140) (1,140) (1,140) Plus: Investment Income 722 301 138 254 373 505 663 856 1,084 Plus: Other Interest Income 338 306 93 124 124 124 124 124 124 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- PRETAX INCOME 1,295 607 1,699 2,427 5,304 8,623 11,141 14,030 17,502 Less: Income Tax Expense - 820 (141) (188) (2,309) (3,624) (4,621) (5,765) (7,098) --------------- -------- -------- --------- --------- --------- ---------- -------- --------- NET INCOME BEFORE EXTRAORDINARY ITEMS 1,295 1,427 1,558 2,239 2,994 4,999 6,520 8,265 10,404 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- Extraordinary Item 11,251 - - - - - - - - --------------- -------- -------- --------- --------- --------- ---------- -------- --------- NET INCOME AFTER EXTRAORDINARY ITEMS $12,546 $ 1,427 $ 1,558 $ 2,239 $ 2,994 $ 4,999 $ 6,520 $ 8,265 $ 10,404 =============== ======== ======== ========= ========= ========= ========= ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING Basic 32,253 35,130 35,711 35,737 35,737 35,737 37,713 37,713 37,713 Fully-Diluted 33,009 35,638 36,272 41,064 49,800 49,800 49,800 49,800 49,800 EPS Basic $ 0.39 $ 0.04 $ 0.04 $ 0.06 $ 0.08 $ 0.14 $ 0.17 $ 0.22 $ 0.28 Fully-Diluted $ 0.38 $ 0.04 $ 0.04 $ 0.06 $ 0.08 $ 0.12 $ 0.14 $ 0.18 $ 0.22
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 26 ---------------------------------- SafeGuard Health Enterprises, Inc. SAFEGUARD FINANCIALS: MARGINS
9 Mon. Ending Year Ending December 31, September Year Ending December, 31 ----------------------- -------------- -------------------------------------------------- Actual Projected --------------------------------------- Estimated -------------------------------------- Ratio Summary 2001 2002 2003 2003 2004 2005 2006 2007 2008 ------------------------------------ ------------ --------- -------------- ---------- ----- ----- ---------- ----- ----- Margins Gross 26.7% 26.9% 27.2% 26.9% 24.8% 24.1% 23.5% 23.0% 22.6% EBITDA 3.0% 2.1% 4.5% 4.3% 4.8% 5.7% 6.1% 6.4% 6.7% Pre-Tax 1.5% 0.7% 2.5% 2.4% 2.9% 4.2% 4.7% 5.3% 5.9% Net Income 1.5% 1.7% 2.3% 2.2% 1.7% 2.4% 2.8% 3.1% 3.5% Medical Loss Ratio (1) HMO Wholesale NA 40.8% 52.7% 52.7% 52.7% 52.7% 52.7% 52.7% 52.7% Dental HMO (2) 57.7% 57.8% 56.1% 57.9% 62.9% 62.8% 62.7% 62.6% 62.5% PPO/ Indemnity (2) 76.9% 74.2% 78.3% 78.6% 79.4% 79.4% 79.3% 79.3% 79.2% Third-Party Administrator and Other 65.6% 71.8% 60.8% 61.0% 61.7% 62.0% 62.3% 62.6% 62.9% Vision 66.0% 62.2% 61.8% 59.6% 58.5% 58.5% 58.7% 58.8% 58.9%
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 27 ---------------------------------- SafeGuard Health Enterprises, Inc. SAFEGUARD FINANCIALS: BALANCE SHEET In Thousands
9 Mon. Ending Year Ending December 31, September -------------------------- ---------- Actual Year Ending December, 31 ------------------------------------- Estimated ----------------------- BALANCE SHEET 2001 2002 2003 2003 2004 2005 ------------------------------------------------------------------------------------------------------------------------- ASSETS Cash & Cash Equivalents $ 1,497 $ 3,036 $ 4,461 $ 9,426 $ 9,426 $ 9,426 Marketable Securities 13,956 9,668 9,602 15,073 21,681 29,600 Accounts Receivable net allowances 2,839 2,554 1,770 4,915 5,514 6,270 Other Current Assets 903 853 463 2,489 2,939 3,056 ------------ ------------ --------- ----------- --------- ---------- Total Current Assets $ 19,195 $ 16,111 $ 16,296 $ 31,903 $ 39,560 $ 48,351 Net PP&E 2,348 3,532 3,686 4,138 3,738 3,438 Restricted Investments 2,831 3,254 3,091 3,569 3,569 3,569 Notes Recievable 805 457 379 359 299 239 Goodwill and Intangible Assets 3,920 10,603 11,004 22,357 21,164 19,971 Other Assets 226 157 210 236 236 236 ------------ ------------ --------- ----------- --------- ---------- TOTAL ASSETS $ 29,325 $ 34,114 $ 34,666 $ 62,562 $ 68,566 $ 75,805 ============ ============ ========= =========== ========= ========== LIABILITIES Account Payable $ 3,168 $ 1,661 $ 1,070 $ 2,077 $ 2,453 $ 2,551 Accrued Expenses 4,827 3,526 3,842 7,378 8,711 9,059 Short-Term Debt 265 2,430 1,189 198 11 12 Claims Payable 5,905 4,690 5,822 7,744 8,840 10,137 Deferred Premium Revenue 823 1,786 1,386 3,301 3,703 4,211 ------------ ------------ --------- ----------- --------- ---------- Total Current Liabilities $ 14,988 $ 14,093 $ 13,309 $ 20,698 $ 23,719 $ 25,970 ------------ ------------ --------- ----------- --------- ---------- Long-term Debt and Capital Lease Obligations $ - $ 2,997 $ 2,785 $ 22,246 $ 22,235 $ 22,223 Other Long-term Liabilities 971 1,013 937 1,368 1,368 1,368 ------------ ------------ --------- ----------- --------- ---------- Total Long Term Liabilities $ 971 $ 4,010 $ 3,722 $ 23,614 $ 23,603 $ 23,591 ------------ ------------ --------- ----------- --------- ---------- STOCKHOLDERS' EQUITY Convertible Preferred Stock $ 41,250 $ 41,250 $ 41,250 $ 41,250 $ 41,250 $ 41,250 Common Stock 21,552 22,662 22,742 22,676 22,676 22,676 Retained Earnings (31,447) (30,170) (28,612) (27,931) (24,937) (19,937) Treasury Stock 63 95 81 81 81 81 Accumulated Other Comprehensive Income (18,052) (17,826) (17,826) (17,826) (17,826) (17,826) ------------ ------------ --------- ----------- --------- ---------- Total Stockholders' Equity $ 13,366 $ 16,011 $ 17,635 $ 18,250 $ 21,244 $ 26,244 ------------ ------------ --------- ----------- --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,325 $ 34,114 $ 34,666 $ 62,562 $ 68,566 $ 75,805 ============ ============ ========= =========== ========= ========== check - - - - - - Projected --------------------------------- BALANCE SHEET 2006 2007 2008 --------------------------------------------------------------------------------- ASSETS Cash & Cash Equivalents $ 9,426 $ 9,426 $ 9,426 Marketable Securities 39,236 50,655 64,057 Accounts Receivable net allowances 7,102 8,013 9,009 Other Current Assets 3,243 3,438 3,643 ----------- --------- --------- Total Current Assets $ 59,006 $ 71,532 $ 86,135 Net PP&E 3,238 3,138 3,138 Restricted Investments 3,569 3,569 3,569 Notes Recievable 179 119 59 Goodwill and Intangible Assets 18,778 17,584 16,605 Other Assets 236 236 236 ----------- --------- --------- TOTAL ASSETS $ 85,006 $ 96,178 $109,742 =========== ========= ========= LIABILITIES Account Payable $ 2,706 2,869 $ 3,040 Accrued Expenses 9,611 10,190 10,798 Short-Term Debt 12 0 0 Claims Payable 11,565 13,130 14,843 Deferred Premium Revenue 4,770 5,382 6,051 ----------- --------- --------- Total Current Liabilities $ 28,664 $ 31,570 $ 34,731 ----------- --------- --------- Long-term Debt and Capital Lease Obligations $ 19,000 $ 19,000 $ 19,000 Other Long-term Liabilities 1,368 1,368 1,368 ----------- --------- --------- Total Long Term Liabilities $ 20,368 $ 20,368 $ 20,368 ----------- --------- --------- STOCKHOLDERS' EQUITY Convertible Preferred Stock $ 41,250 $ 41,250 $ 41,250 Common Stock 25,887 25,887 25,887 Retained Earnings (13,418) (5,153) 5,251 Treasury Stock 81 81 81 Accumulated Other Comprehensive Income (17,826) (17,826) (17,826) ----------- --------- --------- Total Stockholders' Equity $ 35,974 $ 44,239 $ 54,643 ----------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,006 $ 96,178 $109,742 =========== ========= ========= check - - -
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 28 ---------------------------------- SafeGuard Health Enterprises, Inc. SAFEGUARD FINANCIALS: CASH FLOW STATEMENT In Thousands
Year Ending December, 31 -------------------------------------------------- Projected -------------------------------------------------- Cash Flow Statement 2004 2005 2006 2007 2008 -------------------------------------------------------------------------------------------- Net Income $ 2,994 $ 4,999 $ 6,520 $ 8,265 $ 10,404 Depreciation and Amortization 2,693 2,693 2,693 2,694 2,479 CHANGE IN CURRENT ASSETS AND LIABILITIES Accounts Receivable (599) (756) (832) (911) (996) Other Current Assets (450) (117) (186) (195) (205) Accounts Payable 375 98 155 163 171 Accrued Expenses 1,334 348 552 579 608 Claims Payable 1,096 1,296 1,428 1,565 1,713 Deferred Premium Revenue 402 508 559 612 669 -------- -------- -------- --------- --------- Change in Current Assets and Liabilities 2,159 1,377 1,676 1,812 1,960 Change in Other Assets and Liabilities 60 60 60 60 60 -------- -------- -------- --------- --------- Cash From Operations 7,906 9,129 10,949 12,831 14,902 FINANCING/ INVESTING ACTIVITIES Purchase of Property and Equipment (1,100) (1,200) (1,300) (1,400) (1,500) Conversion of Convertible Debt - - 3,211 - - Short-Term Debt (187) 1 - (12) - Change In LTD (11) (12) (3,223) - - -------- -------- -------- --------- --------- Cash Provided By Financing/ Investing Activities (1,298) (1,211) (1,312) (1,412) (1,500) -------- -------- -------- --------- --------- Increase (Decrease) in Cash $ 6,608 $ 7,918 $ 9,637 $ 11,419 $ 13,402 ======== ======== ======== ========= ========= Beginning Cash $ 9,426 $ 9,426 $ 9,426 $ 9,426 $ 9,426 ======== ======== ======== ========= ========= Transfers to Marketable Securities $(6,608) $(7,918) $(9,637) $(11,419) $(13,402) Ending Cash $ 9,426 $ 9,426 $ 9,426 $ 9,426 $ 9,426 -------- -------- -------- --------- ---------
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 29 ---------------------------------- SafeGuard Health Enterprises, Inc. HEALTH NET TRANSACTION In Thousands - Health Net Transaction transformed SafeGuard: - Combined purchase price was $14.8 million. - Impact to both income statement and balance sheet(4). - Ownership of a vision business. PROJECTED 2004 REVENUE --------------------------------------- [GRAPHIC OMITTED] PROJECTED 2004 FULL-RISK MEMBERSHIP --------------------------------------- [GRAPHIC OMITTED] CAPITALIZATION (10/31/2003) --------------------------------------- [GRAPHIC OMITTED] (1) Includes $2.7 million of pro forma revenue related to Strategic Dental Relationship with Health Net. (2) Reflects $1.55 per share times 5.7 million shares outstanding. (3) LTD as of 8/31/03. (4) See page 5 of Exhibit A. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 30 ---------------------------------- SafeGuard Health Enterprises, Inc. CONVERTIBLE NOTES - Proceeds from the Convertible Notes will be used to finance the Health Net Transaction and for general corporate purposes. - Convertible Notes issued during October 2003. - Converts into 10,857,143 shares. CONVERTIBLE NOTES ------------------------------------------------------------------------------- Amount: $19 million Conversion price: $1.75 per common share Interest rate: 6% Prepayment: % of par -------- (i) 0 - 84 months 229% (ii) 85 - 96 months 257% (iii) 97 - 108 months 286% (iv) 109 - 120 months 323% Term: 2013 Amortization: 15 quarterly payments based on 10 year amortization, commencing 12/31/09 through 6/30/13. Remaining principal due on 10/31/13. ------------------------------------------------------------------------------- ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 31 ---------------------------------- SafeGuard Health Enterprises, Inc. PRO FORMA FINANCIALS - For valuation purposes other than the discounted cash flow analysis, the Health Net Transaction and Ameritas Acquisition have been included in SafeGuard's income statement for the LTM ended September 30, 2003 and the estimated year ending December 31, 2003 on a pro forma basis as if the transactions occurred at the beginning of the period and that all expense synergies expected during 2003 and 2004 are realized at the beginning of the period. The $19 million Convertible Notes financing is also assumed to have been in place from the beginning of the period. - Numerous assumptions were required, but in our opinion it would be misleading to value SafeGuard for the period without including the pro forma results. - The pro forma adjustments are especially important with regard to the Health Net Transaction due to the (i) the size of the transaction relative to Safeguard; (ii) the fact that the Health Net Transaction closed only a short period of time before the Reverse Stock Split is anticipated to be announced; and (iii) the amount of the financing related to the Health Net Transaction compared to Safeguard's capitalization. - The pro forma financials do not take into account any potential revenue or profitability related to the Dental Strategic Relationship between Health Net and SafeGuard. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 32 ---------------------------------- SafeGuard Health Enterprises, Inc. SAFEGUARD: PRO FORMA INCOME STATEMENT In Thousands
PRO FORMA LAST TWELVE MONTHS ENDING SEPTEMBER 30, 2003 (3) ------------------------------------------------------------------------------------------- HNT Vision Safeguard HNT Medicaid Ameritas (1) Consolidated ----------- ------- ---------- ------------- ------------- REVENUE $ 89,548 $74,337 $ (3,317) $ 1,951 $ 162,519 Direct Health Care 55,658 52,482 (2,308) 1,325 107,157 Broker Commissions 6,021 3,083 156 9,260 Broker Commissions - TPA 655 - 655 Internal Incentives 443 485 928 TPA Fees 589 - 589 Premium Taxes 1,101 418 1,519 ------------ ------- ---------- ------------- ------------- Total Direct Expenses 64,467 56,468 (2,308) 1,482 120,109 ------------- Gross Margin 25,081 17,869 (1,009) 470 42,411 Administrative Expense (2) 33,141 ------------ EBITDA 9,270 IBNR Adjustment (4) (316) ------------ Adjusted EBITDA $ 8,954 ============ (1) Results for 9/30/02 to 3/31/03 estimated at three months ending 3/31/03 actual run rate. (2) Estimated pro forma administrative expenses on a consolidated basis per Management's integration forecast. (3) HNT results are for the twelve trailing months ending 8/31/03. (4) Adjustment related to release of IBNR from prior period.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 33 ---------------------------------- SafeGuard Health Enterprises, Inc. SAFEGUARD: PRO FORMA INCOME STATEMENT (CONTINUED) In Thousands, Except Per Share Data
ESTIMATED PRO FORMA YEAR ENDING DECEMBER 31 ------------------------------------------------------------------------------------------------------------------------- 2003 2004 ---------------------------------------------------------------------- -------- 2003 per 10M HNT Vision Forecast HNT (1) Medicaid (1) Ameritas (2) Consolidated ----------- ---------- ------------ ------------ ------------ Revenue $ 103,135 $ 62,393 $ (2,565) $ 836 $ 163,799 $182,834 Direct Health Care 65,829 44,391 (1,830) 568 108,958 122,408 Broker Commissions 6,634 2,490 67 9,191 10,404 Broker Commissions - TPA 643 - 643 688 Internal Incentives 463 394 856 643 TPA Fees 600 - 600 1,500 Premium Taxes 1,189 352 1,541 1,825 ----------- ---------- ------------ ------------ ------------ --------- Total Direct Expenses 75,357 47,627 (1,830) 635 121,789 137,468 ------------ --------- Gross Margin 27,778 14,766 (735) 201 42,010 45,366 Administrative Expense (3) 33,141 35,117 ------------ --------- EBITDA 8,869 10,249 IBNR Adjustment (4) 157 - ------------ --------- Adjusted EBITDA 9,026 10,249 Less Depreciation 1,500 1,500 Less Amortization 1,193 1,193 ------------ --------- EBIT 6,333 7,556 Less: Interest Expense -Existing (201) (201) Less: Interest Expense -Convertible Note (6%) (1,140) (1,140) Plus: Investment Income 373 373 Plus: Other Interest Income 124 124 ------------ --------- Pretax Income 5,489 6,712 Less: Income Tax Expense (2,383) (2,867) ------------ --------- Net Income Before Extraordinary Items 3,106 3,845 After-Tax effect of Diluted Securities 805 805 ------------ --------- Adjusted Net Income $ 3,912 $ 4,650 ============ ========= Fully-Diluted Shares Outstanding 49,800 49,800 Fully-Diluted EPS $ 0.08 $ 0.09 (1) 10 Months of HNT Results not in forecast model estimated at 8M actual run rate. (2) Results for three months ending 3/31/03. (3) Estimated pro forma administrative expenses per Management's integration forecast. Administrative expense for 2004 assumes full synergies at beginning of period. (4) Adjustment related to additional IBNR from prior period.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 34 ---------------------------------- SafeGuard Health Enterprises, Inc. TRADING VOLUME - Although the share price has increased over the LTM ended October 31, 2003, trading volume and liquidity have been limited. - Approximately 1.8 million shares in float with a value of $3.5 million at November 20, 2003. - Average monthly volume is 17,050. SAFEGUARD SHARE VOLUME (LATEST TWELVE MONTHS) -------------------------------------------------------------------------------- [GRAPHIC OMITTED] ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 35 ---------------------------------- SafeGuard Health Enterprises, Inc. [GRAPHIC OMITTED] FACTORS AFFECTING VALUATION ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 36 ---------------------------------- SafeGuard Health Enterprises, Inc. FACTORS AFFECTING VALUATION - PRO FORMA FINANCIALS: As previously discussed, SafeGuard's income statement for the LTM ended September 30, 2003 and the estimated year ending December 31, 2003 have been adjusted on a pro forma basis to reflect the Health Net Transaction and Ameritas Acquisition for a full year even though these transactions closed October 31, 2003 and March 31, 2003, respectively. The Health Net Transaction and the associated Convertible Notes financing were so material to SafeGuard with respect to profitability, critical mass, and capitalization, it was our opinion that they had to be taken into account in any valuation of the Company. This was supported by the fact that the Health Net Transaction closed only a short period of time before the reverse stock split is anticipated to be announced. Moreover, management estimates that it will take approximately a year to realize the full administrative synergies of the Health Net Transaction. For our valuation analysis that involved the LTM ended September 30, 2003 and the year ended December 31, 2003, we adjusted SafeGuard's income statement to reflect the full amount of projected synergies. In this way, our valuation analysis reflects the full benefit of the Health Net Transaction. However, we also applied a discount to the valuation multiples to reflect, among other things, the significant pro forma assumptions. - The pro forma financials do not include any adjustment related to the Dental Strategic Relationship. Under this relationship Health Net will sell Health Net branded dental products underwritten and administered by SafeGuard to Health Net members in California, Oregon, and Arizona. - It should be noted that there is no guarantee that this relationship will result in SafeGuard obtaining any new members. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 37 ---------------------------------- SafeGuard Health Enterprises, Inc. FACTORS AFFECTING VALUATION (CONTINUED) - COMPARABLE PUBLICLY-TRADED COMPANIES: Except SafeGuard, there are no publicly-traded "pure play" dental or vision-benefit companies. As a result, we selected regional managed healthcare companies as the closest proxy for valuation purposes. - COMPARABLE MERGERS AND ACQUISITION TRANSACTIONS: There are very few comparable dental merger and acquisitions transaction that have occurred over the last two years, and even fewer vision transactions. Moreover, SafeGuard was the buyer in a number of these transactions, and profitability data was not available in all the transactions. As a result, in addition to dental and vision transactions, we also utilized managed healthcare acquisition transactions involving regional managed healthcare companies, which provided a much broader base of transactions. - NET OPERATING LOSS CARRY FORWARD: Although SafeGuard has a NOL outstanding, the use of such NOL is limited to $350,000 per year. Due to the relatively small number and other factors, we deemed it immaterial to our valuation and did not specifically take it into account. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 38 ---------------------------------- SafeGuard Health Enterprises, Inc. [GRAPHIC OMITTED] VALUATION METHODOLOGY ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 39 ---------------------------------- SafeGuard Health Enterprises, Inc. VALUATION METHODOLOGIES - CONVENTIONAL METHODOLOGIES: There are three general approaches to establishing the value of managed care companies: - COMPARABLE COMPANIES ANALYSIS: The value of the company is determined by reference to corresponding valuation multiples of publicly-traded comparables. - COMPARABLE TRANSACTIONS ANALYSIS: The value of the company is determined by reference to corresponding valuation multiples of acquisitions of comparable public and private companies. - DISCOUNTED CASH FLOW ANALYSIS: The value of the company is determined based on projections of future cash flows of the company that are discounted to a new present value. - OTHER METHODOLOGIES: When valuing a publicly-traded company, a premium analysis is another valuation methodology that can be utilized. The analysis reflects the premium that a transaction or offer represents to a company's share price at different points in time. When considering the validity of using this analysis, a company's historical trading volume, public float, and share price must be taken in consideration. For these reasons (low volume, thin float and low share price), despite the fact that SafeGuard is publicly-traded, we substantially discount this methodology. - METHODOLOGY NOT USED: We did not use a liquidation analysis because: (i) SafeGuard is a going concern and in our opinion should be valued as one; and (ii) a liquidation analysis generally produces a meaningless valuation for a managed care company that can be valued as a going concern due to the lack of tangible assets and the high costs of winding-down the business. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 40 ---------------------------------- SafeGuard Health Enterprises, Inc. VALUATION METHODOLOGIES: PUBLICLY-TRADED COMPARABLE COMPANY ANALYSIS - See Regional HMO Common Stock Comparison on the following page. - As previously discussed, due to a lack publicly-traded dental and vision managed care companies, the universe of "comparable" companies we utilized consists of managed health care companies that have their business in most instances concentrated in a single regional market or a limited number of states. Shattuck Hammond refers to this as the "Regional HMO" universe. In addition to the regional nature of their business, the Regional HMO's are significantly smaller with regard to revenue than the companies that compose the National HMO universe. - When valuing a private company, a net discount is generally applied to the multiples of publicly-traded comparable companies to reflect illiquidity, and issues related to private ownership as well as premium for control. If the private company is smaller in size than the publicly-traded comparables (which the Company is) such net discount is generally 30-50%. Although SafeGuard is publicly-traded, a discount of 10-20% was applied against the valuation multiples of the Regional HMOs for the following reasons: (i) the illiquidity of SafeGuard's stock; (ii) the pro forma calculation of SafeGuard's income statements; and (iii) SafeGuard's relatively small revenue compared to the Regional HMOs. Four valuation multiples were used: revenue, EBITDA, 2003 projected P/E, and 2004 projected P/E. The implied values have been weighted equally. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 41 ---------------------------------- SafeGuard Health Enterprises, Inc. PUBLIC MARKET VALUATION ANALYSIS
Stock Price Latest Twelve Months (2) ------------------------ -------------------------------------- Market Value --------------------- % Below 52 Net Mem- COMPANY 11/12/2003 wkHi Equity Total (1) Revs Revs Income bers(3)(4) -------------------------------------- ----------- ----------- --------- ---------- --------- ------- ------- ---------- Coventry Corporation $ 57.38 4.40% $3,690.00 $ 3,232.00 $4,258.10 $337.70 $220.80 1,930 Oxford Health Plan $ 41.80 10.40% $3,645.50 $ 3,146.90 $5,264.10 $469.10 $324.20 1,536 Sierra Health Services $ 26.73 3.00% $1,055.00 $ 913.00 $1,420.70 $111.60 $ 70.30 477 WellChoice Inc. $ 32.61 8.10% $2,722.60 $ 1,769.60 $5,233.20 $286.20 $177.00 2,996 AMERIGROUP Corporation $ 43.51 8.70% $1,133.00 $ 882.80 $1,501.10 $125.30 $ 64.00 866 Centene Corporation $ 27.95 21.70% $ 596.70 $ 449.00 $ 703.80 $ 48.10 $ 29.90 432 Molina Healthcare, Inc $ 24.50 15.50% $ 635.40 $ 458.50 $ 758.50 $ 67.60 $ 40.50 530 ---------------------------------------------------------------------------------------- Low 3.00% $ 596.70 $ 449.00 $ 703.80 $ 48.10 $ 29.90 432 High 21.70% $3,690.00 $ 3,232.00 $5,264.10 $469.10 $324.20 2,996 Median 8.70% $1,133.00 $ 913.00 $1,501.10 $125.30 $ 70.30 866 Mean 10.30% $1,925.50 $ 1,550.30 $2,734.20 $206.50 $132.40 1,252 ---------------------------------------------------------------------------------------- SafeGuard Health Enterprises, Inc. (6) 1.92 23.20% $ 70.80 $ 72.30 $ 89.50 $ 4.10 $ 1.20 NMF Price / EPS LTM Margins -------------------- ------------------------- Total Value/LTM Projected ------------------------ ------------- EBITDA Net COMPANY Revs EBITDA Members LTM 2003 2004 MLR (5) Margin Income -------------------------------------- ----- ------ --------- ----- ----- ------ ------- ------- ------- Coventry Corporation 0.76x 9.6x $1,674.80 16.7X 14.0x 11.8x 81.70% 7.90% 5.20% Oxford Health Plan 0.60X 6.7X $2,048.50 11.2x 9.8x 9.4x 80.80% 8.90% 6.20% Sierra Health Services 0.64x 8.2x $1,915.40 15.0x 10.1x 8.7x 85.90% 7.90% 5.00% WellChoice Inc. 0.34x 6.2x $ 590.60 15.4x 13.6x 11.7X 85.20% 5.50% 3.40% AMERIGROUP Corporation 0.59x 7.0x $1,019.40 17.7x 14.8x 13.8x 80.30% 8.30% 4.30% Centene Corporation 0.64x 9.3x $1,039.80 20,0x 16.3x 14.6x 82.80% 6.80% 4.20% Molina Healthcare, Inc 0.60x 6.8x $ 865.10 15.7x 14.0x 13.0x 83.20% 8.90% 5.30% ------------------------------------------------------------------------- Low 0.34X 6.2x $ 590.60 11.2x 9.8x 8.7x 80.30% 5.50% 3.40% High 0.76X 9.6x $2,048.50 20.0x 16.3x 14.6x 85.90% 8.90% 6.20% Median 0.60X 7.0x $1,039.80 15.7x 14.0x 11.8x 82.80% 7.90% 5.00% Mean 0.60x 7.7x $1,307.70 16.0x 13.2x 11.8x 82.80% 7.80% 4.80% ------------------------------------------------------------------------- SafeGuard Health Enterprises, Inc. (6) 0.81x 17.7x NMF 59.2x NA NA 68.50% 4.60% 1.30% (1) Total Market Value = Total Enterprise Value (TEV) = Market Value of Equity plus Total Debt and Long-Term Liabilities minus Working Capital. (2) LTM =9/30/03. (3) Commercial Equivalent Members in thousands. Derived by converting Medicare-risk members at 5:4, Medicaid-risk members at 1:1, full-risk PPO/POS members at 1:1, Partial Risk members at 1:5,Tricare/Champus/Medicare Supplemental at 1:5, and non-risk (ASO/TPA) members at 1:10. (4) Excludes specialty healthcare members and all non-healthcare members. (5) MLR = Medical Loss Ratio: Medical Expenses divided by Net Premium Revenue. (6) Excludes all pro forma adjustments, including the Health Net Transaction.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 42 ---------------------------------- SafeGuard Health Enterprises, Inc. PUBLICLY-TRADED COMPARABLE COMPANY VALUATION: REVENUE $ In Millions
PUBLICLY-TRADED COMPARABLE COMPANY VALUATION: REVENUE ----------------------------------------------------------- HIGH AVERAGE LOW ------- --------- ------- Pro Forma Revenue LTM Ended 9/30/03 (1) $162.5 $ 162.5 $162.5 Estimated Year 2003 $163.8 $ 163.8 $163.8 Revenue Multiple 0.60x 0.60x 0.60x Discount 10.0% 15.0% 20.0% ------- --------- ------- Adjusted Revenue Multiple 0.54x 0.51x 0.48x ------- --------- ------- Business Enterprise Value LTM Ended 9/30/03 87.8 82.9 78.0 Estimated Year 2003 88.5 83.5 78.6 Less: Debt (2) (0.2) (0.2) (0.2) Plus: Working Capital (2), (3) 11.4 11.4 11.4 ------- --------- ------- Equity Value LTM Ended 9/30/03 $ 98.9 $ 94.1 $ 89.2 Estimated Year 2003 $ 99.6 $ 94.7 $ 89.8 Fully-Diluted Shares (4) 49.8 49.8 49.8 ------- --------- ------- Equity Value Per Share LTM Ended 9/30/03 $ 1.99 $ 1.89 $ 1.79 ======= ========= ======= Estimated Year 2003 $ 2.00 $ 1.90 $ 1.80 ======= ========= ======= -------------------------------------------------------------------------------- (1) HNT results are for the twelve trailing months ending 8/31/03. (2) Estimated Balance Sheet for 12/31/03 used, however it should be noted that all convertible debt is assumed to be converted. (3) Working capital equals current assets less non debt current liabilities. (4) Fully diluted common shares based on estimated December 31, 2003 common shares outstanding, all convertible securities on an as if converted basis and options on a treasury method basis at $2.00 per share.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 43 ---------------------------------- SafeGuard Health Enterprises, Inc. PUBLICLY-TRADED COMPARABLE COMPANY VALUATION: EBITDA $ In Millions
PUBLICLY-TRADED COMPARABLE COMPANY VALUATION: EBITDA ----------------------------------------------------------- HIGH AVERAGE LOW ------- --------- ------- Pro Forma EBITDA LTM Ended 9/30/03 (1) $ 9.0 $ 9.0 $ 9.0 Estimated Year 2003 $ 9.0 $ 9.0 $ 9.0 EBITDA Multiple 7.70x 7.70x 7.70x Discount 10.0% 15.0% 20.0% ------- --------- ------- Adjusted EBITDA Multiple 6.93x 6.55x 6.16x ------- --------- ------- Business Enterprise Value LTM Ended 9/30/03 62.0 58.6 55.2 Estimated Year 2003 62.6 59.1 55.6 Less: Debt (2) (0.2) (0.2) (0.2) Plus: Working Capital (2), (3) 11.4 11.4 11.4 ------- --------- ------- Equity Value LTM Ended 9/30/03 $ 73.2 $ 69.8 $ 66.3 Estimated Year 2003 $ 73.7 $ 70.2 $ 66.8 Fully-Diluted Shares (4) 49.8 49.8 49.8 ------- --------- ------- Equity Value Per Share LTM Ended 9/30/03 $ 1.47 $ 1.40 $ 1.33 ======= ========= ======= Estimated Year 2003 $ 1.48 $ 1.41 $ 1.34 ======= ========= ======= (1) HNT results are for the twelve trailing months ending 8/31/03. (2) Estimated Balance Sheet for 12/31/03 used, however it should be noted that all convertible debt is assumed to be converted. (3) Working capital equals current assets less non debt current liabilities. (4) Fully diluted common shares based on estimated December 31, 2003 common shares outstanding, all convertible securities on an as if converted basis and options on a treasury method basis at $2.00 per share.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 44 ---------------------------------- SafeGuard Health Enterprises, Inc. PUBLICLY-TRADED COMPARABLE COMPANY VALUATION: EPS
PUBLICLY-TRADED COMPARABLE COMPANY VALUATION: EPS ----------------------------------------------------- High Average Low -------- --------- ------- Pro Forma EPS (1) Estimated Year 2003 $ 0.08 $ 0.08 $ 0.08 Projected Year 2004 $ 0.09 $ 0.09 $ 0.09 P/E Multiple 2003 13.2x 13.2x 13.2x 2004 11.8x 11.8x 11.8x Discount 10.0% 15.0% 20.0% -------- --------- ------- Adjusted P/E Multiple 2003 11.9x 11.2x 10.6x 2004 10.6x 10.0x 9.4x Equity Value Per Share Estimated Year 2003 $ 0.93 $ 0.88 $ 0.83 Projected Year 2004 $ 0.99 $ 0.94 $ 0.88 ----------------------------------------------------- (1) Fully diluted common shares based on common shares outstanding, all convertible securities on an as if converted basis and options on a treasury method basis at $2.00 per share.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 45 ---------------------------------- SafeGuard Health Enterprises, Inc. VALUATION MULTIPLES: MERGERS AND ACQUISITION COMPARABLE TRANSACTION ANALYSIS - See Exhibit B and C for Merger and Acquisitions Comparable Transactions. - Similar to the Publicly-Traded Comparable Company Analysis, Mergers and Acquisition Comparable Transaction Analysis is another commonly used form of valuation analysis. - As previously discussed, as part of this analysis we valued SafeGuard based on comparable dental and vision transactions as well as regional managed healthcare transactions. The universe of dental and vision transactions since January 1, 2001 was very limited and SafeGuard was involved in many of the transactions that did occur. Regional managed healthcare transactions have a much broader group of transactions. The transactions utilized include transactions announced since January 1, 2001. - In general, there is a dichotomy between merger and acquisitions valuations of private companies and publicly-traded companies in the managed healthcare industry. Publicly-traded companies are generally valued at higher multiples. With the exception of publicly-traded Blue Cross companies, there had been only one recent acquisition of a non-Blue publicly-traded managed healthcare company. Moreover, even among publicly-traded companies, due to the franchise value, Blue Cross companies are often valued at a premium. As a result, we have excluded these transactions from our analysis. Furthermore, reliable financial information for private companies is very limited or derived from a variety of sources. As a result, it is important to focus on averages. - Due to availability of information, two valuation multiples were used: revenue and EBITDA. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 46 ---------------------------------- SafeGuard Health Enterprises, Inc. TRANSACTION SUMMARY
TRANSACTIONS SUMMARY ------------------------------------------------------- High Low Mean ------ ----- ------ Dental/Vision (1), (2) EBITDA 7.17x 6.32x 6.75x Revenue 0.91x 0.17x 0.61x Managed Care - Includes BCBS(2) EBITDA (3) 17.31x 3.48x 10.82x Revenue 1.09x 0.08x 0.39x Managed Care - Excluded BCBS (2) EBITDA (4) 12.74x 3.48x 7.91x Revenue 1.03x 0.08x 0.28x ------------------------------------------------------- 1. Includes five dental transactions and one vision transaction. SafeGuard was the acquirer in four of the transactions. 2. Only includes transactions where financial information was available. 3. Includes ten transactions. 4. Includes five transactions.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 47 ---------------------------------- SafeGuard Health Enterprises, Inc. MERGERS AND ACQUISITIONS TRANSACTIONS VALUATION: REVENUE - DENTAL/VISION $ In Millions
MERGERS AND ACQUISITIONS TRANSACTIONS VALUATION: REVENUE - DENTAL/VISION ----------------------------------------------------------- HIGH AVERAGE LOW ------- --------- ------- Pro Forma Revenue LTM Ended 9/30/03 (1) $162.5 $ 162.5 $162.5 Estimated Year 2003 $163.8 $ 163.8 $163.8 Revenue Multiple 0.71x 0.61x 0.51x ------- --------- ------- Business Enterprise Value LTM Ended 9/30/03 115.9 99.6 83.4 Estimated Year 2003 116.8 100.4 84.0 Less: Debt (2) (0.2) (0.2) (0.2) Plus: Working Capital (2), (3) 11.4 11.4 11.4 ------- --------- ------- Equity Value LTM Ended 9/30/03 $127.1 $ 110.8 $ 94.5 Estimated Year 2003 $128.0 $ 111.6 $ 95.2 Fully-Diluted Shares (4) 49.8 49.8 49.8 ------- --------- ------- Equity Value Per Share LTM Ended 9/30/03 $ 2.55 $ 2.22 $ 1.90 ======= ========= ======= Estimated Year 2003 $ 2.57 $ 2.24 $ 1.91 ======= ========= ======= ----------------------------------------------------------- (1) HNT results are for the twelve trailing months ending 8/31/03. (2) Estimated Balance Sheet for 12/31/03 used, however it should be noted that all convertible debt is assumed to be converted. (3) Working capital equals current assets less non debt current liabilities. (4) Fully diluted common shares based on estimated December 31, 2003 common shares outstanding, all convertible securities on an as if converted basis and options on a treasury method basis at $2.00 per share.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 48 ---------------------------------- SafeGuard Health Enterprises, Inc. MERGERS AND ACQUISITIONS TRANSACTIONS VALUATION: EBITDA - DENTAL/VISION $ In Millions
MERGERS AND ACQUISITIONS TRANSACTIONS VALUATION: EBITDA - DENTAL/VISION ----------------------------------------------------------- HIGH AVERAGE LOW ------- --------- ------- Pro Forma EBITDA LTM Ended 9/30/03 (1) $ 9.0 $ 9.0 $ 9.0 Estimated Year 2003 $ 9.0 $ 9.0 $ 9.0 EBITDA Multiple 7.75x 6.75x 5.75x ------- --------- ------- Business Enterprise Value LTM Ended 9/30/03 69.3 60.4 51.4 Estimated Year 2003 69.9 60.9 51.9 Less: Debt (2) (0.2) (0.2) (0.2) Plus: Working Capital (2), (3) 11.4 11.4 11.4 ------- --------- ------- Equity Value LTM Ended 9/30/03 $ 80.5 $ 71.6 $ 62.6 Estimated Year 2003 $ 81.1 $ 72.1 $ 63.0 Fully-Diluted Shares (4) 49.8 49.8 49.8 ------- --------- ------- Equity Value Per Share LTM Ended 9/30/03 $ 1.62 $ 1.44 $ 1.26 ======= ========= ======= Estimated Year 2003 $ 1.63 $ 1.45 $ 1.27 ======= ========= ======= ----------------------------------------------------------- (1) HNT results are for the twelve trailing months ending 8/31/03. (2) Estimated Balance Sheet for 12/31/03 used, however it should be noted that all convertible debt is assumed to be converted. (3) Working capital equals current assets less non debt current liabilities. (4) Fully diluted common shares based on estimated December 31, 2003 common shares outstanding, all convertible securities on an as if converted basis and options on a treasury method basis at $2.00 per share.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 49 ---------------------------------- SafeGuard Health Enterprises, Inc. MERGERS AND ACQUISITIONS TRANSACTIONS VALUATION: REVENUE - MANAGED CARE $ In Millions
MERGERS AND ACQUISITIONS TRANSACTIONS VALUATION: REVENUE - MANAGED CARE ----------------------------------------------------------- HIGH AVERAGE LOW ------- --------- ------- Pro Forma Revenue LTM Ended 9/30/03 (1) $162.5 $ 162.5 $162.5 Estimated Year 2003 $163.8 $ 163.8 $163.8 Revenue Multiple 0.38x 0.28x 0.18x ------- --------- ------- Business Enterprise Value LTM Ended 9/30/03 62.6 46.3 30.1 Estimated Year 2003 63.1 46.7 30.3 Less: Debt (2) (0.2) (0.2) (0.2) Plus: Working Capital (2), (3) 11.4 11.4 11.4 ------- --------- ------- Equity Value LTM Ended 9/30/03 $ 73.7 $ 57.5 $ 41.2 Estimated Year 2003 $ 74.2 $ 57.8 $ 41.5 Fully-Diluted Shares (4) 49.8 49.8 49.8 ------- --------- ------- Equity Value Per Share LTM Ended 9/30/03 $ 1.48 $ 1.15 $ 0.83 ======= ========= ======= Estimated Year 2003 $ 1.49 $ 1.16 $ 0.83 ======= ========= ======= ----------------------------------------------------------- (1) HNT results are for the twelve trailing months ending 8/31/03. (2) Estimated Balance Sheet for 12/31/03 used, however it should be noted that all convertible debt is assumed to be converted. (3) Working capital equals current assets less non debt current liabilities. (4) Fully diluted common shares based on estimated December 31, 2003 common shares outstanding, all convertible securities on an as if converted basis and options on a treasury method basis at $2.00 per share.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 50 ---------------------------------- SafeGuard Health Enterprises, Inc. MERGERS AND ACQUISITIONS TRANSACTIONS VALUATION: EBITDA - MANAGED CARE $ In Millions
MERGERS AND ACQUISITIONS TRANSACTIONS VALUATION: EBITDA - MANAGED CARE ----------------------------------------------------------- HIGH AVERAGE LOW ------- --------- ------- Pro Forma EBITDA LTM Ended 9/30/03 (1) $ 9.0 $ 9.0 $ 9.0 Estimated Year 2003 $ 9.0 $ 9.0 $ 9.0 EBITDA Multiple 8.91x 7.91x 6.91x ------- --------- ------- Business Enterprise Value LTM Ended 9/30/03 79.8 70.9 61.9 Estimated Year 2003 80.5 71.4 62.4 Less: Debt (2) (0.2) (0.2) (0.2) Plus: Working Capital (2), (3) 11.4 11.4 11.4 ------- --------- ------- Equity Value LTM Ended 9/30/03 $ 91.0 $ 82.0 $ 73.1 Estimated Year 2003 $ 91.6 $ 82.6 $ 73.6 Fully-Diluted Shares (4) 49.8 49.8 49.8 ------- --------- ------- Equity Value Per Share LTM Ended 9/30/03 $ 1.83 $ 1.65 $ 1.47 ======= ========= ======= Estimated Year 2003 $ 1.84 $ 1.66 $ 1.48 ======= ========= ======= ----------------------------------------------------------- (1) HNT results are for the twelve trailing months ending 8/31/03. (2) Estimated Balance Sheet for 12/31/03 used, however it should be noted that all convertible debt is assumed to be converted. (3) Working capital equals current assets less non debt current liabilities. (4) Fully diluted common shares based on estimated December 31, 2003 common shares outstanding, all convertible securities on an as if converted basis and options on a treasury method basis at $2.00 per share.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 51 ---------------------------------- SafeGuard Health Enterprises, Inc. VALUATION METHODOLOGIES: DISCOUNTED CASH FLOW ANALYSIS - See Exhibit A for Five Year Projection, and Discounted Cash Flow Valuation. - Valuing an enterprise based on the discounted value of its cash flows ("DCF Analysis") is a universally recognized valuation methodology. - Unlike the market-based approaches, DCF Analysis utilizes estimates of future rather than historical financial performance. The methodology seeks to derive empirically the value of an organization by computing the present value of its future cash flow stream. - 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. - The terminal value is estimated by discounting back to the present a multiple of the fifth year EBITDA or another valuation parameter. - For companies which are projected to have significant increases in EBITDA (such as the Company), the majority of the present value is determined by the terminal value. - 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 adjusted for taxes payable, plus depreciation and amortization, less capital expenditures, and finally adjusted for non-cash working capital. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 52 ---------------------------------- SafeGuard Health Enterprises, Inc. VALUATION METHODOLOGIES: DISCOUNTED CASH FLOW ANALYSIS (CONTINUED) - The greatest challenge to this approach is its high dependence on the assumptions used in projecting free cash flows. The forecast should reflect industry trends and other external factors, as well as strategic and financial plans currently in place. - Determination of discount rates and terminal multiples is a crucial component of DCF Analysis. Shattuck Hammond believes that discount rates of 14-16% are appropriate for valuing SafeGuard. The terminal multiples of EBITDA used for the DCF analysis were 6.0x, 7.0x, and 8.0x. The middle multiple is based on an average of the EBITDA multiples used for the Publicly-Traded and Merger and Acquisition Analyses. - As part of our analysis, we also performed a sensitivity analysis and reduced EBITDA by 15% per year from management's projections. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 53 ---------------------------------- SafeGuard Health Enterprises, Inc. DISCOUNTED CASH FLOW VALUATION $ In Millions - Based on management's projections.
DISCOUNTED CASH FLOW VALUATION ------------------------------------------------------------------------- Business Enterprise Value ------------------------------------------------------------------------- Discount Rate ----------------------------------------- Term EBITDA Multiple 14.0% 15.0% 16.0% ------------------------------ --------------- --------------- ------- 8.0x $ 106.3 $ 101.7 $ 97.3 7.0x $ 97.2 $ 93.1 $ 89.2 6.0x $ 88.1 $ 84.4 $ 81.0 Less: Debt(1) (0.2) (0.2) (0.2) Plus: Working Capital (1), (2) 11.4 11.4 11.4 --------------- --------------- ------- Equity Value ------------------------------------------------------------------------- Discount Rate ----------------------------------------- Term EBITDA Multiple 14.0% 15.0% 16.0% ------------------------------ --------------- --------------- ------- 8.0x $ 117.4 $ 112.8 $108.5 7.0x $ 108.3 $ 104.2 $100.3 6.0x $ 99.3 $ 95.6 $ 92.1 Fully-Diluted Shares (3) 49.8 49.8 49.8 --------------- --------------- ------- Equity Value Per Share ------------------------------------------------------------------------- Discount Rate ----------------------------------------- Term EBITDA Multiple 14.0% 15.0% 16.0% --------------- --------------- ------- 8.0x $ 2.36 $ 2.27 $ 2.18 7.0x $ 2.18 $ 2.09 $ 2.01 6.0x $ 1.99 $ 1.92 $ 1.85 ------------------------------------------------------------------------- (1) Estimated Balance Sheet for 12/31/03 used, however it should be noted that all convertible debt is assumed to be converted. (2) Working capital equals current assets less non debt current liabilities. (3) Fully diluted common shares based on estimated December 31, 2003 common shares outstanding, all convertible securities on an as if converted basis and options on a treasury method basis at $2.00 per share.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 54 ---------------------------------- SafeGuard Health Enterprises, Inc. DISCOUNTED CASH FLOW
BASED ON A 15% REDUCTINO IN EBITDA FROM MANAGEMENT'S PROJECTIONS DISCOUNTED CASH FLOW ------------------------------------------------------------------------- Business Enterprise Value ------------------------------------------------------------------------- Discount Rate ----------------------------------------- Term EBITDA Multiple 14.0% 15.0% 16.0% ------------------------------ --------------- --------------- ------- 8.0x $ 92.0 $ 88.0 $ 84.3 7.0x $ 84.2 $ 80.7 $ 77.4 6.0x $ 76.5 $ 73.4 $ 70.4 Less: Debt(1) (0.2) (0.2) (0.2) Plus: Working Capital (1), (2) 11.4 11.4 11.4 --------------- --------------- ------- Equity Value ------------------------------------------------------------------------- Discount Rate ----------------------------------------- Term EBITDA Multiple 14.0% 15.0% 16.0% ------------------------------ --------------- --------------- ------- 8.0x $ 103.1 $ 99.2 $ 95.5 7.0x $ 95.4 $ 91.9 $ 88.5 6.0x $ 87.7 $ 84.5 $ 81.6 Fully-Diluted Shares (3) 49.8 49.8 49.8 --------------- --------------- ------- Equity Value Per Share ------------------------------------------------------------------------- Discount Rate ----------------------------------------- Term EBITDA Multiple 14.0% 15.0% 16.0% --------------- --------------- ------- 8.0x $ 2.07 $ 1.99 $ 1.92 7.0x $ 1.92 $ 1.84 $ 1.78 6.0x $ 1.76 $ 1.70 $ 1.64 ------------------------------------------------------------------------- (1) Estimated Balance Sheet for 12/31/03 used, however it should be noted that all convertible debt is assumed to be converted. (2) Working capital equals current assets less non debt current liabilities. (3) Fully diluted common shares based on estimated December 31, 2003 common shares outstanding, all convertible securities on an as if converted basis and options on a treasury method basis at $2.00 per share.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 55 ---------------------------------- SafeGuard Health Enterprises, Inc. VALUATION METHOD: PREMIUM ANALYSIS - As previously discussed, due to the illiquidity of SafeGuard's stock, we substantially underweighted this analysis in our summary. - We believe that to a large extent, SafeGuard's share price reflects the scarcity of its shares rather than the inherent value of the Company. - We also note that: (i) there is no research coverage on the Company; (ii) on many days no shares trade; (iii) there is a very limited sample of reverse stock split going private transactions; (iv) the bid/ask spread on November 20 was 13.0%; and (v) there is a limited number of market makers in the Company's common stock. - Our premium analysis was broken into two categories: - Going Private Transactions through a Reverse Stock Split: this group contained a limited number of samples (see Exhibit D). - Merger and Acquisition Transactions of Selected Traded Public Companies: Because SafeGuard has an estimated enterprise value of approximately $75 million at October 31, 2003, we limited our analysis to acquisitions of publicly-traded companies with enterprise values of $75 million to $300 million. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 56 ---------------------------------- SafeGuard Health Enterprises, Inc. VALUATION METHOD: PREMIUM ANALYSIS - On many days SafeGuard's stock has no trading volume.
SAFEGUARD STOCK VOLUME AND PRICE: LAST 60 DAYS ------------------------------------------------------------------------------------ Date Volume Close % Change Date Volume Close % Change ------------- ------ ------ ----------- --------- --------- ------- --------- 29-Aug-03 - - - 10-Oct-03 - - - 1-Sep-03 - - - 13-Oct-03 500 $ 1.65 0.00% 2-Sep-03 - - - 14-Oct-03 - - - 3-Sep-03 - - - 15-Oct-03 - - - 4-Sep-03 - - - 16-Oct-03 - - - 5-Sep-03 - - - 17-Oct-03 - - - 8-Sep-03 10,000 $ 1.46 - 20-Oct-03 - - - 9-Sep-03 18,000 $ 1.50 2.74% 21-Oct-03 - - - 10-Sep-03 200 $ 1.45 -3.33% 22-Oct-03 - - - 11-Sep-03 7,500 $ 1.46 0.69% 23-Oct-03 - - - 12-Sep-03 - - - 24-Oct-03 - - - 15-Sep-03 1,500 $ 1.59 8.90% 27-Oct-03 200 $ 1.65 0.00% 16-Sep-03 - - - 28-Oct-03 300 $ 1.55 -6.06% 17-Sep-03 - - - 29-Oct-03 - - - 18-Sep-03 - - - 30-Oct-03 - - - 19-Sep-03 100 $ 1.47 -7.55% 31-Oct-03 - - - 22-Sep-03 3,000 $ 1.50 2.04% 3-NOV-03 2,000 $ 1.65 6.45% 23-Sep-03 - - - 4-Nov-03 15,000 $ 2.04 23.64% 24-Sep-03 - - - 5-Nov-03 2,000 $ 2.09 2.45% 25-Sep-03 - - - 6-Nov-03 4,800 $ 2.00 -4.31% 26-Sep-03 - - - 7-Nov-03 - - - 29-Sep-03 3,000 $ 1.47 -2.00% 10-Nov-03 1,000 $ 2.00 0.00% 30-Sep-03 6,500 $ 1.55 5.44% 11-Nov-03 - - - 1-Oct-03 800 $ 1.57 1.29% 12-Nov-03 21,320 $ 2.32 16.00% 2-Oct-03 - - 13-Nov-03 46,500 $ 2.50 7.76% 3-Oct-03 13,700 $ 1.58 0.64% 14-Nov-03 7,300 $ 2.20 -12.00% 6-Oct-03 - - 17-Nov-03 270 $ 2.25 2.27% 7-Oct-03 - - 18-Nov-03 2,400 $ 1.92 -14.67% 8-Oct-03 500 $ 1.65 4.43% 19-Nov-03 - - - 9-Oct-03 - - 20-NOV-03 - - - ------------- ------ ------ ----------- --------- --------- ------- ---------
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 57 ---------------------------------- SafeGuard Health Enterprises, Inc. PREMIUM ANALYSIS VALUATION PREMIUM ANALYSIS VALUATION -----------------------------------------------------
Average (1) ----------------------------------------- 1 Day 30 Day 60 Day 1 Year ----------------------------------------- Going Private: Reverse Stock Split Transactions 28.2% 61.1% 47.8% 21.8% Acquisitions with Enterprise Value: $75-150 37.2% 45.5% 49.3% 49.6% Acquisitions with Enterprise Value: $150-300 35.5% 26.2% 46.4% 47.3% Acquisitions with Enterprise Value: $75-300 36.5% 38.0% 48.2% 48.7% ----------------------------------------- Average. 34.3% 42.7% 47.9% 41.8% Average (1) ----------------------------------------- 1 Day 30 Day 60 Day 1 Year ----------------------------------------- SafeGuard $ 1.92 $ 1.83 $ 1.67 $1.43 ------------------------------------------------------------------------------------------ SafeGuard Indicators of Value ------------------------------------------------------------------------------------------ Average (1) ----------------------------------------- 1 Day 30 Day 60 Day 1 Year ----------------------------------------- Going Private: Reverse Stock Split Transactions $ 2.46 $ 2.94 $ 2.47 $1.75 Acquisitions with Enterprise Value: $75-$150 2.63 $ 2.66 $ 2.50 $2.15 Acquisitions with Enterprise Value: $150-$300 2.60 $ 2.31 $ 2.45 $2.11 Acquisitions with Enterprise Value: $75-$300 $ 2.62 $ 2.52 $ 2.48 $2.13 ----------------------------------------- Average. $ 2.58 $ 2.61 $ 2.48 $2.04 ------------------------------------------------------------------------------------------
(1) For the calculation of the average price over the period, if the stock did not trade the last closing price is used. ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 58 ---------------------------------- SafeGuard Health Enterprises, Inc. EXHIBITS ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 59 ---------------------------------- SafeGuard Health Enterprises, Inc. SELECTED ACQUISITIONS OF DENTAL/VISION BENEFIT COMPANIES - SELECT COMPARABLE TRANSACTIONS $ In Millions
Selected Acquisitions of Dental/Vision Benefit Companies ------------------------------------------------------------- Latest Twelve Months BEV as a Multiple Of LTM (5) ---------------------------- ---------------------------- Purchase Date Price Members Members Target Acquirer Announced (BEV) Revenue EBITDA Total Rev EBITDA Total ---------------------------------------------------------------------------------------------------------------------------------- Health Net Vision SafeGuard Apr-03 $ 4.4 (1) $ 5.4 NA 102,200 0.81 NA 23,227.3 Health Net Dental SafeGuard Apr-03 $ 10.4 (1) $ 60.0 NA 415,000 0.17 NA 39,903.8 Ameritas Managed Care SafeGuard Mar-03 $ 1.3 (2) $ 3.7 NA 30,000 0.35 NA 23,076.9 Paramount Dental. SafeGuard Apr-02 $ 6.6 (3) $ 7.2 1.0 (4) 200,000 0.91 6.32 30,303.0 Protective Life Dental Fortis Jul-01 $ 300.0 $334.4 NA NA 0.90 NA NA Healthplex. Dent Acquisition Feb-00 $ 8.6 $ 16.1 1.2 NA 0.53 7.17 NA ----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF SELECTED TRANSACTIONS LOW 0.17 X 6.32 X MEAN 0.61 X 6.75 X MEDIAN 0.67 X 6.75 X HIGH 0.91 X 7.17 X (1) As stated in 8K. (2) Includes $1.1 million paid at closing and estimated contingent payments of $176,000. (3) Consideration involves $3.0 million in cash; $2.6 million convertible note and 770,000 shares of stock. (4) Based on run rate. (5) Assumes no excess working capital and no debt.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 60 ---------------------------------- SafeGuard Health Enterprises, Inc. SELECTED ACQUISITIONS OF MANAGED CARE COMPANIES - SELECTED COMPARABLE TRANSACTIONS $ In Millions SELECTED ACQUISITIONS OF MANAGED CARE COMPANIES ----------------------------------------------------
Latest Twelve Months BEV as a Multiple of LTM -------------------------------------------------------------------------- Purchase Members Members --------------------- ------------------- Date Price Comm Comm Target Acquirer Announced (BEV) Revenue EBITDA Total Equity Rev EBITDA Total Equity ---------------------------------------------------------------------------------------------------------------------------------- WellPoint Health Networks Anthem, Inc. Oct-03 14,965.7 17,560.4 864.4 13,377,798 9,203,542 0.85 17.3 1,118.7 1,626.1 Mid Atlantic United Health Medical Svcs Group Oct-03 2,611.2 2,523.9 204.9 1,975,100 1,744,816 1.03 12.7 1,322.1 1,496.5 University Health Plans Centene Oct-03 13.0 NA NA 53,000 53,000 NA NA 245.3 245.3 Family Health Plan Centene Sep-03 6.5 42.0 NA 24,000 24,000 0.15 NA 270.8 270.8 St. Augustine Amerigroup, Medicaid Inc. Jul-03 10.0 40.0 NA 30,000 30,000 0.25 NA 333.3 333.3 Altius Health Coventry Plans Health Care Jul-03 41.0 235.0 NA 160,000 120,000 0.17 NA 256.3 341.7 Cobalt Wellpoint Corporation Health Networks Jun-03 861.5 1,559.5 61.5 808,852 434,471 0.55 14.0 1,065.1 1,982.9 Keystone Plan Capital Blue Central Cross May-03 58.0 NA NA 200,000 200,000 NA NA 290.0 290.0 University Health Plans Centene Aug-02 10.3 114.0 3.0 50,000 50,000 0.09 3.5 205.4 205.4 Physicians Healthcare Amerigroup, Plans Inc. Aug-02 121.0 300.0 NA 190,000 190,000 0.40 NA 636.8 636.8 AmeriChoice UnitedHealth Group Jun-02 515.2 667.6 61.0 370,000 370,000 0.77 8.4 1,392.4 1,392.4 WellCare WellCare Acquisition Comp. May-02 11.8 99.0 (0.6) 61,000 61,000 0.12 NA 192.6 192.6 Trigon Anthem, Inc. Apr-02 2,907.9 3,031.1 176.5 2,137,936 1,345,695 0.96 16.5 1,360.1 2,160.9 New Alliance Coventry Health Plan Health Care Apr-02 9.3 69.0 NA 46,226 46,226 0.13 NA 201.0 201.0 MedSpan Oxford Health Plans Dec-01 24.8 131.8 NA 101,205 57,374 0.19 NA 245.2 432.5 CareFirst WellPoint BCBS Health Networks Nov-01 821.0 4,984.7 98.1 2,997,312 2,436,815 0.16 8.4 273.9 336.9 RightChoice WellPoint Managed Care Health Networks Oct-01 1,257.0 1,149.1 100.8 2,824,737 784,912 1.09 12.5 445.0 1,601.5 Ochsner Health Alton Ochsner Plan Med Found Aug-01 90.O 533.4 8.4 197,071 206,172 0.17 10.7 456.6 436.4 Blue Ridge Health Coventry Health Alliance Care Aug-01 14.9 117.2 NA 110,000 110,000 0.13 NA 135.5 135.5 PARTERS National Blue Cross Blue Health Plan Shield of N.C. Jun-01 202.0 623.4 NA 400,000 400,000 0.32 NA 505.0 505.0 SelectCare Health Alliance Plan Mar-01 73.1 267.8 NA 332,241 155,259 0.27 NA 220.1 470.9 Florida Health Florida Health Plan Plan Holdings II Feb-01 49.0 607.8 NA 169,786 181,305 0.08 NA 288.6 270.3 ConnectiCare Private Investor Group Jan-01 139.4 525.6 33.3 210,476 215,575 0.27 4.2 662.4 646.7 ----------------------------------------------------------------------------------------------------------------------------------
Summary of Selected Transactions Notes: BCBS companies in red Low 0.08 x 3.5 x Mean 0.39 x 10.8 x Median 0.25 x 11.6 x High 1.09 x 17.3 x SUMMARY OF SELECTED TRANSACTIONS (W/O BCBS TRANSACTIONS) LOW 0.08 x 3.5 x MEAN 0.28 x 7.9 x MEDIAN 0.18 x 8.4 x HIGH 1.03 x 12.7 x
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 61 ---------------------------------- SafeGuard Health Enterprises, Inc. REVERSE SPLIT GOING PRIVATE TRANSACTIONS: PREMIUM ANALYSIS
REVERSE SPLIT GOING PRIVATE TRANSACTIONS: PREMIUM ANALYSIS ---------------------------------------------------------------------------------------------------------------------------------- Date Price at Proposed Average Payment Premium (1) ---------------------------------------------------------------- Announced Company Symbol Announcement Payment 1 Day 5 Day 30 Day 60 Day 100 Day 1 Year ---------------------------------------------------------------------------------------------------------------------------------- 11/20/2002 Avaya AV $2.85 $3.00 5% 21% 55% 57% 44% -46% 6/10/2003 Siena Holdings SIENE $1.20 $1.28 7% 7% 8% 13% 16% 7% 4/30/2003 PML PMLN $1.01 $1.50 49% 73% 120% 57% 89% 26% 3/17/2003 IFX Corporation IFXCV $0.03 $0.12 287% 198% 121% 103% . -26% -76% 5/5/2003 Moyco Technologies MOYC $0.03 $0.45 1400% 959% 806% 674% 377% 15% 1/9/2003 Avery Communications AVYC $0.85 $1.27 49% 98% 113% 83% 41% -2% 11/18/2003 Kimmins Corporation KMMN $0.57 $1.00 76% 95% 165% 166% 198% 245% 8/18/2003 Cal-Maine Foods CALM $7.15 $7.35 3% 3% 16% 25% 39% 75% 9/12/2003 Golden State Vitners VINT $2.08 $3.25 56% 57% 55% 51% 46% 72% ---------------------------------------------------------------------------------------------------------------------------------
Summary of Premium Analysis High 1400% 959% 806% 674% 377% 245% Low 3% 3% 8% 13% -26% -76% Median 49% 73% 113% 57% 44% 15% Average 215% 168% 162% 137% 92% 35% Adjusted Mean (2) 28% 43% 61% 48% 46% 22% Adjusted Median (2) 28% 39% 55% 54% 43% 17% (1) Average for period. (2) Excludes transactions with proposed payments equal to or less than $1.00. Source: Company Filing; Bloomberg.
----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 62 ---------------------------------- SafeGuard Health Enterprises, Inc. SHARES OWNED BY INVESTORS AND AFFILIATED PARTIES SHARES OWNED BY INVESTORS AND AFFILIATED PARTIES ----------------------------------------------------- COMMON STOCK --------- John Hancock - CAI Advisors - Les Daniels 84,500 Jack and RM Anderson 326,000 Baileys Trusts and Foundation 1,153,767 Steve Baileys 645,000 Burton Partnerships 658,800 Management: J. Buncher 59,000 S. Baker 21,200 R. Brendzel 130,673 D. Gates - K. Keating 6,000 B. Lucci - M. Lauffenburger 11,666 R. Muck 1,800 N. Kavouklis 711,091 T. Wild - 401K PIan 138,987 --------- Total Shares Owned by Investors and Affiliated Parties 3,948,484 --------- Other Shareholders 1,788,516 -------- Total Shares Outstanding 5,737,000 ========= ---------------------------------------------------- ----------------------------------------------------------- SHATTUCK HAMMOND PARTNERS LLC 63
EXHIBIT A ----------------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. Consolidated 9 MON. ENDING YEAR ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 -------------------------- --------- -------------------------------------------------------------- ACTUAL PROJECTED ------------------------------------ ESTIMATED ---------------------------------------------------- INCOME STATEMENT 2001 2002 2003 2003 (1) 2004 2005 2006 2007 2008 ---------------------------------------------- -------- -------- --------- --------- -------- ---------- -------- --------- Revenues HMO Wholesale $ - $ 1,829 $ 3,525 $ 4,651 $ 4,505 $ 4,505 $ 4,505 $ 4,505 $ 4,505 Dental HMO 52,103 47,163 37,568 58,314 107,183 115,681 124,771 134,495 144,897 PPO/Indemnity 27,253 24,218 20,507 30,009 51,857 66,470 82,644 100,526 120,278 Third-Party Administrator and Other 2,724 7,562 4,546 6,108 6,542 6,834 7,140 7,461 7,798 Vision 2,442 2,051 1,784 3,897 12,591 14,254 16,270 18,551 21,089 Estimated Bad Debts 300 220 120 156 156 156 156 156 156 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- TOTAL REVENUE 84,822 83,043 68,050 103,135 182,834 207,899 235,486 265,694 298,723 Health Care Expense HMO Wholesale - 747 1,858 2,452 2,374 2,374 2,374 2,374 2,374 Dental HMO 30,044 27,258 21,067 33,738 67,444 72,654 78,219 84,165 90,516 PPO/Indemnity 20,961 17,959 16,066 23,588 41,191 52,747 65,538 79,679 95,299 Third-Party Administrator 1,787 5,429 2,766 3,727 4,036 4,238 4,450 4,673 4,906 Vision 1,611 1,275 1,103 2,324 7,362 8,345 9,547 10,908 12,421 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- Direct Health Care Expense 54,403 52,668 42,860 65,829 122,408 140,359 160,129 181,799 205,516 Broker Commissions 6,117 5,160 4,602 6,634 10,404 12,075 13,921 15,947 18,168 Broker Commissions - TPA - 873 482 643 688 719 751 785 821 TPA Fees - 691 450 600 643 671 701 733 766 Internal Incentives 618 259 288 463 1,500 1,706 1,932 2,180 2,451 Premium Taxes 1,034 1,042 839 1,189 1,825 2,205 2,626 3,092 3,605 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- Total Direct Expenses 62,172 60,693 49,521 75,357 137,468 157,735 180,062 204,536 231,327 Gross Profit 22,650 22,350 18,529 27,778 45,366 50,163 55,424 61,158 67,396 Administrative Expense 20,074 20,645 15,456 23,149 35,945 37,381 39,658 42,047 44,554 One-Time Integration Expenses - - - 230 310 - - - - HNT Strategic Relationship Expense - - - - 270 848 1,479 2,167 2,917 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- EBITDA 2,576 1,705 3,073 4,399 8,841 11,935 14,287 16,944 19,925 Less Depreciation 1,837 1,216 921 1,250 1,500 1,500 1,500 1,500 1,500 Less Amortization - 257 422 575 1,193 1,193 1,193 1,194 979 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- EBIT 739 232 1,730 2,574 6,148 9,242 11,594 14,250 17,446 Less: Interest Expense - Existing (504) (232) (262) (335) (201) (108) (101) (60) (13) Less: Interest Expense - Convertible Note (6%) - - - (190) (1,140) (1,140) (1,140) (1,140) (1,140) Plus: Investment Income 722 301 138 254 373 505 663 856 1,084 Plus: Other Interest Income 338 306 93 124 124 124 124 124 124 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- PRETAX INCOME 1,295 607 1,699 2,427 5,304 8,623 11,141 14,030 17,502 Less: Income Tax Expense - 820 (141) (188) (2,309) (3,624) (4,621) (5,765) (7,098) --------------- -------- -------- --------- --------- --------- ---------- -------- --------- NET INCOME BEFORE EXTRAORDINARY ITEMS 1,295 1,427 1,558 2,239 2,994 4,999 6,520 8,265 10,404 --------------- -------- -------- --------- --------- --------- ---------- -------- --------- Extraordinary Item 11,251 - - - - - - - - --------------- -------- -------- --------- --------- --------- ---------- -------- --------- NET INCOME AFTER EXTRAORDINARY ITEMS $12,546 $ 1,427 $ 1,558 $ 2,239 $ 2,994 $ 4,999 $ 6,520 $ 8,265 $ 10,404 =============== ======== ======== ========= ========= ========= ========== ======== ========= WEIGHTED AVERAGE SHARES OUTSTANDING Basic 32,253 35,130 35,711 35,737 35,737 35,737 37,713 37,713 37,713 Fully-Diluted 33,009 35,638 36,272 41,064 49,800 49,800 49,800 49,800 49,800 EPS Basic $ 0.39 $ 0.04 $ 0.04 $ 0.06 $ 0.08 $ 0.14 $ 0.17 $ 0.22 $ 0.28 Fully-Diluted $ 0.38 $ 0.04 $ 0.04 $ 0.06 $ 0.08 $ 0.12 $ 0.14 $ 0.18 $ 0.22 (1) 2003 Includes two months of HNT.
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SAFEGUARD HEALTH ENTERPRISES, INC. CONSOLIDATED 9 Mon. Ending Year Ending December, 31 September Year Ending December 31, -------------------------- --------- ------------------------------------------------ Ratio Summary Actual Estimated Projected -------------------------- ------------------------------------------------ 2001 2002 2003 2003 2004 2005 2006 2007 2008 ------- -------- ------- -------- -------- -------- -------- -------- -------- Margins Gross 26.7% 26.9% 27.2% 26.9% 24.8% 24.1% 23.5% 23.0% 22.6% EBITDA 3.0% 2.1% 4.5% 4.3% 4.8% 5.7% 6.1% 6.4% 6.7% Pre-Tax 1.5% 0.7% 2.5% 2.4% 2.9% 4.1% 4.7% 5.3% 5.9% Net Income 1.5% 1.7% 2.3% 2.2% 1.6% 2.4% 2.8% 3.1% 3.5% Medical Loss Ratio (1) HMO Wholesale NA 40.8% 52.7% 52.7% 52.7% 52.7% 52.7% 52.7% 52.7% Dental HMO (2) 57.7% 57.8% 56.1% 57.9% 62.9% 62.8% 62.7% 62.6% 62.5% PPO/ Indemnity (2) 76.9% 74.2% 78.3% 78.6% 79.4% 79.4% 79.3% 79.3% 79.2% Third-Party Administrator and Other 65.6% 71.8% 60.8% 61.0% 61.7% 62.0% 62.3% 62.6% 62.9% Vision 66.0% 62.2% 61.8% 59.6% 58.5% 58.5% 58.7% 58.8% 58.9% Balance Sheet Equity 13,366 16,011 17,635 18,250 21,244 26,244 35,974 44,239 54,643 Working Capital 4,207 2,018 2,987 11,205 15,841 22,382 30,342 39,961 51,404 Debt/ Capitalization 1.94% 25.31% 18.39% 55.15% 51.15% 45.87% 34.58% 30.04% 25.80% Calculation Of Shares Outstanding -------------------------------------------------------------- Assumed Share Price $ 2.00 -------------------------------------------------------------- Common Shares Outstanding (9/30/2003) 5,737 5,737 5,737 5,737 5,737 5,737 Preferred Shares Outstanding (9/30/2003) 30,000 30,000 30,000 30,000 30,000 30,000 Secured Convertible Promissory Note - - 1,029 1,029 1,029 Unsecured Convertible Promissory Note 947 947 947 -------- -------- -------- -------- -------- -------- Total Common Shares Outstanding 35,737 35,737 35,737 37,713 37,713 37,713 Options Outstanding (9/30/2003) 2,827 2,827 2,827 2,827 2,827 2,827 Weighted Average Exercise Price $ 1,130 $ 1,130 $ 1,130 $ 1,130 $ 1,130 $ 1,130 -------- -------- -------- -------- -------- -------- Net Stock Options (Treasury Method) 1,230 1,230 1,230 1,230 1,230 1,230 Secured Convertible Promissory Note Par $ 2,050 $ 1,672 $ 1,672 - $ - - Conversion Price $ 1,625 $ 1,625 $ 1,625 - $ - - -------- -------- -------- -------- -------- -------- Diluted Shares if Converted 1,261 1,029 1,029 - - - After-Tax Interest Cost 7.00% 85 69 69 - - - Unsecured Convertible Promissory Note Par $ 1,668 $ 1,539 $ 1,539 $ - - $ - Conversion Price $ 1,625 $ 1,625 $ 1,625 -------- -------- -------- -------- -------- -------- Diluted Shares if Converted 1,027 947 947 - - - After-Tax Interest Cost 7.00% 69 64 64 - - - Unsecured Convertible Promissory Note - New Par $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 Conversion Price $ 1,750 $ 1,750 $ 1,750 $ 1,750 $ 1,750 $ 1,750 -------- -------- -------- -------- -------- -------- Diluted Shares if Converted 1,810 10,857 10,857 10,857 10,857 10,857 After-Tax Interest Cost 6.00% 112 673 673 673 673 673 Total Common and Diluted Shares Outstanding 41,064 49,800 49,800 49,800 49,800 49,800 Total After-Tax Interest Cost 266 805 805 673 673 673 -------- -------- -------- -------- -------- -------- Net Earnings Plus After Tax Interest cost 2,505 3,800 5,804 7,192 8,937 11,077 Diluted Earnings Per Share $ 0.06 $ 0.08 $ 0.12 $ 0.14 $ 0.18 $ 0.22 (1) Includes direct medical expenses only. (2) Includes strategic relationship members.
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------------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. 9 MON. YEAR ENDING ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 ------------------- ---------- ---------------------------------------------------------------- ACTUAL ESTIMATED PROJECTED ----------------------------- ------------------------------------------------------ MEMBERSHIP SUMMARY 2001 2002 2003 2003 2004 2005 2006 2007 2008 ----------------------------- --------- --------- ------- ---------- ------------------------------------------------------ HMO Wholesale California - - - - - - - - - Florida - 198,144 169,340 169,340 169,340 169,340 169,340 169,340 169,340 Texas - - - - - - - - - -------- --------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Total HMO Wholesale - 198,144 169,340 169,340 169,340 169,340 169,340 169,340 169,340 NA NA -14.5% 0.0% 0.0% 0.0% 0.0% 0.0% Dental HMO California 305,297 274,559 287,274 727,830 750,115 773,100 796,808 821,261 846,483 HNT Strategic - - - - 10,000 20,000 30,000 40,000 50,000 Florida 41,311 83,393 83,925 83,925 88,121 92,527 97,154 102,011 107,112 Texas 129,528 102,136 99,777 99,777 105,764 112,109 118,836 125,966 133,524 -------- --------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Total Dental HMO 476,136 460,088 470,976 911,532 954,000 997,737 1,042,797 1,089,239 1,137,120 NA -3.4% 98.1% 4.7% 4.6% 4.5% 4.5% 4.4% PPO/Indemnity California 44,794 39,949 38,538 86,679 91,880 97,393 103,236 109,430 115,996 HNT Strategic - - - - 20,000 40,000 60,000 80,000 100,000 Florida 11,740 6,190 9,551 9,551 10,267 11,037 11,865 12,755 13,712 Texas 30,374 33,629 41,913 41,913 45,266 48,887 52,798 57,022 61,584 -------- --------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Total PPO/Indemnity 86,908 79,768 90,002 138,143 167,413 197,317 227,900 259,207 291,292 NA -8.2% 73.2% 21.2% 17.9% 15.5% 13.7% 12.4% Vision California 17,923 19,812 21,491 171,465 185,182 199,997 215,997 233,276 251,938 Florida 720 299 606 606 1,000 5,000 10,000 15,000 20,000 Texas 20,622 16,664 19,983 19,983 21,981 24,179 26,597 29,257 32,183 -------- --------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Total Vision 39,265 36,775 42,080 192,054 208,164 229,176 252,594 277,533 304,121 NA -6.3% 422.2% 8.4% 10.1% 10.2% 9.9% 9.6% Third Party Administrator and Other California 17,132 35,743 42,544 42,544 42,544 42,544 42,544 42,544 42,544 Florida- - 10,432 9,813 9,813 9,813 9,813 9,813 9,813 9,813 Texas 19,922 3,172 3,939 3,939 3,939 3,939 3,939 3,939 3,939 -------- --------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Total Other 37,054 49,347 56,296 56,296 56,296 56,296 56,296 56,296 56,296 NA 33.2% 14.1% 0.0% 0.0% 0.0% 0.0% 0.0% Total By Market California 385,146 370,063 389,847 1,028,518 1,099,721 1,173,033 1,248,584 1,326,512 1,406,962 Florida 53,771 298,458 273,235 273,235 278,542 287,718 298,172 308,919 319,977 Texas 200,446 155,601 165,612 165,612 176,950 189,115 202,171 216,184 231,230 -------- --------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Total Membership 639,363 824,122 828,694 1,467,365 1,555,212 1,649,866 1,748,927 1,851,615 1,958,168 NA 28.9% 78.1% 6.0% 6.1% 6.0% 5.9% 5.8%
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--------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. 9 Mon. Ending Year Ending December 31, September -------------------------- ---------- Actual Year Ending December, 31 Projected ------------------------------------- Estimated ----------------------- BALANCE SHEET 2001 2002 2003 2003 2004 2005 ------------------------------------------------------------------------------------------------------------------------- ASSETS Cash & Cash Equivalents $ 1,497 $ 3,036 $ 4,461 $ 9,426 $ 9,426 $ 9,426 Marketable Securities 13,956 9,668 9,602 15,073 21,681 29,600 Accounts Receivable net allowances 2,839 2,554 1,770 4,915 5,514 6,270 Other Current Assets 903 853 463 2,489 2,939 3,056 ------------ ------------ --------- ----------- --------- ---------- Total Current Assets $ 19,195 $ 16,111 $ 16,296 $ 31,903 $ 39,560 $ 48,351 Net PP&E 2,348 3,532 3,686 4,138 3,738 3,438 Restricted Investments 2,831 3,254 3,091 3,569 3,569 3,569 Notes Recievable 805 457 379 359 299 239 Goodwill and Intangible Assets 3,920 10,603 11,004 22,357 21,164 19,971 Other Assets 226 157 210 236 236 236 ------------ ------------ --------- ----------- --------- ---------- TOTAL ASSETS $ 29,325 $ 34,114 $ 34,666 $ 62,562 $ 68,566 $ 75,805 ============ ============ ========= =========== ========= ========== LIABILITIES Account Payable $ 3,168 $ 1,661 $ 1,070 $ 2,077 $ 2,453 $ 2,551 Accrued Expenses 4,827 3,526 3,842 7,378 8,711 9,059 Short-Term Debt 265 2,430 1,189 198 11 12 Claims Payable 5,905 4,690 5,822 7,744 8,840 10,137 Deferred Premium Revenue 823 1,786 1,386 3,301 3,703 4,211 ------------ ------------ --------- ----------- --------- ---------- Total Current Liabilities $ 14,988 $ 14,093 $ 13,309 $ 20,698 $ 23,719 $ 25,970 ------------ ------------ --------- ----------- --------- ---------- Long-term Debt and Capital Lease Obligations $ - $ 2,997 $ 2,785 $ 22,246 $ 22,235 $ 22,223 Other Long-term Liabilities 971 1,013 937 1,368 1,368 1,368 ------------ ------------ --------- ----------- --------- ---------- Total Long Term Liabilities $ 971 $ 4,010 $ 3,722 $ 23,614 $ 23,603 $ 23,591 ------------ ------------ --------- ----------- --------- ---------- STOCKHOLDERS' EQUITY Convertible Preferred Stock $ 41,250 $ 41,250 $ 41,250 $ 41,250 $ 41,250 $ 41,250 Common Stock 21,552 22,662 22,742 22,676 22,676 22,676 Retained Earnings (31,447) (30,170) (28,612) (27,931) (24,937) (19,937) Treasury Stock 63 95 81 81 81 81 Accumulated Other Comprehensive Income (18,052) (17,826) (17,826) (17,826) (17,826) (17,826) ------------ ------------ --------- ----------- --------- ---------- Total Stockholders' Equity $ 13,366 $ 16,011 $ 17,635 $ 18,250 $ 21,244 $ 26,244 ------------ ------------ --------- ----------- --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,325 $ 34,114 $ 34,666 $ 62,562 $ 68,566 $ 75,805 ============ ============ ========= =========== ========= ========== check - - - - - - Year Ending December, 31 --------------------------------- Projected --------------------------------- BALANCE SHEET 2006 2007 2008 --------------------------------------------------------------------------------- ASSETS Cash & Cash Equivalents $ 9,426 $ 9,426 $ 9,426 Marketable Securities 39,236 50,655 64,057 Accounts Receivable net allowances 7,102 8,013 9,009 Other Current Assets 3,243 3,438 3,643 ----------- --------- --------- Total Current Assets $ 59,006 $ 71,532 $ 86,135 Net PP&E 3,238 3,138 3,138 Restricted Investments 3,569 3,569 3,569 Notes Recievable 179 119 59 Goodwill and Intangible Assets 18,778 17,584 16,605 Other Assets 236 236 236 ----------- --------- --------- TOTAL ASSETS $ 85,006 $ 96,178 $109,742 =========== ========= ========= LIABILITIES Account Payable $ 2,706 2,869 $ 3,040 Accrued Expenses 9,611 10,190 10,798 Short-Term Debt 12 0 0 Claims Payable 11,565 13,130 14,843 Deferred Premium Revenue 4,770 5,382 6,051 ----------- --------- --------- Total Current Liabilities $ 28,664 $ 31,570 $ 34,731 ----------- --------- --------- Long-term Debt and Capital Lease Obligations $ 19,000 $ 19,000 $ 19,000 Other Long-term Liabilities 1,368 1,368 1,368 ----------- --------- --------- Total Long Term Liabilities $ 20,368 $ 20,368 $ 20,368 ----------- --------- --------- STOCKHOLDERS' EQUITY Convertible Preferred Stock $ 41,250 $ 41,250 $ 41,250 Common Stock 25,887 25,887 25,887 Retained Earnings (13,418) (5,153) 5,251 Treasury Stock 81 81 81 Accumulated Other Comprehensive Income (17,826) (17,826) (17,826) ----------- --------- --------- Total Stockholders' Equity $ 35,974 $ 44,239 $ 54,643 ----------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,006 $ 96,178 $109,742 =========== ========= ========= check - - -
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-------------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. PRO FORMA 2003 BALANCE SHEET FISCAL YEAR ENDED DECEMBER 31, 2003 ---------------------------------------------------------------------------------- EST 2003 HNT ACQUISITION FINANCING HNT POST- WORKING CAPITAL BALANCE SHEET SAFEGUARD SEP-03 ADJUSTMENTS ADJUSTMENTS ACQUISITION ADJUSTMENTS (1) -------------------------------------------- ------------- ----------- ----------- ----------- ----------- --------------- ASSETS Cash & Cash Equivalents $ 5,760 $ 4,838 $ 4,838 $ - $ 4,838 $ (1,173) Marketable Securities 9,668 2,688 2,688 2,717 5,405 - Accounts Receivable net allowances 3,172 2,111 2,111 2,111 (368) Other Current Assets 956 1,636 1,636 1,636 (103) ------------- ----------- ----------- ----------- ----------- --------------- Total Current Assets $ 19,557 $ 11,273 $ 11,273 $ 2,717 $ 13,991 $ (1,644) Net PP&E 3,282 856 856 856 - Restricted Investments 3,091 478 478 478 - Notes Receivable 359 - - - - Goodwill 10,028 691 691 11,638 12,329 - Other Assets 210 26 26 26 - ------------- ----------- ----------- ----------- ----------- --------------- TOTAL ASSETS $ 36,527 $ 13,325 $ 13,325 $ 14,355 $ 27,680 $ (1,644) ============= =========== =========== =========== =========== =============== LIABILITIES Account Payable 1,862 416 416 416 (201) Accrued Expenses/Other 3,954 3,852 3,852 3,852 (428) Short-Term Debt 198 - - - - Claims Payable 5,862 2,640 2,640 2,640 (758) Deferred Premium Revenue 2,218 1,340 1,340 1,340 (257) ------------- ----------- ----------- ----------- ----------- --------------- Total Current Liabilities $ 14,094 $ 8,248 $ 8,248 $ - $ 8,248 $ (1,644) ------------- ----------- ----------- ----------- ----------- --------------- Long-term Debt and Capital Lease Obligations $ 3,246 $ - - 19,000 19,000 - Other Long-term Liabilities 937 431 431 431 - ------------- ----------- ----------- ----------- ----------- --------------- Total Long Term Liabilities $ 4,183 $ 431 $ 431 $ 19,000 $ 19,431 $ - ------------- ----------- ----------- ----------- ----------- --------------- STOCKHOLDERS' EQUITY Convertible Preferred Stock 41,250 - - - - Common Stock 22,676 2,753 - - - Retained Earnings (27,931) 1,794 - - - Treasury Stock 81 - - - - Accumulated Other Comprehensive Income (17,826) 99 - - - ------------- ----------- ----------- ----------- ----------- --------------- Total Stockholders' Equity $ 18,250 $ 4,645 $ - $ - $ - $ - ------------- ----------- ----------- ----------- ----------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,527 $ 13,325 $ 8,680 19,000 $ 27,680 $ (1,644) ============= =========== =========== =========== =========== =============== check - - 4,645 (4,645) - - COMBINED PRO FORMA ---------------- ASSETS Cash & Cash Equivalents $ 9,426 Marketable Securities 15,073 Accounts Receivable net allowances 4,915 Other Current Assets 2,489 Total Current Assets $ 31,903 ---------------- Net PP&E 4,138 Restricted Investments 3,569 Notes Receivable 359 Goodwill 22,357 Other Assets 236 TOTAL ASSETS $ 62,562 ---------------- LIABILITIES Account Payable 2,077 Accrued Expenses/Other 7,378 Short-Term Debt 198 Claims Payable 7,744 Deferred Premium Revenue 3,301 Total Current Liabilities $ 20,698 ---------------- Long-term Debt and Capital Lease Obligations 22,246 Other Long-term Liabilities 1,368 Total Long Term Liabilities $ 23,614 ---------------- STOCKHOLDERS' EQUITY Convertible Preferred Stock 41,250 Common Stock 22,676 Retained Earnings (27,931) Treasury Stock 81 Accumulated Other Comprehensive Income (17,826) Total Stockholders' Equity $ 18,250 ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,562 check - ---------------- 1) Adjustment to remove two months of HNT working capital.
Days HNT 2M 2003 WC Change ---- ----------- --------- Accounts Receivable 11 11,965 368 Other Current Assets 15 2,504 103 Accounts Payable 29 2,504 201 Accrued Expenses 62 2,504 428 Claims Payable 33 8,512 758 Def. Premium Rev. 8 11,965 257
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----------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. PRO FORMA POST-ACQUISITION TANGIBLE NET EQUITY CALCULATION HNT Dental HNT Vision Combined ----------- ----------- --------- Stockholder's equity 2,177 2,468 4,645 Receivable from affilates over 90 days (1) - (1) Intangible assets and goodwill - (691) (691) ----------- ----------- --------- Tangible net worth 2,177 1,777 3,954 Minimum TNE requirement* 792 354 1,146 ----------- ----------- --------- Excess TNE 1,385 1,423 2,808 *Per Closing Balance Sheet GOODWILL CALCULATION Agreed Apon Amount 9,000 3,000 12,000 Plus: Excess TNE 1,385 1,423 2,808 Plus: Severance Liability 1,225 Plus: Transaction Expenses 250 --------- Purchase Price 16,283 Actual Book Value 4,645 Adjustments - --------- Adjusted Book Value 4,645 Goodwill 11,638 Excess Cash Calculation Amount Raised 19,000 Purchase Price (16,283) --------- Excess Cash 2,717
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--------------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CONSOLIDATED 9 MON. ENDING YEAR ENDING SEPT- DECEMBER ,31 EMBER YEAR ENDING DECEMBER, 31 --------------------------------- -------------------------------------------- ACTUAL ESTIMATED PROJECTED --------------------------------- ------------------------------- BALANCE SHEET ASSUMPTIONS 2001 2002 2003 2003 2004 2005 2006 ------------------------------------------------ ---------- --------- ---------- ----------- -------- -------- ----------- ASSETS Days Accounts Receivable 12 11 11 11 11 11 Days Other Current Assets 16 15 15 30 30 30 With HealthNet Days Accounts Receivable 11 Days Other Current Assets 30 NET PROPERTY, PLANT AND EQUIPMENT Leasehold Improvements $ 841 $ 842 844 Furniture and Office Equipment 11,161 1,504 1,511 Computer Hardware and Software - 7,767 8,821 Gross Property, Plant and Equipment $ 12,002 $ 10,113 $ 11,176 $ 11,113 $13,069 $14,269 $ 15,569 Accumulated Depreciation 9,654 6,581 7,490 7,831 9,331 10,831 12,331 Net Property, Plant and Equipment 2,348 3,532 3,686 3,282 3,738 3,438 3,238 Acquired HNT PP&E 856 Depreciation $ 1,837 $ 1,216 Depreciation Expense $ 1,837 $ 1,216 $ 921 $ 1,250 $ 1,500 $ 1,500 $ 1,500 Routine Capex 1,109 237 1,000 1,100 1,200 1,300 Amortization Intangible Assets - Existing 2,013 2,267 2,113 1,585 1,057 529 Amortization Expense - Existing 257 $ 422 575 528 528 528 ---------- Intangible Assets -(HNT Transaction) 33.33% 3,216 2,551 1,886 1,221 ---------- Amortization Expense - (HNT Transaction) 665 665 665 Prior Period Marketable Security Balance (Incl. Restricted Investments) 16,787 12,922 12,693 18,643 25,251 33,169 Investment Income 301 138 254 373 505 663 Earnings % 1.80% 1.10% 2.00% 2.00% 2.00% 2.00% LIABILITIES Days Accounts Payable 58 29 29 25 25 25 Days Accrued Expenses 88 62 62 88 88 88 Days Claims Payable 40 33 33 26 26 26 Days Deferred Premium 4 8 8 7 7 7 With HealthNet Days Accounts Payable 25 Days Accrued Expenses 88 Days Claims Payable 26 Days Deferred Premium 7 Est. TTM 2003 Medical Revenue Expenses Admin --------- ---------- ----------- HNT 74,000 52,482 13,030 SafeGuard 88,979 54,748 17,412 --------- ---------- ----------- 162,979 107,230 30,442 YEAR ENDING DECEMBER, 31 ------------------ PROJECTED -------- -------- BALANCE SHEET ASSUMPTIONS 2007 2008 ------------------------------------------------ -------- -------- ASSETS Days Accounts Receivable 11 11 Days Other Current Assets 30 30 With HealthNet Days Accounts Receivable Days Other Current Assets NET PROPERTY, PLANT AND EQUIPMENT Leasehold Improvements Furniture and Office Equipment Computer Hardware and Software Gross Property, Plant and Equipment $16,969 $18,469 Accumulated Depreciation 13,831 15,331 Net Property, Plant and Equipment 3,138 3,138 Acquired HNT PP&E Depreciation Depreciation Expense $ 1,500 $ 1,500 Routine Capex 1,400 1,500 Amortization Intangible Assets - Existing - (423) Amortization Expense - Existing 529 423 Intangible Assets -(HNT Transaction) 556 - Amortization Expense - (HNT Transaction) 665 556 Prior Period Marketable Security Balance (Incl. Restricted Investments) 42,805 54,225 Investment Income 856 1,084 Earnings % 2.00% 2.00% LIABILITIES Days Accounts Payable 25 25 Days Accrued Expenses 88 88 Days Claims Payable 26 26 Days Deferred Premium 7 7 With HealthNet Days Accounts Payable Days Accrued Expenses Days Claims Payable Days Deferred Premium
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--------------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CONSOLIDATED 9 MON. ENDING Year Ending SEPT- December ,31 EMBER YEAR ENDING DECEMBER , 31 ------------- ------ ------------------------------------------------------------------- ACTUAL ESTIMATED PROJECTED ------------------------------------- --------------------- -------------------------------------------------- LONG TERM DEBT ASSUMPTIONS 2001 2002 2003 2003 2004 2005 2006 2007 2008 ------------------------------------- ---- ------- ------ --------------- ----------- -------- ----------- ------ ------ Unsecured Convertible Promissory Note Beginning Balance $ 1,798 1,539 $ 1,539 $ 1,539 $ - $ - Payments (259) - - - - - Conversion to Equity - - - (1,539) --------------- ----------- -------- ----------- ------ ------ Ending Balance $ 1,539 1,539 $ 1,539 $ - $ - $ - Interest $ (112) (108) $ (108) $ (101) $ (60) $ (13) Secured Convertible Promissory Note Beginning Balance $ 2,427 1,672 $ 1,672 $ 1,672 $ - $ - Payments (755) - - - - - Conversion to Equity - - - (1,672) --------------- ----------- -------- ----------- ------ ------ Ending Balance $ 1,672 1,672 $ 1,672 $ - $ - $ - Interest $ (144) (84) $ - $ - $ - $ - Leases Intestel Lease Beginning Balance $ 52 45 $ 35 $ 24 $ 12 $ - Payments (7) (10) (11) (12) (12) - --------------- ----------- -------- ----------- ------ ------ Ending Balance $ 45 35 $ 24 $ 12 $ - $ - Interest $ - - $ - $ - $ - $ - Celtic Lease Beginning Balance $ 443 188 $ - $ - $ - $ - Payments (255) (188) - - - - --------------- ----------- -------- ----------- ------ ------ Ending Balance $ 188 - $ - $ - $ - $ - Interest $ (35) (9) $ - $ - $ - $ - Cal First Beginning Balance $ 707 Payments (707) --------------- Ending Balance $ - Interest (44) TOTAL Beginning Balance $ 5,427 $ 3,444 $ 3,246 $ 3,235 $ 12 $ - Payments (1,983) (198) (11) (12) (12) - --------------- ----------- -------- ----------- ------ ------ Ending Balance $ 5,427 $ 3,444 $ 3,246 $ 3,235 $ 12 $ - $ - Interest $ (335) $ (201) $ (108) $ (101) $ (60) $ (13)
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-------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CONSOLIDATED Year Ending December, 31 -------------------------------------------------- Projected Estimated -------------------------------------------------- Cash Flow Statement 2003 2004 2005 2006 2007 2008 ---------------------------------------- ------------------------------------------------------------ Net Income $ 2,239 $ 2,994 $ 4,999 $ 6,520 $ 8,265 $ 10,404 Depreciation and Amortization 1,825 2,693 2,693 2,693 2,694 2,479 CHANGE IN CURRENT ASSETS AND LIABILITIES Accounts Receivable (618) (599) (756) (832) (911) (996) Other Current Assets (103) (450) (117) (186) (195) (205) Accounts Payable 201 375 98 155 163 171 Accrued Expenses 428 1,334 348 552 579 608 Claims Payable 1,172 1,096 1,296 1,428 1,565 1,713 Deferred Premium Revenue 432 402 508 559 612 669 -------- -------- -------- --------- -------- --------- Change in Current Assets and Liabilities 1,512 2,159 1,377 1,676 1,812 1,960 Change in Other Assets and Liabilities 132 60 60 60 60 60 -------- -------- -------- --------- -------- --------- Cash From Operations 5,708 7,906 9,129 10,949 12,831 14,902 FINANCING/ INVESTING ACTIVITIES Purchase of Property and Equipment (1,000) (1,100) (1,200) (1,300) (1,400) (1,500) Conversion of Convertible Debt - - - 3,211 - - Short-Term Debt (2,232) (187) 1 - (12) - Change In LTD 249 (11) (12) (3,223) - - -------- -------- -------- --------- -------- --------- Cash Provided By Financing/ Investing Activities (2,983) (1,298) (1,211) (1,312) (1,412) (1,500) -------- -------- -------- --------- -------- --------- Increase (Decrease) in Cash $ 2,724 $ 6,608 $ 7,918 $ 9,637 $11,419 $ 13,402 ======== ======== ======== ========= ========= ========= Beginning Cash $ 3,036 $ 9,426 $ 9,426 $ 9,426 $ 9,426 $ 9,426 ======== ======== ======== ========= ========= ========= Transfers to Marketable Securities $(6,608) $(7,918) $(9,637) $(11,419) $(13,402) Ending Cash $ 5,706 $ 9,426 $ 9,426 $ 9,426 $ 9,426 $ 9,426 -------- -------- -------- --------- --------- ---------
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--------------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CALIFORNIA MARKET INCLUDES HNT MEMBERSHIP 9 MON. YEAR ENDING ENDING DECEMBER ,31 SEPTEMBER YEAR ENDING DECEMBER, 31 --------------- -------------- --------- ------------------------------------------------- ACTUAL ESTIMATED PROJECTED ------------------------------- ------------------------------------------------ INCOME STATEMENT 2001 2002 2003 2003 2004 2005 2006 2007 2008 --------------------------------- ------- ------- -------------- ---------- -------- -------- -------- -------- -------- REVENUES HMO Wholesale $ - $ - $ - $ - $ - $ - $ - $ - $ - Dental HMO (1) 35,626 33,104 25,481 42,155 89,859 96,756 104,098 111,911 120,226 PPO/Indemnity 19,593 15,011 11,757 18,111 38,115 50,903 65,010 80,551 97,649 Third-Party Administrator and Other 2,818 7,239 3,963 5,341 5,773 6,048 6,336 6,639 6,958 Vision 1,114 1,031 920 2,713 11,184 12,501 13,974 15,620 17,460 ------- ------- -------------- ---------- -------- -------- -------- -------- -------- Total Revenue 59,151 56,385 42,121 68,321 144,930 166,209 189,419 214,722 242,293 DIRECT HEALTH CARE EXPENSE HMO Wholesale - - - - - - - - - Dental HMO (1) 21,713 20,211 15,252 25,965 59,111 63,550 68,273 73,298 78,644 PPO/Indemnity 15,450 11,822 9,275 14,355 30,527 40,667 51,854 64,178 77,738 Third-Party Administrator 1,787 5,335 2,626 3,541 3,843 4,035 4,237 4,449 4,671 Vision 735 641 568 1,591 6,491 7,255 8,110 9,065 10,133 ------- ------- -------------- ---------- -------- -------- -------- -------- -------- Total Direct Health Care Expense 39,685 38,009 27,721 45,451 99,971 115,508 132,474 150,990 171,186 ------- ------- -------------- ---------- -------- -------- -------- -------- -------- Gross Profit $19,466 $18,376 $ 14,400 $ 22,869 $ 44,959 $ 50,701 $ 56,945 $ 63,732 $ 71,107 ======= ======= ============== ========== ======== ======== ======== ======== ======== (1) Includes Commercial, Federal, State and Strategic Relationship Membership.
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--------------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CALIFORNIA MARKET EXISTING MEMBERSHIP ONLY 9 MON. ENDING YEAR ENDING SEPT- DECEMBER ,31 EMBER YEAR ENDING DECEMBER , 31 ---------------- ------- -------------------------------------------------------------- ACTUAL ESTIMATED PROJECTED ------------------------- -------------------------------------------------- INCOME STATEMENT 2001 2002 2003 2003 2004 2005 2006 2007 2008 -------------------------------------- ------- ------- ------- ---------- -------- -------- ---------- -------- -------- REVENUES HMO Wholesale $ - $ - $ - $ - $ - $ - $ - $ - $ - Dental HMO $35,626 33,104 25,481 34,185 38,735 41,293 44,020 46,928 50,027 PPO/Indemnity 19,593 15,011 11,757 15,578 16,528 18,396 20,474 22,788 25,363 Third-Party Administrator 2,818 7,239 3,963 5,341 5,773 6,048 6,336 6,639 6,958 Vision 1,114 1,031 920 1,252 1,430 1,599 1,787 1,998 2,233 ------- ------- ------- ---------- -------- -------- ---------- -------- -------- Total Revenue 59,151 56,385 42,121 56,355 62,466 67,335 72,618 78,353 84,581 DIRECT HEALTH CARE EXPENSE HMO Wholesale - - - - - - - - - Dental HMO 21,713 20,211 15,252 20,336 23,043 24,565 26,187 27,917 29,761 PPO/Indemnity 15,450 11,822 9,275 12,289 13,039 14,512 16,152 17,977 20,009 Third-Party Administrator 1,787 5,335 2,626 3,541 3,843 4,035 4,237 4,449 4,671 Vision 735 641 568 773 883 987 1,103 1,233 1,379 ------- ------- ------- ---------- -------- -------- ---------- -------- -------- Total Direct Health Care 39,685 38,009 27,721 36,939 40,808 44,099 47,680 51,576 55,819 ------- ------- ------- ---------- -------- -------- ---------- -------- -------- Expense Gross Profit $19,466 $18,376 $14,400 $ 19,416 $ 21,658 $ 23,236 $ 24,939 $ 26,777 $ 28,762 ======= ======= ======= ========== ======== ======== ========== ======== ========
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------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CALIFORNIA MARKET HNT ONLY 9 MON. ENDING YEAR ENDING SEPT- DECEMBER ,31 EMBER YEAR ENDING DECEMBER, 31 -------------- ------- ------------------------------------------------------------ ACTUAL ESTIMATED PROJECTED ----------------------- ------------------------------------------------ INCOME STATEMENT 2001 2002 2003 2003 2004 2005 2006 2007 2008 ---------------------------------- ----- ------- ------- ---------- ------- ------- ---------- -------- -------- REVENUES HMO Wholesale $ - $ - $ - $ - $ - $ - $ - $ - $ - Dental HMO - - - 7,971 51,124 55,463 60,078 64,984 70,198 PPO/Indemnity - - - 2,534 21,587 32,508 44,536 57,763 72,287 Third-Party Administrator - - - - - - - - - Vision - - - 1,461 9,754 10,903 12,187 13,623 15,227 ----- ------- ------- ---------- ------- ------- ---------- -------- -------- Total Revenue - - - 11,965 82,465 98,873 116,801 136,369 157,712 DIRECT HEALTH CARE EXPENSE HMO Wholesale - - - - - - - - - Dental HMO - - - 5,629 36,068 38,985 42,086 45,382 48,883 PPO/Indemnity - - - 2,066 17,488 26,155 35,702 46,200 57,730 Third-Party Administrator - - - - - - - - - Vision - - - 818 5,607 6,268 7,006 7,832 8,754 ----- ------- ------- ---------- ------- ------- ---------- -------- -------- Total Direct Health Care Expense - - $ - 8,512 59,164 71,408 84,794 99,414 115,367 ----- ------- ------- ---------- ------- ------- ---------- -------- -------- Gross Profit $ - $ - $ - $ 3,453 $23,301 $27,465 $ 32,006 $ 36,955 $ 42,345 ----- ------- ------- ---------- ------- ------- ---------- -------- --------
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---------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CALIFORNIA MARKET 9 MON. ENDING YEAR ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 ----------------------- ----------- -------------------------------------------------- ACTUAL PROJECTED ------------------------------------ ESTIMATED ------------------------------------- REVENUE AND MEMBERSHIP 2001 2002 2003 2003 2004 2005 2006 ---------- ----------- ----------- ----------- ------------------------------------- DENTAL HMO Members at Period End 305,297 274,559 287,274 308,274 317,522 327,048 336,859 % Increase (Decrease) NA -10.1% NA 12.3% 3.0% 3.0% 3.0% Average Membership 315,059 283,932 315,736 285,809 312,898 322,285 331,954 % Increase (Decrease) NA -9.9% NA 0.7% 9.5% 3.0% 3.0% Member Months 3,780,712 3,407,181 2,525,891 3,429,713 3,754,777 3,867,421 3,983,443 % Increase (Decrease) NA -9.9% NA 0.7% 9.5% 3.0% 3.0% Average Net Premium PMPM $ 9.42 $ 9.72 $ 10.09 $ 9.97 $ 10.32 $ 10.68 $ 11.05 % Increase (Decrease) NA 3.1% 3.8% 2.6% 3.5% 3.5% 3.5% ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $ 35,626 $ 33,104 $ 25,481 $ 34,185 $ 38,735 $ 41,293 $ 44,020 PPO/INDEMNITY Members at Period End 44,794 39,949 38,538 38,538 40,850 43,301 45,899 % Increase (Decrease) NA -10.8% NA -3.5% 6.0% 6.0% 6.0% Average Membership 49,106 39,310 44,472 39,283 39,694 42,076 44,600 % Increase (Decrease) NA -19.9% NA -0.1% 1.0% 6.0% 6.0% Member Months 589,271 471,724 355,776 471,390 476,330 504,909 535,204 % Increase (Decrease) NA -19.9% NA -0.1% 1.0% 6.0% 6.0% Average Net Premium PMPM $ 33.25 $ 31.82 $ 33.05 $ 33.05 $ 34.70 $ 36.43 $ 38.25 % Increase (Decrease) -4.3% 3.8% 3.8% 5.0% 5.0% 5.0% ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $ 19,593 $ 15,011 $ 11,757 $ 15,578 $ 16,528 $ 18,396 $ 20,474 VISION Members at Period End 17,923 19,812 21,491 21,491 23,210 25,067 27,072 % Increase (Decrease) NA 10.5% NA 8.5% 8.0% 8.0% 8.0% Average Membership 18,827 19,199 22,320 20,253 22,351 24,139 26,070 % Increase (Decrease) NA 2.0% NA 5.5% 10.4% 8.0% 8.0% Member Months 225,920 230,391 178,558 243,031 268,208 289,664 312,837 % Increase (Decrease) NA 2.0% NA 5.5% 10.4% 8.0% 8.0% Average Net Premium PMPM $ 4.93 $ 4.48 $ 5.15 $ 5.15 $ 5.33 $ 5.52 $ 5.71 % Increase (Decrease) NA -9.2% 15.1% 15.1% 3.5% 3.5% 3.5% ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $ 1,114 $ 1,031 $ 920 $ 1,252 $ 1,430 $ 1,599 $ 1,787 TPA AND OTHER Members at Period End 17,132 35,743 42,544 42,544 42,544 42,544 42,544 % Increase (Decrease) NA 108.6% NA 19.0% 0.0% 0.0% 0.0% Average Membership 23,869 46,609 45,785 41,159 42,544 42,544 42,544 % Increase (Decrease) NA 95.3% NA -11.7% 3.4% 0.0% 0.0% Member Months 286,433 559,306 366,277 493,909 510,528 510,528 510,528 % Increase (Decrease) NA 95.3% NA -11.7% 3.4% 0.0% 0.0% PMPM $ 9.28 $ 12.54 $ 10.25 $ 10.25 $ 10.77 $ 11.31 $ 11.87 % Increase (Decrease) NA 35.1% -18.2% -18.2% 5.0% 5.0% 5.0% Third-Party Administrator $ 2,658 $ 7,011 $ 3,756 $ 5,065 $ 5,497 $ 5,772 $ 6,060 ASO and PPO Rental $ 160 228 207 276 276 276 276 ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $ 2,818 $ 7,239 $ 3,963 $ 5,341 $ 5,773 $ 6,048 $ 6,336 YEAR ENDING DECEMBER, 31 PROJECTED ------------------------ REVENUE AND MEMBERSHIP 2007 2008 ---------------------------- ------------------------ DENTAL HMO Members at Period End 346,965 357,374 % Increase (Decrease) 3.0% 3.0% Average Membership 341,912 352,170 % Increase (Decrease) 3.0% 3.0% Member Months 4,102,947 4,226,035 % Increase (Decrease) 3.0% 3.0% Average Net Premium PMPM $ 11.44 $ 11.84 % Increase (Decrease) 3.5% 3.5% ----------- ----------- Total Revenue $ 46,928 $ 50,027 PPO/INDEMNITY Members at Period End 48,653 51,573 % Increase (Decrease) 6.0% 6.0% Average Membership 47,276 50,113 % Increase (Decrease) 6.0% 6.0% Member Months 567,316 601,355 % Increase (Decrease) 6.0% 6.0% Average Net Premium PMPM $ 40.17 $ 42.18 % Increase (Decrease) 5.0% 5.0% ----------- ----------- Total Revenue $ 22,788 $ 25,363 VISION Members at Period End 29,238 31,577 % Increase (Decrease) 8.0% 8.0% Average Membership 28,155 30,408 % Increase (Decrease) 8.0% 8.0% Member Months 337,864 364,894 % Increase (Decrease) 8.0% 8.0% Average Net Premium PMPM $ 5.91 $ 6.12 % Increase (Decrease) 3.5% 3.5% ----------- ----------- Total Revenue $ 1,998 $ 2,233 TPA AND OTHER Members at Period End 42,544 42,544 % Increase (Decrease) 0.0% 0.0% Average Membership 42,544 42,544 % Increase (Decrease) 0.0% 0.0% Member Months 510,528 510,528 % Increase (Decrease) 0.0% 0.0% PMPM $ 12.46 $ 13.09 % Increase (Decrease) 5.0% 5.0% Third-Party Administrator $ 6,363 $ 6,682 ASO and PPO Rental 276 276 ----------- ----------- Total Revenue $ 6,639 $ 6,958
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------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CALIFORNIA MARKET 9 MON. ENDING YEAR ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 ------------------------ ---------- ------------------------------------------------- ACTUAL PROJECTED ----------------------------------- ESTIMATED ------------------------------------- REVENUE AND MEMBERSHIP 2001 2002 2003 2003 2004 2005 2006 ------------- --------- ---------- ---------- ------------------------------------- HNT DENTAL - COMMERCIAL Members at Period End - - - 221,432 228,075 234,917 241,965 % Increase (Decrease) NA NA NA NA 3.0% 3.0% 3.0% Average Membership - - - 224,251 224,753 231,496 238,441 % Increase (Decrease) NA NA NA NA 0.2% 3.0% 3.0% Member Months - - - 448,502 2,697,042 2,777,953 2,861,292 % Increase (Decrease) NA NA NA NA NA 3.0% 3.0% Average Net Premium PMPM NA NA NA $ 8.62 $ 8.92 $ 9.24 $ 9.56 % Increase (Decrease) NA NA NA NA 3.5% 3.5% 3.5% ------------- --------- ---------- ---------- ----------- ----------- ----------- Total Revenue $ - $ - $ - $ 3,867 $ 24,066 $ 25,656 $ 27,351 HNT DENTAL - FEDERAL HEALTH PLAN Members at Period End - - - 15,452 15,452 15,452 15,452 % Increase (Decrease) NA NA NA NA 0.0% 0.0% 0.0% Average Membership - - - 15,610 15,452 15,452 15,452 % Increase (Decrease) NA NA NA NA -1.0% 0.0% 0.0% Member Months - - - 31,220 185,424 185,424 185,424 % Increase (Decrease) NA NA NA NA NA 0.0% 0.0% Average Net Premium PMPM NA NA NA $ 3.88 $ 3.95 $ 4.03 $ 4.11 % Increase (Decrease) NA NA NA NA 2.0% 2.0% 2.0% ------------- --------- ---------- ---------- ----------- ----------- ----------- Total Revenue $ - $ - $ - $ 121 $ 733 $ 748 $ 763 HNT DENTAL - STATE HEALTH PLAN Members at Period End - - - 182,672 189,066 195,683 202,532 % Increase (Decrease) NA NA NA NA 3.5% 3.5% 3.5% Average Membership - - - 176,242 185,869 192,374 199,107 % Increase (Decrease) NA NA NA NA 5.5% 3.5% 3.5% Member Months - - - 352,484 2,230,425 2,308,490 2,389,287 % Increase (Decrease) NA NA NA NA NA 3.5% 3.5% Average Net Premium PMPM NA NA NA $ 11.30 $ 11.53 $ 11.76 $ 11.99 % Increase (Decrease) NA NA NA NA 2.0% 2.0% 2.0% ------------- --------- ---------- ---------- ----------- ----------- ----------- Total Revenue $ - $ - $ - $ 3,983 $ 25,706 $ 27,138 $ 28,649 YEAR ENDING DECEMBER, 31 PROJECTED ------------------------ REVENUE AND MEMBERSHIP 2007 2008 --------------------------------- ------------------------ HNT DENTAL - COMMERCIAL Members at Period End 249,224 256,700 % Increase (Decrease) 3.0% 3.0% Average Membership 245,594 252,962 % Increase (Decrease) 3.0% 3.0% Member Months 2,947,130 3,035,544 % Increase (Decrease) 3.0% 3.0% Average Net Premium PMPM $ 9.89 $ 10.24 % Increase (Decrease) 3.5% 3.5% ----------- ----------- Total Revenue $ 29,157 $ 31,083 HNT DENTAL - FEDERAL HEALTH PLAN Members at Period End 15,452 15,452 % Increase (Decrease) 0.0% 0.0% Average Membership 15,452 15,452 % Increase (Decrease) 0.0% 0.0% Member Months 185,424 185,424 % Increase (Decrease) 0.0% 0.0% Average Net Premium PMPM $ 4.20 $ 4.28 % Increase (Decrease) 2.0% 2.0% ----------- ----------- Total Revenue $ 778 $ 793 HNT DENTAL - STATE HEALTH PLAN Members at Period End 209,620 216,957 % Increase (Decrease) 3.5% 3.5% Average Membership 206,076 213,289 % Increase (Decrease) 3.5% 3.5% Member Months 2,472,912 2,559,464 % Increase (Decrease) 3.5% 3.5% Average Net Premium PMPM $ 12.23 $ 12.48 % Increase (Decrease) 2.0% 2.0% ----------- ----------- Total Revenue $ 30,245 $ 31,930
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------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CALIFORNIA MARKET 9 MON. ENDING YEAR ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 --------------------------- ---------- ------------------------------------------ ACTUAL PROJECTED --------------------------------------- ESTIMATED ------------------------------ REVENUE AND MEMBERSHIP 2001 2002 2003 2003 2004 2005 ------------ ------------- ---------- ---------- ------------------------------ HNT VISION - COMMERCIAL Members at Period End - - - 98,249 106,109 114,598 % Increase (Decrease) NA NA NA NA 8.0% 8.0% Average Membership - - - 100,574 102,179 110,353 % Increase (Decrease) NA NA NA NA 1.6% 8.0% Member Months - - - 201,147 1,226,148 1,324,239 % Increase (Decrease) NA NA NA NA NA 8.0% Average Net Premium PMPM NA NA NA $ 4.99 $ 5.16 $ 5.35 % Increase (Decrease) NA NA NA NA 3.5% 3.5% ------------ ------------- ---------- ---------- ----------- ----------------- Total Revenue $ - $ - $ - $ 1,004 $ 6,333 $ 7,079 HNT LIFE (DENTAL ONLY) - COMMERCIAL Members at Period End - - - 48,141 51,029 54,091 % Increase (Decrease) NA NA NA NA 6.0% 6.0% Average Membership - - - 45,429 49,585 52,560 % Increase (Decrease) NA NA NA NA 9.1% 6.0% Member Months - - - 90,858 595,023 630,724 % Increase (Decrease) NA NA NA NA NA 6.0% Average Net Premium PMPM NA NA NA $ 27.89 $ 29.28 $ 30.75 % Increase (Decrease) NA NA NA NA 5.0% 5.0% ------------ ------------- ---------- ---------- ----------- ----------------- Total Revenue $ - $ - $ - $ 2,534 $ 17,423 $ 19,392 HNT LIFE (VISION) -COMMERCIAL Members at Period End - - - 51,725 55,863 60,332 % Increase (Decrease) NA NA NA NA 8.0% 8.0% Average Membership - - - 44,652 53,794 58,098 % Increase (Decrease) NA NA NA NA 20.5% 8.0% Member Months - - - 89,305 645,528 697,170 % Increase (Decrease) NA NA NA NA NA 8.0% Average Net Premium PMPM NA NA NA $ 5.12 $ 5.30 $ 5.48 % Increase (Decrease) NA NA NA NA 3.5% 3.5% ------------ ------------- ---------- ---------- ----------- ----------------- Total Revenue $ - $ - $ - $ 457 $ 3,421 $ 3,824 YEAR ENDING DECEMBER, 31 ------------------------------------- PROJECTED ------------------------------------- REVENUE AND MEMBERSHIP 2006 2007 2008 ------------------------------------- HNT VISION - COMMERCIAL Members at Period End 123,765 133,667 144,360 % Increase (Decrease) 8.0% 8.0% 8.0% Average Membership 119,182 128,716 139,013 % Increase (Decrease) 8.0% 8.0% 8.0% Member Months 1,430,178 1,544,593 1,668,160 % Increase (Decrease) 8.0% 8.0% 8.0% Average Net Premium PMPM $ 5.53 $ 5.73 $ 5.93 % Increase (Decrease) 3.5% 3.5% 3.5% ----------- ----------- ----------- Total Revenue $ 7,913 $ 8,845 $ 9,887 HNT LIFE (DENTAL ONLY) - COMMERCIAL Members at Period End 57,337 60,777 64,424 % Increase (Decrease) 6.0% 6.0% 6.0% Average Membership 55,714 59,057 62,600 % Increase (Decrease) 6.0% 6.0% 6.0% Member Months 668,568 708,682 751,203 % Increase (Decrease) 6.0% 6.0% 6.0% Average Net Premium PMPM $ 32.28 $ 33.90 $ 35.59 % Increase (Decrease) 5.0% 5.0% 5.0% ----------- ----------- ----------- Total Revenue $ 21,583 $ 24,022 $ 26,736 HNT LIFE (VISION) -COMMERCIAL Members at Period End 65,159 70,371 76,001 % Increase (Decrease) 8.0% 8.0% 8.0% Average Membership 62,745 67,765 73,186 % Increase (Decrease) 8.0% 8.0% 8.0% Member Months 752,944 813,179 878,234 % Increase (Decrease) 8.0% 8.0% 8.0% Average Net Premium PMPM $ 5.68 $ 5.88 $ 6.08 % Increase (Decrease) 3.5% 3.5% 3.5% ----------- ----------- ----------- Total Revenue $ 4,274 $ 4,778 $ 5,341
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SAFEGUARD HEALTH ENTERPRISES, INC. CALIFORNIA MARKET YEAR ENDING 9 MON. ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER 31, -------------------- -------- -------------------------------------------- ACTUAL ESTIMATED PROJECTED ------------------------------ --------------------------------- HNT STRATEGIC RELATIONSHIP 2001 2002 2003 2003 2004 2005 2006 --------------------------------------------- --------- --------- -------- --------- --------- --------- ----------- Increase in Total Strategic Membership Per Q 7,500 % of Strategic Membership HMO 33.3% % of Strategic Membership PPO 66.7% HMO Members at Period End 10,000 20,000 30,000 % Increase (Decrease) NA 100.0% 50.0% Average Membership 5,000 15,000 25,000 % Increase (Decrease) NA 200.0% 66.7% Member Months 60,000 180,000 300,000 % Increase (Decrease) NA 200.0% 66.7% Average Net Premium PMPM $ 10.32 $ 10.68 $ 11.05 % Increase (Decrease) NA 3.5% 3.5% Total Revenue $ 619 $ 1,922 $ 3,315 PMPM Direct Medical Expense $ 6.14 $ 6.35 $ 6.57 % Increase (Decrease) NA 3.5% 3.5% Total Direct Medical Expense $ 368 $ 1,143 $ 1,972 HNT Administrative Costs $ 62 $ 192 $ 332 % of Revenue 10.0% 10.0% 10.0% PPO Members at Period End 20,000 40,000 60,000 % Increase (Decrease) NA 100.0% 50.0% Average Membership 10,000 30,000 50,000 % Increase (Decrease) NA 200.0% 66.7% Member Months 120,000 360,000 600,000 % Increase (Decrease) NA 200.0% 66.7% Average Net Premium PMPM $ 34.70 $ 36.43 $ 38.25 % Increase (Decrease) NA 5.0% 5.0% Total Revenue $ 4,164 $ 13,116 $ 22,953 PMPM Direct Medical Expense $ 27.37 $ 28.74 $ 30.18 % Increase (Decrease) NA 5.0% 5.0% Total Direct Medical Expense $ 3,285 $ 10,347 $ 18,107 HNT Administrative Costs $ 208 $ 656 $ 1,148 % of Revenue 5.0% 5.0% 5.0% YEAR ENDING DECEMBER 31, ---------------------- PROJECTED ---------------------- HNT STRATEGIC RELATIONSHIP 2007 2008 --------------------------------------------- --------- ----------- Increase in Total Strategic Membership Per Q % of Strategic Membership HMO % of Strategic Membership PPO HMO Members at Period End 40,000 50,000 % Increase (Decrease) 33.3% 25.0% Average Membership 35,000 45,000 % Increase (Decrease) 40.0% 28.6% Member Months 420,000 540,000 % Increase (Decrease) 40.0% 28.6% Average Net Premium PMPM $ 11.44 $ 11.84 % Increase (Decrease) 3.5% 3.5% Total Revenue $ 4,804 $ 6,392 PMPM Direct Medical Expense $ 6.80 $ 7.04 % Increase (Decrease) 3.5% 3.5% Total Direct Medical Expense $ 2,858 $ 3,803 HNT Administrative Costs $ 480 $ 639 % of Revenue 10.0% 10.0% PPO Members at Period End 80,000 100,000 % Increase (Decrease) 33.3% 25.0% Average Membership 70,000 90,000 % Increase (Decrease) 40.0% 28.6% Member Months 840,000 1,080,000 % Increase (Decrease) 40.0% 28.6% Average Net Premium PMPM $ 40.17 $ 42.18 % Increase (Decrease) 5.0% 5.0% Total Revenue $ 33,741 $ 45,550 PMPM Direct Medical Expense $ 31.69 $ 33.27 % Increase (Decrease) 5.0% 5.0% Total Direct Medical Expense $ 26,618 $ 35,934 HNT Administrative Costs $ 1,687 $ 2,278 % of Revenue 5.0% 5.0%
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---------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CALIFORNIA MARKET 9 MON. ENDING YEAR ENDING DECEMBER,31 SEPTEMBER YEAR ENDING DECEMBER, 31 ----------------------- ---------------- -------------------------------------------------- ACTUAL ESTIMATED PROJECTED ----------------------- ----------- ------------------------------------- DIRECT MEDICAL EXPENSES 2001 2002 2003 2003 2004 2005 2006 ----------------------------- ---------- ----------- ---------------- ----------- ----------- ----------- ----------- DENTAL HMO ----------------------------- Member Months 3,780,712 3,407,181 2,525,891 3,429,713 3,754,777 3,867,421 3,983,443 PMPM Direct Medical Expense $ 5.74 $ 5.93 $ 6.04 $ 5.93 $ 6.14 $ 6.35 $ 6.57 % Increase (Decrease) 3.3% 1.8% 0.0% 3.5% 3.5% 3.5% Dental Capitation 12,876 11,537 8,828 11,771 Supplementals 2,319 2,412 1,828 2,437 UCR Based Claims 1,223 909 351 468 Other Direct Healthcare - 81 131 175 Specialty Referrals 5,166 5,213 4,114 5,485 Member Reimbursement 129 59 - - ---------- ----------- ---------------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ 21,713 $ 20,211 $ 15,252 $ 20,336 $ 23,043 $ 24,565 $ 26,187 PPO/INDEMNITY CLAIMS Member Months 589,271 471,724 355,776 471,390 476,330 504,909 535,204 PMPM Direct Medical Expense $ 26.22 $ 25.06 $ 26.07 $ 26.07 $ 27.37 $ 28.74 $ 30.18 % Increase (Decrease) NA -4.4% 4.0% 4.0% 5.0% 5.0% 5.0% ---------- ----------- ---------------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ 15,450 $ 11,822 $ 9,275 $ 12,289 $ 13,039 $ 14,512 $ 16,152 THIRD-PARTY ADMINISTRATOR EXPENSE Member Months 286,433 559,306 366,277 493,909 510,528 510,528 510,528 PMPM Direct Medical Expense $ 6.24 $ 9.54 $ 7.17 $ 7.17 $ 7.53 $ 7.90 $ 8.30 % Increase (Decrease) NA 52.9% -24.8% -24.8% 5.0% 5.0% 5.0% ---------- ----------- ---------------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ 1,787 $ 5,335 $ 2,626 $ 3,541 $ 3,843 $ 4,035 $ 4,237 VISION CLAIMS Member Months 225,920 230,391 178,558 243,031 268,208 289,664 312,837 PMPM Direct Medical Expense $ 3.25 $ 2.78 $ 3.18 $ 3.18 $ 3.29 $ 3.41 $ 3.53 % Increase (Decrease) NA -14.5% 14.3% 14.3% 3.5% 3.5% 3.5% ---------- ----------- ---------------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ 735 $ 641 $ 568 $ 773 $ 883 $ 987 $ 1,103 YEAR ENDING DECEMBER, 31 ------------------------ PROJECTED ------------------------ DIRECT MEDICAL EXPENSES 2007 2008 ----------------------------- ----------- ----------- DENTAL HMO ----------------------------- Member Months 4,102,947 4,226,035 PMPM Direct Medical Expense $ 6.80 $ 7.04 % Increase (Decrease) 3.5% 3.5% Dental Capitation Supplementals UCR Based Claims Other Direct Healthcare Specialty Referrals Member Reimbursement ----------- ----------- Total Direct Medical Expense $ 27,917 $ 29,761 PPO/INDEMNITY CLAIMS Member Months 567,316 601,355 PMPM Direct Medical Expense $ 31.69 $ 33.27 % Increase (Decrease) 5.0% 5.0% ----------- ----------- Total Direct Medical Expense $ 17,977 $ 20,009 THIRD-PARTY ADMINISTRATOR EXPENSE Member Months 510,528 510,528 PMPM Direct Medical Expense $ 8.71 $ 9.15 % Increase (Decrease) 5.0% 5.0% ----------- ----------- Total Direct Medical Expense $ 4,449 $ 4,671 VISION CLAIMS Member Months 337,864 364,894 PMPM Direct Medical Expense $ 3.65 $ 3.78 % Increase (Decrease) 3.5% 3.5% ----------- ----------- Total Direct Medical Expense $ 1,233 $ 1,379
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------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CALIFORNIA MARKET 9 MON. YEAR ENDING ENDING DECEMBER, 31 SEPTEMBER YEAR ENDING DECEMBER, 31 ----------------------- ------------------------------------------------------------------ ACTUAL ESTIMATED PROJECTED ----------------------- -------------------------------------------------- DIRECT MEDICAL EXPENSES 2001 2002 2003 2003 2004 2005 2006 2007 --------------------------------- ----- ----- --------- -------------- ----------- ----------- ----------- ----------- HNT DENTAL - COMMERCIAL Member Months - - - 448,502 2,697,042 2,777,953 2,861,292 2,947,130 PMPM Direct Medical Expense NA NA NA 5.82 6.02 $ 6.23 $ 6.45 $ 6.67 % Increase (Decrease) NA NA NA NA 3.5% 3.5% 3.5% 3.5% ----- ----- --------- -------------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ - $ - $ - $ 2,608 $ 16,234 $ 17,306 $ 18,449 $ 19,667 HNT DENTAL - FEDERAL HEALTH PLAN Member Months - - - 31,220 185,424 185,424 185,424 185,424 PMPM Direct Medical Expense NA NA NA 2.18 2.22 $ 2.27 $ 2.31 $ 2.36 % Increase (Decrease) NA NA NA NA 2.0% 2.0% 2.0% 2.0% ----- ----- --------- -------------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ - $ - $ - $ 68 $ 412 $ 420 $ 429 $ 437 HNT DENTAL - STATE HEALTH PLAN Member Months - - - 352,484 2,230,425 2,308,490 2,389,287 2,472,912 PMPM Direct Medical Expense NA NA NA 8.38 8.54 $ 8.71 $ 8.89 $ 9.07 % Increase (Decrease) NA NA NA NA 2.0% 2.0% 2.0% 2.0% ----- ----- --------- -------------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ - $ - $ - $ 2,952 $ 19,055 $ 20,116 $ 21,236 $ 22,419 HNT VISION - COMMERCIAL Member Months - - - 201,147 1,226,148 1,324,239 1,430,178 1,544,593 PMPM Direct Medical Expense NA NA NA $ 2.17 $ 2.25 $ 2.33 $ 2.41 $ 2.49 % Increase (Decrease) NA NA NA NA 3.5% 3.5% 3.5% 3.5% ----- ----- --------- -------------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ - $ - $ - $ 437 $ 2,757 $ 3,082 $ 3,445 $ 3,851 HNT LIFE (DENTAL ONLY) - COMMERCIAL Member Months - - - 90,858 595,023 630,724 668,568 708,682 PMPM Direct Medical Expense NA NA NA $ 22.73 $ 23.87 $ 25.06 $ 26.32 $ 27.63 % Increase (Decrease) NA NA NA NA 5.0% 5.0% 5.0% 5.0% ----- ----- --------- -------------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ - $ - $ - $ 2,066 $ 14,203 $ 15,808 $ 17,594 $ 19,583 HNT LIFE (VISION) -COMMERCIAL Member Months - - - 89,305 645,528 697,170 752,944 813,179 PMPM Direct Medical Expense NA NA NA 4.27 $ 4.42 $ 4.57 $ 4.73 $ 4.90 % Increase (Decrease) NA NA NA NA 3.5% 3.5% 3.5% 3.5% ----- ----- --------- -------------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ - $ - $ - $ 381 $ 2,850 $ 3,186 $ 3,562 $ 3,981 YEAR ENDING DECEMBER, 31 ------------ PROJECTED ------------ DIRECT MEDICAL EXPENSES 2008 --------------------------------- ----------- HNT DENTAL - COMMERCIAL Member Months 3,035,544 PMPM Direct Medical Expense $ 6.91 % Increase (Decrease) 3.5% ----------- Total Direct Medical Expense $ 20,966 HNT DENTAL - FEDERAL HEALTH PLAN Member Months 185,424 PMPM Direct Medical Expense $ 2.40 % Increase (Decrease) 2.0% ----------- Total Direct Medical Expense $ 446 HNT DENTAL - STATE HEALTH PLAN Member Months 2,559,464 PMPM Direct Medical Expense $ 9.25 % Increase (Decrease) 2.0% ----------- Total Direct Medical Expense $ 23,668 HNT VISION - COMMERCIAL Member Months 1,668,160 PMPM Direct Medical Expense $ 2.58 % Increase (Decrease) 3.5% ----------- Total Direct Medical Expense $ 4,304 HNT LIFE (DENTAL ONLY) - COMMERCIAL Member Months 751,203 PMPM Direct Medical Expense $ 29.01 % Increase (Decrease) 5.0% ----------- Total Direct Medical Expense $ 21,795 HNT LIFE (VISION) -COMMERCIAL Member Months 878,234 PMPM Direct Medical Expense $ 5.07 % Increase (Decrease) 3.5% ----------- Total Direct Medical Expense $ 4,450
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------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. FLORIDA MARKET 9 MON. YEAR ENDING ENDING DECEMBER ,31 SEPTEMBER YEAR ENDING DECEMBER, 31 ------------- -------- --------------- ---------------------------------------------- ACTUAL ESTIMATED PROJECTED -------------- ------- --------------- ---------------------------------------------- INCOME STATEMENT 2001 2002 2003 2003 2004 2005 2006 2007 2008 -------------------------------- ------ ------ ------- --------------- ---------- ------- ------- ------- ------- REVENUES -------------------------------- HMO Wholesale $ - $1,829 $ 3,525 $ 4,651 $ 4,505 $ 4,505 $ 4,505 $ 4,505 $ 4,505 Dental HMO 3,782 5,387 5,487 7,356 7,933 8,621 9,369 10,182 11,065 PPO/Indemnity 2,250 2,149 1,545 2,271 3,164 3,572 4,032 4,551 5,137 ASO and PPO Rental - 163 324 429 418 418 418 418 418 Vision 19 34 23 33 52 202 523 902 1,308 ------ ------ ------- --------------- ---------- ------- ------- ------- ------- Total Revenue 6,051 9,562 10,904 14,740 16,072 17,318 18,847 20,558 22,432 DIRECT HEALTH CARE EXPENSE HMO Wholesale - 747 1,858 2,452 2,374 2,374 2,374 2,374 2,374 Dental HMO 1,754 2,391 2,567 3,442 3,711 4,033 4,383 4,763 5,176 PPO/Indemnity 1,608 1,609 1,197 1,760 2,452 2,767 3,123 3,526 3,980 Third-Party Administrator - - - - - - - - - Vision 12 21 15 21 34 132 341 589 853 ------ ------ ------- --------------- ---------- ------- ------- ------- ------- Total Direct Health Care Expense 3,374 4,768 5,637 7,674 8,571 9,307 10,222 11,252 12,383 ------ ------ ------- --------------- ---------- ------- ------- ------- ------- Gross Profit $2,677 $4,794 $ 5,267 $ 7,066 $ 7,501 $ 8,011 $ 8,625 $ 9,306 $10,049 ------ ------ ------- --------------- ---------- ------- ------- ------- -------
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------------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. FLORIDA MARKET 9 MON. YEAR ENDING ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 --------------------- ----------- --------------------------------------------------------------- ACTUAL PROJECTED ---------------------------------- ESTIMATED -------------------------------------------------- REVENUE AND MEMBERSHIP 2001 2002 2003 2003 2004 2005 2006 2007 ------------------------- -------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- DENTAL HMO Members at Period End 41,311 83,393 83,925 83,925 88,121 92,527 97,154 102,011 % Increase (Decrease) NA 101.9% NA 0.6% 5.0% 5.0% 5.0% 5.0% Average Membership 40,489 55,505 92,375 82,565 86,023 90,324 94,840 99,583 % Increase (Decrease) NA 37.1% NA 48.8% 4.2% 5.0% 5.0% 5.0% Member Months 485,864 666,055 739,003 990,778 1,032,278 1,083,891 1,138,086 1,194,990 % Increase (Decrease) NA 37.1% NA 48.8% 4.2% 5.0% 5.0% 5.0% Average Net Premium PMPM $ 7.78 $ 8.09 $ 7.42 $ 7.42 $ 7.68 $ 7.95 $ 8.23 $ 8.52 % Increase (Decrease) NA 3.9% -8.2% -8.2% 3.5% 3.5% 3.5% 3.5% -------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $ 3,782 $ 5,387 $ 5,487 $ 7,356 $ 7,933 $ 8,621 $ 9,369 $ 10,182 PPO/INDEMNITY Members at Period End 11,740 6,190 9,551 9,551 10,267 11,037 11,865 12,755 % Increase (Decrease) NA -47.3% NA 54.3% 7.5% 7.5% 7.5% 7.5% Average Membership 11,732 8,104 7,620 7,468 9,909 10,652 11,451 12,310 % Increase (Decrease) NA -30.9% NA -7.8% 32.7% 7.5% 7.5% 7.5% Member Months 140,784 97,243 60,962 89,615 118,910 127,828 137,415 147,721 % Increase (Decrease) NA -30.9% NA -7.8% 32.7% 7.5% 7.5% 7.5% Average Net Premium PMPM $ 15.98 $ 22.10 $ 25.34 $ 25.34 $ 26.61 $ 27.94 $ 29.34 $ 30.81 % Increase (Decrease) NA 38.3% 14.7% 14.7% 5.0% 5.0% 5.0% 5.0% -------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $ 2,250 $ 2,149 $ 1,545 $ 2,271 $ 3,164 $ 3,572 $ 4,032 $ 4,551 VISION Members at Period End 720 299 606 606 1,000 5,000 10,000 15,000 % Increase (Decrease) NA -58.5% NA 102.7% 65.0% 400.0% 100.0% 50.0% Average Membership 413 766 548 517 803 3,000 7,500 12,500 % Increase (Decrease) NA 85.3% NA -32.5% 55.3% 273.6% 150.0% 66.7% Member Months 4,960 9,193 4,387 6,205 9,636 36,000 90,000 150,000 % Increase (Decrease) NA 85.3% NA -32.5% 55.3% 273.6% 150.0% 66.7% Average Net Premium PMPM $ 3.83 $ 3.70 $ 5.24 $ 5.24 $ 5.43 $ 5.62 $ 5.81 $ 6.02 % Increase (Decrease) NA -3.5% 41.8% 41.8% 3.5% 3.5% 3.5% 3.5% -------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $ 19 $ 34 $ 23 $ 33 $ 52 $ 202 $ 523 $ 902 HMO WHOLESALE Members at Period End - 198,144 169,340 169,340 169,340 169,340 169,340 169,340 % Increase (Decrease) NA NA NA -14.5% 0.0% 0.0% 0.0% 0.0% Average Membership - 65,663 198,767 174,846 169,340 169,340 169,340 169,340 % Increase (Decrease) NA NA NA 166.3% -3.1% 0.0% 0.0% 0.0% Member Months - 787,951 1,590,137 2,098,157 2,032,080 2,032,080 2,032,080 2,032,080 % Increase (Decrease) NA NA NA 166.3% -3.1% 0.0% 0.0% 0.0% Average Net Premium PMPM NA $ 2.32 $ 2.22 $ 2.22 $ 2.22 $ 2.22 $ 2.22 $ 2.22 % Increase (Decrease) NA NA -4.5% -4.5% 0.0% 0.0% 0.0% 0.0% HMO Wholesale $ - $ 1,829 $ 3,525 $ 4,651 -------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $ - $ 1,829 $ 3,525 $ 4,651 $ 4,505 $ 4,505 $ 4,505 $ 4,505 YEAR ENDING DECEMBER, 31 ------------ PROJECTED ------------ REVENUE AND MEMBERSHIP 2008 ----------- DENTAL HMO Members at Period End 107,112 % Increase (Decrease) 5.0% Average Membership 104,562 % Increase (Decrease) 5.0% Member Months 1,254,740 % Increase (Decrease) 5.0% Average Net Premium PMPM $ 8.82 % Increase (Decrease) 3.5% ----------- Total Revenue $ 11,065 PPO/INDEMNITY Members at Period End 13,712 % Increase (Decrease) 7.5% Average Membership 13,233 % Increase (Decrease) 7.5% Member Months 158,801 % Increase (Decrease) 7.5% Average Net Premium PMPM $ 32.35 % Increase (Decrease) 5.0% ----------- Total Revenue $ 5,137 VISION Members at Period End 20,000 % Increase (Decrease) 33.3% Average Membership 17,500 % Increase (Decrease) 40.0% Member Months 210,000 % Increase (Decrease) 40.0% Average Net Premium PMPM $ 6.23 % Increase (Decrease) 3.5% ----------- Total Revenue $ 1,308 HMO WHOLESALE Members at Period End 169,340 % Increase (Decrease) 0.0% Average Membership 169,340 % Increase (Decrease) 0.0% Member Months 2,032,080 % Increase (Decrease) 0.0% Average Net Premium PMPM $ 2.22 % Increase (Decrease) 0.0% HMO Wholesale ----------- Total Revenue $ 4,505 ---------------------------------------------------------------------------------------------------------------------- SHATTUCK HAMMOND PARTNERS 20 of 26
---------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. FLORIDA MARKET 9 MON. YEAR ENDING ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 -------------------- ----------- ------------------------------------- ACTUAL PROJECTED --------------------------------- ESTIMATED ------------------------------------- REVENUE AND MEMBERSHIP (CONT'D) 2001 2002 2003 2003 2004 2005 2006 ------------------------------- --------- --------- ----------- ----------- ----------- ----------- ----------- ASO AND PPO RENTAL Members at Period End - 10,432 9,813 9,813 9,813 9,813 9,813 %Increase (Decrease) NA NA NA -5.9% 0.0% 0.0% 0.0% Average Membership - 3,451 11,399 10,052 9,813 9,813 9,813 %Increase (Decrease) NA NA NA 191.3% -2.4% 0.0% 0.0% Member Months - 41,413 91,188 120,627 117,756 117,756 117,756 %Increase (Decrease) NA NA NA 191.3% -2.4% 0.0% 0.0% Average Net Premium PMPM $ - $ 3.94 $ 3.55 $ 3.55 $ 3.55 $ 3.55 $ 3.55 %Increase (Decrease) NA NA -9.7% -9.7% 0.0% 0.0% 0.0% ASO and PPO Rental - 163 324 $ 429 --------- --------- ----------- ----------- ----------- ----------- ----------- Total Revenue $ - $ 163 $ 324 $ 429 $ 418 $ 418 $ 418 DIRECT MEDICAL EXPENSES ------------------------------- DENTAL HMO EXPENSE Member Months 485,864 666,055 739,003 990,778 1,032,278 1,083,891 1,138,086 PMPM Direct Medical Expense $ 3.61 $ 3.59 $ 3.47 $ 3.47 $ 3.60 $ 3.72 $ 3.85 %Increase (Decrease) NA -0.6% -3.2% -3.2% 3.5% 3.5% 3.5% Dental Capitation $ 1,595 $ 2,015 $ 1,990 $ - Supplementals 42 53 235 - UCR Based Claims - 9 6 - Other Direct Healthcare - 72 67 - Specialty Referrals 99 222 269 - Member Reimbursement 18 20 - - --------- --------- ----------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ 1,754 $ 2,391 $ 2,567 $ 3,442 $ 3,711 $ 4,033 $ 4,383 PPO/INDEMNITY CLAIMS Member Months 140,784 97,243 60,962 89,615 118,910 127,828 137,415 PMPM Direct Medical Expense $ 11.42 $ 16.55 $ 19.64 $ 19.64 $ 20.62 $ 21.65 $ 22.73 %Increase (Decrease) NA 44.9% 18.7% 18.7% 5.0% 5.0% 5.0% --------- --------- ----------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ 1,608 $ 1,609 $ 1,197 $ 1,760 $ 2,452 $ 2,767 $ 3,123 VISION CLAIMS Member Months 4,960 9,193 4,387 6,205 9,636 36,000 90,000 PMPM Direct Medical Expense $ 2.42 $ 2.28 $ 3.42 $ 3.42 $ 3.54 $ 3.66 $ 3.79 %Increase (Decrease) NA -5.6% 49.7% 49.7% 3.5% 3.5% 3.5% --------- --------- ----------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ 12 $ 21 $ 15 $ 21 $ 34 $ 132 $ 341 HMO WHOLESALE CLAIMS Member Months - 787,951 1,590,137 2,098,157 2,032,080 2,032,080 2,032,080 PMPM Direct Medical Expense NA $ 0.95 $ 1.17 $ 1.17 $ 1.17 $ 1.17 $ 1.17 %Increase (Decrease) NA NA 23.3% 23.3% 0.0% 0.0% 0.0% --------- --------- ----------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ - $ 747 $ 1,858 $ 2,452 $ 2,374 $ 2,374 $ 2,374 ---------------------------------------------------------------------------------------------------------------------- SHATTUCK HAMMOND PARTNERS 21 of 26 YEAR ENDING DECEMBER, 31 ------------------------ PROJECTED ------------------------ REVENUE AND MEMBERSHIP (CONT'D) 2007 2008 ----------- ----------- ASO AND PPO RENTAL Members at Period End 9,813 9,813 %Increase (Decrease) 0.0% 0.0% Average Membership 9,813 9,813 %Increase (Decrease) 0.0% 0.0% Member Months 117,756 117,756 %Increase (Decrease) 0.0% 0.0% Average Net Premium PMPM $ 3.55 $ 3.55 %Increase (Decrease) 0.0% 0.0% ASO and PPO Rental ----------- ----------- Total Revenue $ 418 $ 418 DIRECT MEDICAL EXPENSES ------------------------------- DENTAL HMO EXPENSE Member Months 1,194,990 1,254,740 PMPM Direct Medical Expense $ 3.99 $ 4.13 %Increase (Decrease) 3.5% 3.5% Dental Capitation Supplementals UCR Based Claims Other Direct Healthcare Specialty Referrals Member Reimbursement ----------- ----------- Total Direct Medical Expense $ 4,763 $ 5,176 PPO/INDEMNITY CLAIMS Member Months 147,721 158,801 PMPM Direct Medical Expense $ 23.87 $ 25.06 %Increase (Decrease) 5.0% 5.0% ----------- ----------- Total Direct Medical Expense $ 3,526 $ 3,980 VISION CLAIMS Member Months 150,000 210,000 PMPM Direct Medical Expense $ 3.92 $ 4.06 %Increase (Decrease) 3.5% 3.5% ----------- ----------- Total Direct Medical Expense $ 589 $ 853 HMO WHOLESALE CLAIMS Member Months 2,032,080 2,032,080 PMPM Direct Medical Expense $ 1.17 $ 1.17 %Increase (Decrease) 0.0% 0.0% ----------- ----------- Total Direct Medical Expense $ 2,374 $ 2,374 ---------------------------------------------------------------------------------------------------------------------- SHATTUCK HAMMOND PARTNERS 21 of 26
-------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. TEXAS MARKET 9 MON. YEAR ENDING ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 -------------------------- ------------ -------------------------------------- ACTUAL PROJECTED ---------------------------------------- ESTIMATED ------------------------- Income Statement 2001 2002 2003 2003 2004 2005 ----------- ------------ ------------ ------------ ----------- ----------- Revenues HMO Wholesale $ - $ - $ - $ - $ - $ - Dental HMO 12,695 8,686 6,600 8,802 9,392 10,304 PPO/Indemnity 7,902 7,058 7,205 9,627 10,578 11,995 Third-Party Administrator 66 160 259 338 351 367 Vision 1,309 986 841 1,151 1,355 1,550 ------------ ------------ ------------ ------------ ----------- ----------- Total Revenue 21,972 16,890 14,905 19,919 21,675 24,216 DIRECT HEALTH CARE EXPENSE HMO Wholesale - - - - - - Dental HMO 6,556 4,648 3,248 4,332 4,622 5,071 PPO/Indemnity 5,690 4,528 5,594 7,474 8,213 9,313 Third-Party Administrator - 94 140 186 193 203 Vision 864 613 520 712 838 958 ------------ ------------ ------------ ------------ ----------- ----------- Total Direct Health Care Expense 13,110 9,883 9,502 12,704 13,866 15,545 ------------ ------------ ------------ ------------ ----------- ----------- Gross Profit $ 8,862 $ 7,007 $ 5,403 $ 7,215 $ 7,810 $ 8,671 ------------ ------------ ------------ ------------ ----------- ----------- ---------------------------------------- ---------------------------------------- Income Statement 2006 2007 2008 ------------ ------------ ------------ Revenues HMO Wholesale $ - $ - $ - Dental HMO 11,304 12,402 13,606 PPO/Indemnity 13,602 15,425 17,492 Third-Party Administrator 385 403 422 Vision 1,773 2,029 2,321 ------------ ------------ ------------ Total Revenue 27,065 30,259 33,841 DIRECT HEALTH CARE EXPENSE HMO Wholesale - - - Dental HMO 5,563 6,103 6,696 PPO/Indemnity 10,561 11,976 13,581 Third-Party Administrator 213 224 235 Vision 1,096 1,254 1,435 ------------ ------------ ------------ Total Direct Health Care Expense 17,434 19,557 21,947 ------------ ------------ ------------ Gross Profit $ 9,631 $ 10,701 $ 11,895 ------------ ------------ ------------ -------------------------------------------------------------------------------------------------------------------------- SHATTUCK HAMMOND PARTNERS 22 of 26
-------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. TEXAS MARKET 9 MON. YEAR ENDING ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 ----------------------- ----------- -------------------------------------------------- ACTUAL PROJECTED ------------------------------------ ESTIMATED ------------------------------------- REVENUE AND MEMBERSHIP (CONT'D) 2001 2002 2003 2003 2004 2005 2006 -------------------------------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- DENTAL HMO Members at Period End 129,528 102,136 99,777 99,777 105,764 112,109 118,836 % Increase (Decrease) NA -21.1% NA -2.3% 6.0% 6.0% 6.0% Average Membership 147,736 99,586 112,122 99,693 102,770 108,937 115,473 % Increase (Decrease) NA -32.6% NA 0.1% 3.1% 6.0% 6.0% Member Months 1,772,828 1,195,027 896,979 1,196,310 1,233,244 1,307,238 1,385,673 % Increase (Decrease) NA -32.6% NA 0.1% 3.1% 6.0% 6.0% PMPM 7.16 7.27 7.36 7.36 7.62 7.88 8.16 % Increase (Decrease) NA 1.5% 1.2% 1.2% 3.5% 3.5% 3.5% Dental HMO (TX) $ 10,876 $ 8,686 $ 6,600 $ 8,802 $ 9,392 $ 10,304 $ 11,304 Dental HMO (MO) 1,819 - - - - - - ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Dental HMO $ 12,695 $ 8,686 $ 6,600 $ 8,802 $ 9,392 $ 10,304 $ 11,304 PPO/INDEMNITY Members at Period End 30,374 33,629 41,913 41,913 45,266 48,887 52,798 % Increase (Decrease) NA 10.7% NA 24.6% 8.0% 8.0% 8.0% Average Membership 32,334 30,616 46,764 41,654 43,590 47,077 50,843 % Increase (Decrease) NA -5.3% NA 36.1% 4.6% 8.0% 8.0% Member Months 388,010 367,386 374,109 499,848 523,074 564,920 610,114 % Increase (Decrease) NA -5.3% NA 36.1% 4.6% 8.0% 8.0% PMPM 20.37 19.21 19.26 19.26 20.22 21.23 22.29 % Increase (Decrease) NA -5.7% 0.2% 0.2% 5.0% 5.0% 5.0% PPO/Indemnity (TX) $ 6,674 $ 7,058 $ 7,205 $ 9,627 PPO/Indemnity (MO) 1,228 - - - ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total PPO/Indemnity $ 7,902 $ 7,058 $ 7,205 $ 9,627 $ 10,578 $ 11,995 $ 13,602 VISION Members at Period End 20,622 16,664 19,983 19,983 21,981 24,179 26,597 % Increase (Decrease) NA -19.2% NA 19.9% 10.0% 10.0% 10.0% Average Membership 22,303 13,947 20,316 18,540 20,982 23,080 25,388 % Increase (Decrease) NA -37.5% NA 32.9% 13.2% 10.0% 10.0% Member Months 267,637 167,358 162,528 222,477 251,786 276,964 304,661 % Increase (Decrease) NA -37.5% NA 32.9% 13.2% 10.0% 10.0% PMPM $ 4.89 $ 5.89 $ 5.17 5.17 $ 5.38 $ 5.60 $ 5.82 % Increase (Decrease) NA 20.5% -12.2% -12.2% 4.0% 4.0% 4.0% ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Vision $ 1,309 $ 986 $ 841 $ 1,151 $ 1,355 $ 1,550 $ 1,773 TEXAS OTHER PRODUCTS MEMBERSHIP Members at Period End 19,922 3,172 3,939 3,939 3,939 3,939 3,939 % Increase (Decrease) NA -84.1% NA 24.2% 0.0% 0.0% 0.0% Average Membership 12,654 6,603 4,494 3,981 3,939 3,939 3,939 % Increase (Decrease) NA -47.8% NA -39.7% -1.0% 0.0% 0.0% Member Months 151,852 79,235 35,951 47,768 47,268 47,268 47,268 % Increase (Decrease) NA -47.8% NA -39.7% -1.0% 0.0% 0.0% PMPM $ 0.43 $ 2.02 $ 6.70 $ 6.70 $ 7.04 $ 7.39 $ 7.76 % Increase (Decrease) NA 364.6% 232.0% 232.0% 5.0% 5.0% 5.0% Third-Party Administrator $ - $ 160 $ 241 $ 320 $ 333 $ 349 $ 367 ASO and PPO Rental 66 - 18 18 18 18 18 ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Third-Party Administrator $ 66 $ 160 $ 259 $ 338 $ 351 $ 367 $ 385 YEAR ENDING DECEMBER, 31 ------------------------ PROJECTED ------------------------ REVENUE AND MEMBERSHIP 2007 2008 ----------- ----------- DENTAL HMO Members at Period End 125,966 133,524 % Increase (Decrease) 6.0% 6.0% Average Membership 122,401 129,745 % Increase (Decrease) 6.0% 6.0% Member Months 1,468,813 1,556,942 % Increase (Decrease) 6.0% 6.0% PMPM 8.44 8.74 % Increase (Decrease) 3.5% 3.5% Dental HMO (TX) $ 12,402 $ 13,606 Dental HMO (MO) - - ----------- ----------- Total Dental HMO $ 12,402 $ 13,606 PPO/INDEMNITY Members at Period End 57,022 61,584 % Increase (Decrease) 8.0% 8.0% Average Membership 54,910 59,303 % Increase (Decrease) 8.0% 8.0% Member Months 658,923 711,637 % Increase (Decrease) 8.0% 8.0% PMPM 23.41 24.58 % Increase (Decrease) 5.0% 5.0% PPO/Indemnity (TX) PPO/Indemnity (MO) ----------- ----------- Total PPO/Indemnity $ 15,425 $ 17,492 VISION Members at Period End 29,257 32,183 % Increase (Decrease) 10.0% 10.0% Average Membership 27,927 30,720 % Increase (Decrease) 10.0% 10.0% Member Months 335,127 368,640 % Increase (Decrease) 10.0% 10.0% PMPM $ 6.05 $ 6.30 % Increase (Decrease) 4.0% 4.0% ----------- ----------- Total Vision $ 2,029 $ 2,321 TEXAS OTHER PRODUCTS MEMBERSHIP Members at Period End 3,939 3,939 % Increase (Decrease) 0.0% 0.0% Average Membership 3,939 3,939 % Increase (Decrease) 0.0% 0.0% Member Months 47,268 47,268 % Increase (Decrease) 0.0% 0.0% PMPM $ 8.15 $ 8.56 % Increase (Decrease) 5.0% 5.0% Third-Party Administrator $ 385 $ 404 ASO and PPO Rental 18 18 ----------- ----------- Total Third-Party Administrator $ 403 $ 422
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---------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. TEXAS MARKET 9 MON. ENDING YEAR ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 ------------------------ ---------- -------------------------------------------------- ACTUAL PROJECTED ----------------------- ESTIMATED ------------------------------------- DIRECT MEDICAL EXPENSES 2001 2002 2003 2003 2004 2005 2006 ---------------------------------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- Member Months 1,772,828 1,195,027 896,979 1,196,310 1,233,244 1,307,238 1,385,673 DENTAL HMO EXPENSE PMPM Direct Medical Expense 3.70 3.89 3.62 3.62 3.75 3.88 4.01 % Increase (Decrease) NA 5.2% -6.9% -6.9% 3.5% 3.5% 3.5% Dental Capitation $ 4,463 $ 3,761 $ 2,643 Supplementals 76 217 71 UCR Based Claims 55 210 186 Other Direct Healthcare - 18 17 Specialty Referrals 459 411 331 Member Reimbursement 69 31 - ---------- ----------- ----------- ----------- ----------- ----------- ----------- Dental HMO Expense (TX) $ 5,122 $ 4,648 $ 3,248 $ - Dental Capitation 1,084 - - - Supplementals 30 - - - UCR Based Claims 128 - - - Other Direct Healthcare - - - - Specialty Referrals 185 - - - Member Reimbursement 7 - - - Dental HMO Expense (MO) $ 1,434 - - - ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ 6,556 $ 4,648 $ 3,248 $ 4,332 $ 4,622 $ 5,071 $ 5,563 PPO/INDEMNITY CLAIMS Member Months 388,010 367,386 374,109 499,848 523,074 564,920 610,114 PMPM Direct Medical Expense 14.66 12.32 14.95 14.95 15.70 16.49 17.31 % Increase (Decrease) NA -16.0% 21.3% 21.3% 5.0% 5.0% 5.0% PPO/Indemnity Claims (TX) $ 5,012 $ 4,528 $ 5,594 PPO/Indemnity Claims (MO) 678 - - - ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ 5,690 $ 4,528 $ 5,594 $ 7,474 $ 8,213 $ 9,313 $ 10,561 THIRD-PARTY ADMINISTRATOR EXPENSE Member Months 151,852 79,235 35,951 47,768 47,268 47,268 47,268 PMPM Direct Medical Expense $ - $ 1.19 $ 3.89 $ 3.89 $ 4.09 $ 4.29 $ 4.51 % Increase (Decrease) NA NA 228.3% 228.3% 5.0% 5.0% 5.0% ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ - $ 94 $ 140 $ 186 $ 193 $ 203 $ 213 VISION CLAIMS Member Months 267,637 167,358 162,528 222,477 251,786 276,964 304,661 PMPM Direct Medical Expense $ 3.23 $ 3.66 $ 3.20 $ 3.20 $ 3.33 $ 3.46 $ 3.60 % Increase (Decrease) NA 13.5% -12.7% -12.7% 4.0% 4.0% 4.0% Vision Claims (TX) $ 857 $ 613 $ 520 $ - Vision Claims (MO) 7 - - - ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Direct Medical Expense $ 864 $ 613 $ 520 $ 712 $ 838 $ 958 $ 1,096 YEAR ENDING DECEMBER, 31 ------------------------ PROJECTED ------------------------ DIRECT MEDICAL EXPENSES 2007 2008 ---------------------------------- ----------- ----------- Member Months 1,468,813 1,556,942 DENTAL HMO EXPENSE PMPM Direct Medical Expense 4.16 4.30 % Increase (Decrease) 3.5% 3.5% Dental Capitation Supplementals UCR Based Claims Other Direct Healthcare Specialty Referrals Member Reimbursement ----------- ----------- Dental HMO Expense (TX) Dental Capitation Supplementals UCR Based Claims Other Direct Healthcare Specialty Referrals Member Reimbursement Dental HMO Expense (MO) ----------- ----------- Total Direct Medical Expense $ 6,103 $ 6,696 PPO/INDEMNITY CLAIMS Member Months 658,923 711,637 PMPM Direct Medical Expense 18.18 19.08 % Increase (Decrease) 5.0% 5.0% PPO/Indemnity Claims (TX) PPO/Indemnity Claims (MO) ----------- ----------- Total Direct Medical Expense $ 11,976 $ 13,581 THIRD-PARTY ADMINISTRATOR EXPENSE Member Months 47,268 47,268 PMPM Direct Medical Expense $ 4.73 $ 4.97 % Increase (Decrease) 5.0% 5.0% ----------- ----------- Total Direct Medical Expense $ 224 $ 235 VISION CLAIMS Member Months 335,127 368,640 PMPM Direct Medical Expense $ 3.74 $ 3.89 % Increase (Decrease) 4.0% 4.0% Vision Claims (TX) Vision Claims (MO) ----------- ----------- Total Direct Medical Expense $ 1,254 $ 1,435 SHATTUCK HAMMOND PARTNERS
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------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC. CONSOLIDATED 9 MON. ENDING YEAR ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 ------------------------ --------- ----------- ------------------------------- ACTUAL ESTIMATED PROJECTED --------------------- ----------- ------------------------------- OTHER DIRECT EXPENSES 2001 2002 2003 2003 2004 2005 2006 ---------------------------------------- ---------- --------- ----------- ----------- --------- --------- --------- Broker Commissions - Existing $ 5,785 $ 5,160 $ 4,602 $ 6,136 Broker Commissions - HNT - - - 498 ---------- --------- ----------- ----------- --------- --------- --------- Total $ 5,785 $ 5,160 $ 4,602 $ 6,634 $ 10,404 $ 12,075 $ 13,921 % revenue 7.1% 7.0% 7.7% 7.5% 7.2% 7.2% 7.2% Revenue From Brokered Products All Revenue 84,822 83,043 68,050 103,135 182,834 207,899 235,486 Less: HNT Dental - Federal Health Plan - - - (121) (733) (748) (763) Less: HNT Dental - State Health Plan - - - (3,983) (25,706) (27,138) (28,649) Less: HMO Wholesale - FL - (1,829) (3,525) (4,651) (4,505) (4,505) (4,505) Less: TPA (2,724) (7,562) (4,546) (6,108) (6,542) (6,834) (7,140) Less: Bad Debt Expense (300) (220) (120) (156) (156) (156) (156) ---------- --------- ----------- ----------- --------- --------- --------- 81,798 73,432 59,859 88,116 145,192 168,519 194,274 -------------------------------------------------------------------------------------------------------------------------- Broker Commissions- TPA's $ 332 873 $ 482 $ 643 $ 688 $ 719 $ 751 Revenue From TPA Brokered Products $ 2,724 7,562 $ 4,546 $ 6,108 $ 6,542 $ 6,834 $ 7,140 % revenue 12.2% 11.5% 10.6% 10.5% 10.5% 10.5% 10.5% -------------------------------------------------------------------------------------------------------------------------- TPA Fees 370 691 450 600 643 671 701 Revenue From TPA Brokered Products $ 332 $ 7,562 $ 4,546 $ 6,108 $ 6,542 $ 6,834 $ 7,140 % revenue 0.6% 9.1% 9.9% 9.8% 9.8% 9.8% 9.8% -------------------------------------------------------------------------------------------------------------------------- Internal Incentives - Existing 618 259 288 384 Internal Incentives - HNT - - - 79 ---------- --------- ----------- ----------- --------- --------- --------- Total 618 259 288 463 1,500 1,706 1,932 % All Revenue 0.7% 0.3% 0.4% 0.4% 0.8% 0.8% 0.8% ---------- --------- ----------- ----------- --------- --------- --------- Premium Taxes - Existing 1,034 1,042 839 1,119 Premium Taxes - HNT - - - 70 ---------- --------- ----------- ----------- --------- --------- --------- Total 1,034 1,042 839 1,189 1,825 2,205 2,626 % All Revenue 2.1% 2.1% 2.0% 1.9% 1.9% 1.9% 1.9% -------------------------------------------------------------------------------------------------------------------------- Revenue with Premium Taxes All Revenue 84,822 83,043 68,050 103,135 182,834 207,899 235,486 Less: Dental HMO - CA (35,626) (33,104) (25,481) (34,185) (38,735) (41,293) (44,020) Less: HNT Dental - Commercial - - - (3,867) (24,066) (25,656) (27,351) Less: HNT Dental - Federal Health Plan - - - (121) (733) (748) (763) Less: HNT Dental - State Health Plan - - - (3,983) (25,706) (27,138) (28,649) ---------- --------- ----------- ----------- --------- --------- --------- 49,196 49,939 42,569 60,980 93,594 113,065 134,703 -------------------------------------------------------------------------------------------------------------------------- YEAR ENDING DECEMBER, 31 -------------------- PROJECTED -------------------- OTHER DIRECT EXPENSES 2007 2008 ---------------------------------------- --------- --------- Broker Commissions - Existing Broker Commissions - HNT Total $ 15,947 $ 18,168 % revenue 7.2% 7.2% Revenue From Brokered Products All Revenue 265,694 298,723 Less: HNT Dental - Federal Health Plan (778) (793) Less: HNT Dental - State Health Plan (30,245) (31,930) Less: HMO Wholesale - FL (4,505) (4,505) Less: TPA (7,461) (7,798) Less: Bad Debt Expense (156) (156) --------- --------- 222,550 253,540 --------- --------- Broker Commissions- TPA's $ 785 821 Revenue From TPA Brokered Products $ 7,461 7,798 % revenue 10.5% 10.5% -------------------------------------------------------------- TPA Fees 733 766 Revenue From TPA Brokered Products $ 7,461 $ 7,798 % revenue 9.8% 9.8% -------------------------------------------------------------- Internal Incentives - Existing Internal Incentives - HNT --------- --------- Total 2,180 2,451 % All Revenue 0.8% 0.8% -------------------------------------------------------------- Premium Taxes - Existing Premium Taxes - HNT --------- --------- Total 3,092 3,605 % All Revenue 1.9% 1.9% -------------------------------------------------------------- Revenue with Premium Taxes All Revenue 265,694 298,723 Less: Dental HMO - CA (46,928) (50,027) Less: HNT Dental - Commercial (29,157) (31,083) Less: HNT Dental - Federal Health Plan (778) (793) Less: HNT Dental - State Health Plan (30,245) (31,930) --------- --------- 158,587 184,889 --------------------------------------------------------------
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------------------------------------------------------------------------------------------------------------------------- SAFEGUARD HEALTH ENTERPRISES, INC CONSOLIDATED 9 MON. ENDING YEAR ENDING DECEMBER 31, SEPTEMBER YEAR ENDING DECEMBER, 31 ---------------------------------- ---------- ------------------------------- ACTUAL ESTIMATED PROJECTED ---------------------- ------------------------------- SG&A EXPENSES 2001 2002 2003 2003 2004 2005 2006 ---------------------------------------- ---------- ---------- ---------- ---------- ------- ----------- --------- Historical Total SG&A Expenses 29,680 30,143 23,455 Less: Broker Commissions (5,785) (5,160) (4,602) Less: Broker Commissions - TPA 332 (873) (482) Less: TPA Fees 370 (691) (450) Less: Internal Incentives (618) (259) (288) Less: Premium Taxes (1,034) (1,042) (839) Less: Depreciation (1,604) (1,216) (916) Less: Amortization (233) (257) (420) Post Integration Integration Forecast 34,176 36,255 37,381 Difference of Q4 Run Rate and 2004 Actual (1,035) Change In Membership / 2 3.0% 3.0% 3.0% Inflation Factor 3% 3% 3% ---------- ---------- ---------- ---------- ------- ----------- --------- Total SG&A Expenses 21,108 20,645 15,458 23,379 36,255 37,381 39,658 Less One Time Adjustments - - - (230) (310) - - ---------- ---------- ---------- ---------- ------- ----------- --------- Total Run Rate SG&A Expenses 21,108 20,645 15,458 23,149 35,945 37,381 39,658 YEARS ENDING DECEMBER, 31 ----------------- PROJECTED ----------------- SG&A EXPENSES 2007 2008 ---------------------------------------- -------- ------- Historical Total SG&A Expenses Less: Broker Commissions Less: Broker Commissions - TPA Less: TPA Fees Less: Internal Incentives Less: Premium Taxes Less: Depreciation Less: Amortization Post Integration Integration Forecast 39,658 42,047 Difference of Q4 Run Rate and 2004 Actual Change In Membership / 2 2.9% 2.9% Inflation Factor 3% 3% -------- ------- Total SG&A Expenses 42,047 44,554 Less One Time Adjustments - - -------- ------- Total Run Rate SG&A Expenses 42,047 44,554 Health Net Integration Forecast ------------------------------------------------------------------------------------------------------------------------- Q4 2003 Q4 Q1 Q2 Q3 Q4 2004 Run Rate ---------- ---------- ---------- ---------- ------- ----------- --------- Salaries and Benefits 5,461 5,116 4,902 4,792 4,792 19,602 19,167 Other employee-related 369 359 359 359 359 1,434 1,434 Travel & Entertainment 176 176 176 176 176 704 704 Advertising & Promotions 86 86 86 86 86 342 342 Printing & Supplies 442 407 407 392 392 1,598 1,568 Postage/Freight 342 342 342 302 302 1,288 1,208 Property Rent, Utils & Maint 782 782 837 517 517 2,653 2,068 Equip Rent & Maint 312 267 267 267 177 976 706 Telecommunications 242 242 242 242 242 966 966 Consulting, Audit & Legal 554 554 554 524 524 2,156 2,096 Insurance 221 221 221 221 221 882 882 Other Taxes, Fees, & Licenses 242 242 242 242 242 966 966 Bank Charges 68 68 68 68 68 270 270 Bad Debt Expense 39 39 39 39 39 156 156 Other / Corporate Allocation 72 72 72 137 202 483 808 Capitalized Soft Dev. Cost (100) (100) (100) (50) (50) (300) (200) ---------- ---------- ---------- ---------- ------- ----------- --------- Total SG&A Expenses 9,305 8,870 8,711 8,310 8,285 34,176 33,141 ---------------------- Difference (1,035) ---------------------- One Time Adjustments 345 115 195
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EXHIBIT E SELECTED MERGER AND ACQUISITION TRANSACTIONS WITH ENTERPRISE VALUE $75 TO $150 MILLION: PREMIUM ANALYSIS ---------------------------------------------------------------------------------------------------------------------------------- VALUE OF ENTERPRISE PRICE/ DATE TRANSACTION VALUE SHARE 1 DAY ANNOUNCED TARGET NAME ACQUIROR NAME ($MIL) ($MIL) PAID PREMIUM --------- --------------------------------------- ------------------------------ ------------- ------------ ------- -------- 10/30/01 CrossWorlds Software Inc IBM Corp $ 126.10 $ 106.83 $ 4.65 31.4% 11/02/01 High Plains Corp Abengos SA $ 114.32 $ 113.86 $ 5.63 31.2% 11/09/01 Thermo Fibergen Kadant Inc $ 2.67 $ 110.69 $ 12.75 7.7% 11/19/01 Santa Barbara Restaurant Group CKE Restaurants Inc $ 72.39 $ 76.79 $ 3.93 67.0% 11/19/01 Genomica Corp Exelixis Inc $ 107.89 $ 104.15 $ 4.44 39.7% 11/19/01 Resource Bancshares Mortgage Group Inc. NetBank Inc, Alpharetta GA $ 154.47 $ 134.28 $ 8.93 6.9% 12/07/01 IKOS Systems Inc Mentor Graphics Corp $ 114.53 $ 103.27 $ 11.00 36.6% 12/18/01 Novametrix Medical Systems Inc Respironics Inc $ 83.89 $ 84.10 $ 8.00 7.4% 01/05/02 Talarian Corp TIBCO Software Inc $ 109.64 $ 77.53 $ 5.30 68.8% 01/08/02 MediChem Life Sciences Inc deCode Genetics Inc $ 83.63 $ 95.93 $ 3.04 29.4% 01/22/02 Rottlund Co Inc Rottlund Co Inc $ 11.11 $ 96.86 $ 9.15 18.1% 01/28/02 Jenny Craig Inc Investor Group $ 114.83 $ 87.43 $ 5.30 68.3% 02/02/02 Pitt-Des Moines Inc Ironbridge Acquistion Corp $ 272.19 $ 79.89 $ 33.90 1.5% 02/07/02 Glyko Biomedical Ltd BioMerin Pharmaceutical Inc $ 143.31 $ 140.31 $ 4.14 -34.7% 02/13/02 Deltek Systems Inc Investor Group $ 57.27 $ 92.58 $ 7.15 18.4% 02/14/02 dick clark productions inc Investor Group $ 150.37 $ 132.17 $ 14.50 32.7% 02/19/02 Income Opportunity Realty Inv America Realty Investors $ 10.96 $ 81.32 $ 19.00 9.8% 02/22/02 United Park City Mines Co Capital Growth Partners LLC $ 37.12 $ 82.65 $ 25.00 31.6% 02/27/02 Fusion Medical Technologies Baxter International $ 148.92 $ 148.64 $ 10.00 20.5% 03/04/02 FTD.com Inc IOS Brands Corp $ 24.62 $ 133.86 $ 3.35 -62.8% 03/08/02 Hawker Pacific Aerospace Lufthansa Technik AG $ 8.51 $ 102.27 $ 3.25 2.5% 03/11/02 Canaan Energy Corp Chesapeake Energy Corp $ 133.98 $ 122.30 $ 18.00 84.6% 03/18/02 Mechanical Dynamics Inc MSC Software Corp $ 127.58 $ 109.01 $ 18.85 57.0% 03/22/02 SpaceLabs Medical Inc Instrumentarium Oyj $ 139.92 $ 120.83 $ 14.25 -7.8% 04/15/02 IFR Systems Aeroflex Inc $ 59.99 $ 87.62 $ 1.35 2.6% 04/25/02 Maynard Oil Co Plantation Petrolieum Holdings $ 82.97 $ 91.06 $ 17.00 -10.3% 05/02/02 Software Spectrum Inc Level 3 Communications Inc $ 130.01 $ 116.50 $ 37.00 122.3% 05/02/02 Interstate Hotels Corp MeriStar Hotels & Resorts Inc $ 78.68 $ 83.67 $ 5.57 113.3% 05/14/02 BEI Medical Systems Co Boston Scientific Corp $ 95.63 $ 90.43 $ 6.84 23.9% 05/15/02 Gerber Childrenswear Kellwood Co $ 135.73 $ 94.83 $ 6.85 -17.0% 05/16/02 Balanced Care Corp IPC Advisors SARL $ 3.99 $ 118.74 $ 0.25 150.0% 05/23/02 Datum Inc SymmetriCom Inc $ 111.53 $ 112.10 $ 16.84 47.6% 06/10/02 SilverStream Software Inc Novell Inc $ 212.28 $ 101.11 $ 9.00 75.1% 06/12/02 Vestcom International Inc Cornerstone Equity Investors $ 77.09 $ 76.09 $ 6.25 50.6% 06/17/02 Fortress Group Inc Lennar Corp $ 112.18 $ 112.28 $ 3.68 16.8% 08/09/02 US Laboratories Inc Bureu Veritas SA $ 75.18 $ 83.08 $ 14.50 48.0% 09/05/02 CBES Bancorp Inc, Excelsior NASB Financial Inc $ 15.44 $ 112.27 $ 17.50 29.6% 10/24/02 Paravant Inc DRS Technologies $ 85.03 $ 99.39 $ 4.75 31.9% 10/28/02 Infinium Software Inc SSA Global Technologies Inc $ 104.73 $ 84.92 $ 7.00 20.7% 11/12/02 Hunt Corp Berwind Co LLC $ 115.23 $ 112.84 $ 12.50 32.3% 11/13/02 OraPharma Inc Johnson & Johnson $ 103.81 $ 76.24 $ 7.41 63.2% 11/21/02 Synaptic Pharmaceutical Corp H Lundbeck A/S $ 121.82 $ 135.06 $ 6.50 8.3% 12/01/02 Hoovers Inc Dun & Bradstreet Corp $ 117.29 $ 81.48 $ 7.00 26.1% 12/10/02 Rawlings Sporting Goods Co K2 Inc $ 105.66 $ 105.04 $ 9.00 11.7% 12/16/02 RDO Equipment Co RDO Holdings Co $ 25.45 $ 133.25 $ 6.01 37.8% 12/16/02 US Search.com Inc First American Corp $ 88.08 $ 86.01 $ 0.87 10.4% 12/17/02 Royal Appliance Manufacturing TechTronic Industries Co Ltd $ 94.46 $ 137.21 $ 7.37 23.2% 01/21/03 Caminus Corp SunGard Data Systems $ 153.52 $ 117.63 $ 9.00 260.0% 02/04/03 Salant Corp Perry Ellis International Inc $ 88.95 $ 97.11 $ 9.48 92.7% 02/05/03 HTE Inc SunGard Data Systems $ 121.79 $ 97.68 $ 7.00 47.7% 02/19/03 Merry Land Properties Inc Cornerstone Realty Inc $ 130.82 $ 127.22 $ 14.98 52.9% 30 DAY 60 DAY 1 YEAR TARGET NAME PREMIUM PREMIUM PREMIUM --------------------------------------- -------- -------- -------- CrossWorlds Software Inc 68.2% 57.5% 24.0% High Plains Corp 46.4% 36.8% 57.0% Thermo Fibergen 4.1% 2.3% 7.1% Santa Barbara Restaurant Group 75.9% 63.5% 88.0% Genomica Corp 57.9% 59.4% -5.5% Resource Bancshares Mortgage Group Inc. 3.9% 4.7% 15.8% IKOS Systems Inc 86.7% 109.3% 25.6% Novametrix Medical Systems Inc 15.9% 19.9% 45.7% Talarian Corp 94.3% 134.1% 118.2% MediChem Life Sciences Inc 108.7% 99.5% 22.5% Rottlund Co Inc 30.8% 41.6% 56.0% Jenny Craig Inc 76.5% 77.2% 184.0% Pitt-Des Moines Inc 9.4% 9.1% 6.6% Glyko Biomedical Ltd -90.1% -90.2% -89.4% Deltek Systems Inc 38.7% 49.6% 48.3% dick clark productions inc 44.7% 51.3% 44.1% Income Opportunity Realty Inv 7.3% 6.4% 53.9% United Park City Mines Co 31.5% 30.0% 28.6% Fusion Medical Technologies 34.2% 55.3% 70.9% FTD.com Inc -56.4% -55.5% -43.0% Hawker Pacific Aerospace 23.3% 35.2% 10.2% Canaan Energy Corp 81.5% 79.4% 82.2% Mechanical Dynamics Inc 59.8% 61.6% 89.6% SpaceLabs Medical Inc 1.0% 8.3% 20.6% IFR Systems 20.2% 43.2% 1.3% Maynard Oil Co -10.9% -11.8% -17.5% Software Spectrum Inc 110.4% 111.0% 169.4% Interstate Hotels Corp 130.6% 153.2% 161.4% BEI Medical Systems Co 26.2% 25.4% 47.5% Gerber Childrenswear -4.8% -5.0% 4.6% Balanced Care Corp 161.3% 144.3% 59.4% Datum Inc 45.8% 40.1% 34.7% SilverStream Software Inc 83.1% 81.7% 66.1% Vestcom International Inc 69.7% 78.6% 148.6% Fortress Group Inc 20.9% 16.0% 57.1% US Laboratories Inc 35.2% 21.3% 37.2% CBES Bancorp Inc, Excelsior 27.4% 26.5% 28.1% Paravant Inc 40.6% 42.0% 52.9% Infinium Software Inc 42.6% 39.4% 62.3% Hunt Corp 36.1% 32.9% 32.7% OraPharma Inc 67.2% 73.7% 79.8% Synaptic Pharmaceutical Corp 52.8% 34.5% 12.0% Hoovers Inc 31.1% 27.0% 39.6% Rawlings Sporting Goods Co 42.7% 54.9% 75.3% RDO Equipment Co 43.7% 40.2% 35.9% US Search.com Inc 90.5% 115.5% 9.3% Royal Appliance Manufacturing 50.8% 64.7% 38.9% Caminus Corp 252.3% 267.1% 2.9% Salant Corp 117.8% 123.3% 219.6% HTE Inc 44.2% 44.7% 45.8% Merry Land Properties Inc 60.1% 64.7% 63.4%
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SELECTED MERGER AND ACQUISITION TRANSACTIONS WITH ENTERPRISE VALUE $75 TO $150 MILLION: PREMIUM ANALYSIS ------------------------------------------------------------------------------------------------------------------------- VALUE OF ENTERPRISE PRICE/ DATE TRANSACTION VALUE SHARE 1 DAY ANNOUNCED TARGET NAME ACQUIROR NAME ($MIL) ($MIL) PAID PREMIUM --------- ------------------------------- ------------------------------ ------------- ------------ ------- -------- 02/24/03 PDS Gaming Corp Investor Group $ 7.57 $ 78.35 $ 2.75 202.2% 03/17/03 Interlott Technologies Inc GTECH Holdings Corp $ 82.83 $ 83.40 $ 9.00 14.6% 03/28/03 PMC Capital Inc PMC Commercial Trust Inc $ 59.39 $ 113.53 $ 5.01 24.6% 03/31/03 Carbon Energy Corp Evergreen Resources Inc $ 80.48 $ 93.82 $ 12.51 19.2% 03/31/03 AHL Services Inc Investor Group $ 13.72 $ 95.30 $ 1.50 167.9% 04/01/03 National Service Industries California Investment Fund LLC $ 111.85 $ 103.79 $ 10.00 92.3% 04/01/03 TFC Enterprises Inc Consumer Portfolio Services $ 21.67 $ 120.91 $ 1.87 39.6% 04/03/03 Elite Information Group Thomson Corp $ 121.52 $ 96.45 $ 14.00 40.4% 04/09/03 Ramsay Youth Services Psychiatric Solutions Inc $ 77.92 $ 75.02 $ 5.00 42.9% 04/16/03 Signal Technology Corp Crane Co $ 142.48 $ 122.75 $ 13.25 17.6% 04/22/03 Varsity Brands Inc Investor Group $ 136.76 $ 127.93 $ 6.57 39.8% 04/24/03 SpeechWorks International Inc ScanSoft Inc $ 166.32 $ 128.79 $ 4.78 84.6% 04/30/03 Thousand Trails Inc Kohlberg & Co LP $ 114.59 $ 93.86 $ 14.50 55.1% 05/27/03 TMBR/Sharp Drilling Inc Patterson-UTI Energy Inc $ 92.08 $ 109.99 $ 20.19 4.1% 05/28/03 GREKA Energy Corp Rendeep Grewal $ 27.96 $ 90.72 $ 6.25 54.3% 06/04/03 Handspring Inc Palm Inc $ 170.99 $ 120.08 $ 1.09 -1.8% 06/10/03 Atalanta/Sosnoff Capital Corp Martin Sosnoff $ 23.48 $ 117.58 $ 13.95 7.4% 06/24/03 Factual Data Corp Kroll Inc $ 113.48 $ 116.59 $ 17.50 -10.7% 06/29/03 Information Resources Inc Investor Group $ 99.44 $ 94.40 $ 3.30 10.7% 06/30/03 Acres Gaming Inc International Game Technology $ 136.49 $ 123.16 $ 11.50 2.7% 07/08/03 Kentucky First Bancorp Inc Bourbon Bancshares Inc $ 21.42 $ 83.06 $ 23.25 31.4% 07/14/03 Edison Schools Inc Investor Group $ 170.74 $ 142.77 $ 1.76 12.8% 07/16/03 Timberline Software Corp Best Software Inc $ 103.55 $ 91.55 $ 8.25 36.4% 07/23/03 Brio Software Inc Hyperion Solutions Corp $ 141.91 $ 115.44 $ 3.44 27.2% 08/04/03 Mercator Software Inc Ascential Software Corp $ 115.00 $ 107.01 $ 3.00 22.4% 08/06/03 iManage Inc Interwoven Inc $ 167.13 $ 132.67 $ 6.23 23.3% 08/28/03 JNI Corp Applied Micro Circuits Corp $ 193.88 $ 114.54 $ 7.00 20.9% 09/02/03 MSB Financial Inc, Marshall, MI Monarch Community Bancorp, MI $ 25.63 $ 110.50 $ 18.80 13.9% 09/09/03 Lightspan Inc Plato Learning Inc $ 103.50 $ 90.35 $ 10.89 36.2% 09/29/03 Good Guys Inc CompUSA Inc $ 55.36 $ 89.70 $ 2.05 36.7% 09/30/03 Garden Fresh Restaurant Corp Fairmont Capital Inc $ 102.96 $ 133.95 $ 16.35 48.9% 10/03/03 OneSource Information Services ValueAct Capital Partners LP $ 80.89 $ 93.43 $ 9.50 9.3% 10/08/03 Crown Resources Corp Kinross Gold Corp $ 78.42 $ 80.25 $ 2.20 46.7% 10/20/03 Information Resources Inc Open Ratings Inc $ 114.87 $ 111.91 $ 3.75 -17.4% 10/22/03 Brass Eagle Inc K2 Inc $ 82.52 $ 89.62 $ 10.51 26.6% 10/27/03 On Technology Corp Symantec Corp $ 101.11 $ 87.62 $ 4.00 15.9% 30 DAY 60 DAY 1 YEAR TARGET NAME PREMIUM PREMIUM PREMIUM ------------------------------- -------- -------- -------- PDS Gaming Corp 157.8% 127.3% 57.5% Interlott Technologies Inc 27.1% 35.1% 48.0% PMC Capital Inc 17.1% 10.7% -4.5% Carbon Energy Corp 14.8% 18.1% 27.1% AHL Services Inc 153.4% 149.3% 34.0% National Service Industries 76.1% 64.0% 31.6% TFC Enterprises Inc 48.1% 42.2% 21.3% Elite Information Group 45.0% 46.8% 56.6% Ramsay Youth Services 27.0% 30.5% 25.5% Signal Technology Corp 24.9% 29.8% 37.2% Varsity Brands Inc 46.0% 51.8% 55.2% SpeechWorks International Inc 88.6% 98.9% 59.2% Thousand Trails Inc 53.4% 56.4% 52.4% TMBR/Sharp Drilling Inc 5.3% 10.6% 28.4% GREKA Energy Corp 59.0% 59.7% 29.5% Handspring Inc 31.0% 43.6% 6.8% Atalanta/Sosnoff Capital Corp 6.8% 10.7% 28.5% Factual Data Corp 8.8% 33.3% 83.2% Information Resources Inc 3.3% 33.5% 9.6% Acres Gaming Inc 21.2% 27.0% 82.5% Kentucky First Bancorp Inc 30.5% 30.3% 42.4% Edison Schools Inc 12.8% 18.4% 56.5% Timberline Software Corp 41.3% 44.5% 56.6% Brio Software Inc 35.9% 38.0% 99.7% Mercator Software Inc 60.9% 75.3% 117.8% iManage Inc 27.9% 36.8% 95.5% JNI Corp 21.8% 27.9% 97.1% MSB Financial Inc, Marshall, MI 20.4% 24.5% 45.8% Lightspan Inc 43.9% 44.5% 14.9% Good Guys Inc 38.8% 48.0% 16.8% Garden Fresh Restaurant Corp 62.2% 67.0% 67.6% OneSource Information Services 18.5% 21.0% 35.1% Crown Resources Corp 48.7% 76.8% 159.2% Information Resources Inc -17.3% -12.1% 32.7% Brass Eagle Inc 25.3% 29.5% 31.8% On Technology Corp 30.5% 43.1% 46.3% 1 DAY 30 DAY 60 DAY 1 YEAR PREMIUM PREMIUM PREMIUM PREMIUM --------- -------- -------- -------- SUMMARY OF PREMIUM ANALYIS: ENTERPRISE VALUE $150 TO $300 MILLION ------------------------------------- Max 260% 252% 267% 220% Min -63% -90% -90% -89% Mean 37% 46% 49% 50% Median 29% 39% 42% 44%
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SELECTED MERGER AND ACQUISITION TRANSACTIONS WITH ENTERPRISE VALUE $150 TO $300 MILLION: PREMIUM ANALYSIS --------------------------------------------------------------------------------------------------------------------------- VALUE OF ENTERPRISE PRICE/ DATE TRANSACTION VALUE SHARE ANNOUNCED TARGET NAME ACQUIROR NAME ($MIL) ($MIL) PAID --------- ----------------------------------- ------------------------------------- ------------- ------------ ------- 10/30/01 Odwalla Inc Coca-Cola Co $ 180.69 $ 181.77 $ 15.25 11/13/01 First Financial Corp Providence, RI Washington Trust Bancorp, RI $ 40.27 $ 188.28 $ 32.00 01/07/02 Arguss Communications Inc Dycom Industries Inc $ 149.24 $ 154.44 $ 5.76 01/10/02 Pulaski Bancorp Inc, NJ Kearny Financial Corp, Kearny $ 64.42 $ 238.68 $ 32.90 01/17/02 Proxim Inc Western Multiplex Corp $ 252.76 $ 205.06 $ 7.94 01/24/02 Shoney's Inc Lone Star Fund $ 245.16 $ 264.89 $ 0.36 01/29/02 Suburban Lodges of America Inc InTown Suites Management $ 109.79 $ 208.69 $ 9.04 02/11/02 Prestige Bancorp Inc, PA Northwest Bancorp, Warren PA $ 14.57 $ 194.82 $ 13.75 02/14/02 Oratec Interventions Smith & Nephew Plc $ 310.68 $ 279.58 $ 12.50 02/22/02 Visionics Corp Identix Inc $ 301.33 $ 268.62 $ 9.55 02/27/02 WHG Bancshares Corp BCSB Bankcorp Inc $ 19.46 $ 166.42 $ 14.25 03/06/02 Sevenson Environmental Services SCC Contracting Inc $ 169.88 $ 166.48 $ 16.00 03/18/02 Meemic Holdings Inc ProAssurance $ 35.38 $ 197.81 $ 29.00 03/20/02 Collateral Therapeutics Inc Schering AG $ 140.91 $ 155.08 $ 11.25 04/02/02 ONTRACK Data International Kroll Inc $ 172.07 $ 150.16 $ 15.50 04/22/02 Innoveda Inc Mentor Graphics Corp $ 174.98 $ 171.98 $ 3.95 04/24/02 Simplex Solutions Inc Cadence Design Systems Inc $ 249.52 $ 195.82 $ 14.35 05/02/02 Advanced Technical Products General Dynamics Corp $ 250.98 $ 249.78 $ 33.50 05/08/02 Chase Industries Olin Corp $ 180.55 $ 176.95 $ 11.52 05/15/02 Boron LePore & Associates Inc Cardinal Health Inc $ 202.80 $ 188.48 $ 16.00 06/10/02 SkillSoft Corp SmartForce PLC $ 231.25 $ 209.85 $ 12.67 07/22/02 Big Foot Financial Corp Midwest Banc Holdings $ 33.58 $ 226.67 $ 21.27 08/12/02 DeWolfe Cos Inc NRT Inc $ 133.03 $ 199.35 $ 19.00 08/12/02 SpeedFam-IPEC Inc Novellus Systems Inc $ 268.90 $ 235.95 $ 4.91 08/19/02 CTB International Corp Berkshire Hathaway Inc $ 178.68 $ 179.62 $ 12.75 09/04/02 MetroBanCorp, Indianapolis, IN First Indiana Corp, Indiana $ 39.25 $ 206.45 $ 17.00 09/19/02 Empire Federal Bancorps Inc, MO Sterling Financial Corp, WA $ 29.78 $ 156.72 $ 19.25 09/23/02 ARV Assisted Living Inc Prometheus Assisted Living Inc $ 39.22 $ 160.96 $ 3.90 09/30/02 Howell Corp Anadarko Petroleum Corp $ 267.58 $ 274.08 $ 20.75 10/01/02 BWAY Corp Kelso & Co $ 341.83 $ 266.51 $ 20.00 10/21/02 Meridian Medical Technologies King Pharmaceuticals $ 247.88 $ 233.53 $ 44.50 11/01/02 Osmonics Inc GE Power Systems $ 278.18 $ 278.49 $ 17.00 11/13/02 International Aircraft Jetscape Aviation Group Inc $ 5.19 $ 229.58 $ 1.45 11/20/02 First Community Bancshares, IN MainSource Financial Group Inc $ 24.19 $ 158.02 $ 21.00 12/16/02 ANFI Inc Fidelity National Financial Inc $ 131.38 $ 154.38 $ 14.71 12/23/02 Inktomi Corp Yahoo Inc $ 249.12 $ 261.13 $ 1.65 12/24/02 Aegis Realty Inc Philips Edison Ltd $ 161.42 $ 159.06 $ 11.52 01/13/03 Numerical Technologies Inc Synopsys Inc $ 239.18 $ 164.27 $ 7.00 01/13/03 Next Level Communications Inc Motorola Inc $ 27.58 $ 240.12 $ 1.18 02/07/03 Security Financial Bancorp Inc Standard Bancshares Inc, IL $ 45.96 $ 206.48 $ 24.00 02/18/03 Multex.com Inc Reuters Group PLC $ 243.06 $ 209.71 $ 7.35 03/21/03 Bedford Bancshares, Bedford, VA FNB Corp, Christianburg, VA $ 50.23 $ 281.12 $ 23.81 03/26/03 Whitman Education Group Inc Career Education Group $ 308.29 $ 255.16 $ 15.43 04/07/03 INRANGE Technologies Corp Computer Network Technology $ 172.66 $ 174.98 $ 2.31 05/05/03 Oak Technology Inc Zoran Corp $ 340.31 $ 297.36 $ 5.88 06/13/03 Applied Graphics Tech Inc KAGT Holdings Inc $ 8.34 $ 208.45 $ 0.85 07/10/03 First State Bancorp, NM Boston Private Financial Holdings Inc $ 32.53 $ 235.72 $ 19.36 07/16/03 GLB Bancorp Inc, Mentor, OH Sky Financial Group Inc, OH $ 39.70 $ 216.09 $ 16.77 07/24/03 Digex Inc WorldCom Inc $ 20.40 $ 233.67 $ 0.80 07/29/03 Elder-Beerman Stores Corp Bon-Ton Stores Inc $ 97.83 $ 197.41 $ 8.00 08/05/03 ResortQuest International Gaylord Entertainment $ 107.58 $ 165.43 $ 5.53 08/05/03 CIMA Labs Inc aaiPharma Inc $ 266.31 $ 294.19 $ 24.61 09/11/03 Skibo Financial Corp, PA Northwest Bancorp MHC, PA $ 55.19 $ 184.82 $ 17.00 10/08/03 Vixel Corp Emulex Corp $ 316.42 $ 290.88 $ 10.00 1 DAY 30 DAY 60 DAY 1 YEAR TARGET NAME PREMIUM PREMIUM PREMIUM PREMIUM ----------------------------------- -------- -------- -------- -------- Odwalla Inc 28.9% 49.9% 97.1% 62.4% First Financial Corp Providence, RI 75.2% 42.6% 76.4% 108.2% Arguss Communications Inc 30.3% 40.0% 94.2% 13.6% Pulaski Bancorp Inc, NJ 31.5% 34.6% 63.6% 114.9% Proxim Inc -9.0% -24.7% -16.2% -41.5% Shoney's Inc 4.3% 16.4% 26.3% -41.1% Suburban Lodges of America Inc 13.0% 19.3% 27.4% 30.0% Prestige Bancorp Inc, PA 1.9% 34.9% 56.2% 56.5% Oratec Interventions 40.4% 29.8% 74.0% 69.8% Visionics Corp -7.3% -28.8% -31.1% 6.1% WHG Bancshares Corp 6.3% 5.6% 7.2% 20.7% Sevenson Environmental Services 56.1% 33.8% 52.1% 36.8% Meemic Holdings Inc 11.5% 23.0% 28.9% 21.7% Collateral Therapeutics Inc 121.0% 58.9% 109.3% 71.8% ONTRACK Data International 59.6% 40.9% 67.4% 120.8% Innoveda Inc 61.6% 47.5% 75.9% 93.6% Simplex Solutions Inc 23.4% 28.8% 39.4% -20.3% Advanced Technical Products 17.4% 10.9% 24.1% 93.0% Chase Industries -20.6% -9.7% -1.5% 15.7% Boron LePore & Associates Inc 20.0% 23.8% 34.5% 25.0% SkillSoft Corp 136.8% 52.5% 74.9% -36.9% Big Foot Financial Corp 25.5% 22.5% 25.5% 33.4% DeWolfe Cos Inc 42.4% 42.7% 69.9% 98.7% SpeedFam-IPEC Inc 72.3% 29.2% 21.3% 53.5% CTB International Corp -13.1% -3.0% -13.7% -1.9% MetroBanCorp, Indianapolis, IN 71.0% 46.7% 81.7% 103.4% Empire Federal Bancorps Inc, MO 41.2% 27.3% 37.5% 33.1% ARV Assisted Living Inc 52.9% 34.4% 53.7% 98.9% Howell Corp 53.1% 33.8% 54.5% 81.6% BWAY Corp 43.9% 27.5% 36.2% 63.7% Meridian Medical Technologies 16.6% 26.9% 38.7% 50.9% Osmonics Inc 25.0% 28.3% 32.1% 23.8% International Aircraft 98.6% 56.2% 99.0% 17.2% First Community Bancshares, IN 137.6% 60.3% 155.2% 132.8% ANFI Inc 10.9% 18.5% 24.5% 48.5% Inktomi Corp 41.0% 30.9% 116.7% -25.7% Aegis Realty Inc 7.7% 7.2% 8.3% 5.4% Numerical Technologies Inc 89.2% 49.2% 79.6% -10.0% Next Level Communications Inc 29.8% 28.0% 50.3% -2.7% Security Financial Bancorp Inc 4.8% 3.7% 6.0% 16.3% Multex.com Inc 60.5% 37.0% 71.8% 91.4% Bedford Bancshares, Bedford, VA 31.5% 23.0% 33.2% 42.7% Whitman Education Group Inc 54.3% 41.4% 87.5% 139.3% INRANGE Technologies Corp 4.1% 16.1% 14.2% -32.6% Oak Technology Inc 24.0% 29.8% 60.6% 32.4% Applied Graphics Tech Inc 70.0% 34.4% 53.3% 65.3% First State Bancorp, NM 17.4% 13.6% 19.7% 66.7% GLB Bancorp Inc, Mentor, OH 31.5% 30.7% 48.5% 57.9% Digex Inc 5.3% 30.8% 67.5% 106.3% Elder-Beerman Stores Corp 31.1% 27.4% 53.4% 168.5% ResortQuest International 8.4% 13.7% 26.2% 41.5% CIMA Labs Inc 0.0% -11.9% -9.5% 1.6% Skibo Financial Corp, PA 26.3% 21.2% 25.8% 24.4% Vixel Corp 18.1% 20.3% 27.7% 134.7% SUMMARY OF PREMIUM ANALYIS: ENTERPRISE VALUE $150 TO $300 MILLION ------------------------------------- Max 137.60% 60.30% 155.20% 168.50% Min -20.60% -28.80% -31.10% -41.50% Mean 35.80% 26.40% 47.00% 47.80% Median 29.40% 28.60% 44.00% 42.10% SUMMARY OF PREMIUM ANALYIS: ENTERPRISE VALUE $75 TO $300 MILLION -------------------------------------- Max 260.00% 252.30% 267.10% 219.60% Min -62.80% -90.10% -90.20% -89.40% Mean 36.70% 38.20% 48.40% 48.90% Median 29.40% 31.10% 42.00% 42.70%
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